Complete Guide to Independent Contractor Truck Driver Taxes
There are many business expenses that truckers incur and the IRS offers income tax deductions to independent contractor truck drivers. However, employer-paid expenses cannot be deducted.
It happens all too often that truckers who convert from being employed to owner-operator trucking companies are not as knowledgeable about the tax laws that apply to them as they should be. Unfortunately, truckers and trucking companies can experience major issues due to this lack of knowledge.
Fuel costs and meal costs contribute significantly to the number of expenses you incur as a truck driver. Independent contractor tax deductions can be claimed during tax season so that you can get some of that cashback.
Who Qualifies For Independent Contractor Truck Driver Tax Deductions?
Those who work for a trucking company at the end of the year receive a W-2 statement but are not eligible for deductible expenses. The IRS permits truck drivers to deduct certain trucking-related expenses when they are self-employed.
When you are the owner-operator of your trucking business, every customer who paid you more than $600 during the year should send you a 1099-NEC at year's end. Your trucking income and expenses will be reported on Schedule C using your 1099s and your own accounting records. Additionally, Schedule SE may be required for the self-employment tax return. Those two forms, along with your Form 1040 tax return, go with your tax return.
How Independent Contractor Truck Drivers Reduce Their Tax
You can reduce your independent contractor taxes as a truck driver by deducting unreimbursed expenses that are related to your job. Schedule A, Itemized Deductions, allows truck driver employees to deduct miscellaneous truck driver expenses for tax purposes. The expenses you incur when working as a freelancer or independent contractor can be deducted on Schedule C when you are self-employed or an independent contractor.
To be eligible for trucker income tax deductions, truck drivers must maintain a tax home. There may not be sufficient deductions available for truckers without a tax home.
Tax homes are typically the places where a business regularly operates. The residence or home address of the truck driver is irrelevant. The tax home of an individual is the whole city or the general area where the work/business is performed. The principal location of a business is considered as the tax home if it has more than one workplace. Where the truck driver lives would be considered his or her tax home if there is no place of business. Furthermore, truckers without a regular business or duty place and no permanent residence, are considered transients, and their tax residence is wherever they are employed.
Tax Deductions Common To Independent Contractor Truck Drivers
There are a variety of income tax deductions that owner-operators often claim. Some of the common deductions that you can claim are listed below:
Trucking Associations
Paying dues to trucking associations is common among truck drivers. The fees you pay in order to become a member of a union or a group can be deducted as long as they are necessary for your business or career.
IT Equipment
Your monthly data or internet plan and your device costs are 100% deductible for tablets, smartphones, and laptops you use primarily for work. The amount you can deduct only depends on how much you used it for business purposes as compared to personal purposes.
Specialized Clothing And Safety Gear
If you need specialized clothing and safety gear including goggles or back braces for your occupation, including their laundry costs, then these costs are deductible.
Training and Educational Expenses
CDL licenses, advanced certifications, and training are generally paid for by drivers. You may be able to deduct such training truck driver expenses for tax purposes if it enhances your skills in your current job or if it is a requirement for your position.
Tools and Equipment
For your trucking business, any equipment or tools you need are deductible, including cables, cleaning supplies, electrical tape, flashlights, oil, windshield wiper fluid, hammer, pliers, duct tape, tire irons, and so on.
Insurance
When it comes to insurance, there are two types: one for the business and one for yourself. You can purchase insurance to cover your trucking business such as property insurance, cargo insurance, and revenue loss. These premiums are deductible truck driver expenses for tax purposes. Health insurance coverage purchased for yourself, your spouse, and your dependents is not deductible as a business expense. These health insurance expenses can be deducted from your Schedule 1 on Form 1040.
Meals
Meals can be deducted in two ways: either using the actual cost or using the per diem rate. You must keep track of any food expenses you incur when using the actual expense method. A business-related meal can be deducted at 50% unless there is an exception. According to the Department of Transportation, business-related meals can be deducted at 80% if you are subject to its "hours of service" limits.
Travel Expenses
You may be eligible to deduct travel expenses incurred while you are away from your tax home (or if you need a break for a long time). You may incur travel expenses for hotels, road tolls, and parking. Truck drivers are required to claim actual lodging costs, even though the IRS offers per diem rates for other industries. Per diem rates cannot be claimed for the travel expenses in the same way as meal expenses.
What Expenses Can't Be Deducted?
Independent contractor tax deductions aren't available for a few common expenses:
- Clothing suitable for daily use
- The cost of commuting from home to the office
- Telephone service at home
- Reimbursement for expenses
- Expenses associated with personal travel and meals
It's more important to have a record of an expense and whether it is ordinary and necessary for your business as a whole before determining whether it is deductible or not. Maintaining thorough records is essential, so make copies of receipts and keep other supporting documentation.
Common Mistakes In Independent Contractor Taxes
Settling For The Wrong Kind Of Corporation Too Early
Before electing a C-Corp or S-Corp, our trucking accountants advise owner-operators to settle into their operations first, because this type of entity adds administrative costs. Ideally, our Tax Accountants will need six to twelve months of operational information to determine which type of Corp is cost-effective.
Separating Your W-2s From Your Form 1099s
It is required to file both W-2s and Form 1099s with your personal tax return, regardless of whether you work part-time for the company and/or are an independent contractor. We often hear from truck drivers who have already filed a tax return on their W-2 earnings after giving us their Form 1099. All of your W-2 income and all of your business income should be included in your personal tax return.
Making An Incorrect Mileage Deduction
In an instance where you have driven a lot of miles during the year, your tax preparer may mistakenly take that whole deduction. Nevertheless, this is incorrect; mileage isn't a deductible truck driver expense for tax anymore, and owners have access to both the mileage and maintenance deductions upon request. As a consequence, the mistake can create an audit flag, which could cause future issues.
Partnering Without An Agreement
As a business owner, you have to figure out how you are going to share the income with other partners. Generally speaking, truckers are overconfident because they have not established any type of business entity with their state, but they think that they are in a partnership with a motor carrier. Therefore, the company has no partnership agreement, and this agreement will govern how everything will work for tax purposes.
The split of income, the tax reporting on that income, and whether other 1099s must be filed are juggling issues that arise when there is no partnership agreement.
Hire A Tax Professional
The best way to protect yourself from IRS audits and fines is to keep good records. Ensure that you keep all records supporting your tax deductions.
Trucking companies owned by owner-operators don't need to struggle with taxes. Hire a professional who is familiar with owner-operator taxation and business services, as well as bookkeeping services, to address the above conditions. The tax profession can be complicated, so choosing an accountant who works exclusively with truckers and owner-operators can help guarantee that you're receiving the best advice for your business.