A Roadmap to Truck Driver Owner-Operator Quarterly Estimated Taxes
Penalties Can Be Avoided
Owner-operator truck drivers are expected to pay estimated quarterly taxes throughout the year, not just on the April 15th due date of Form 1040. But business owners avoid tax penalties on quarterly estimated tax payments by filing accurate and on-time quarterly estimated taxes.
Employees have the added tax benefit of easier withholding as they have less work to do. Self-employed business owners have more calculations and the primary responsibility to pay into the system throughout the year.
What Taxes?
Our focus is federal income and self-employment tax. As a business owner, you incur a penalty for not paying your self-employment tax quarterly during the year.
Business owners also have similar state income tax responsibilities. There are exceptions if your state does not have an income tax. As a truck driver owner-operator, you can have estimated taxes beyond your home state. Every state has its own rules -- and penalties.
Focus on April 15th – But
April 15th is both a tax filing and payment due date. You can extend your return beyond April 15th — but you can not extend the due date of estimated tax payments. Our focus is the pre-due-date of your annual tax return — that is, truck driver owner-operator quarterly estimated payments throughout the year.
Quarterly Estimated Tax Due Dates
Tax payments for the owner truck driver are quarterly. But IRS due dates may vary. Quarterly estimated tax due dates on business net income are typically:
- April 15
- June 15
- September 15
- January 15 (2021 Estimated Tax Due Date is January 18)
If your estimated tax calculations focus on the current year’s actual figures, your interim records are important even if not supported by 1099s.
Our Topic Gets Complicated
Don’t scratch your head too hard as you read IRS instructions to quarterly vouchers, the current year’s Form 1040-ES, Estimated Tax for Individuals. Check your state tax publication if you need to pay estimated state income tax. For example, if you live in California, see Form 540-ES. Other useful resources are IRS Publication 505 and IRS Publication 583.
Figuring the quarterly estimated tax payment needed to avoid penalty can be complicated. It can involve your interim bookkeeping figures, plus adjustments, aimed at yielding annual figures. Consider relationships to prior year’s taxes to avoid penalties.
Tax-deductible payments, big and small, can help lower your owner-operator quarterly taxes. But keep in mind deductions need to qualify as ordinary and necessary under tax rules. Examples are:
- Interest expense on business loans
- Truck lease expenses, including repairs
- Depreciation, and such tax incentives as bonus depreciation
- Home office
- Retirement plan contributions
Figuring Estimated Taxes
Generally, owner-operator truck drivers are not required to make estimated tax payments if the amount due is under $1,000 — after withholding and refundable credits.
Your tax return must cover all 12 months. 2021 Form 1040-ES Instructions, with caveats of special rules for high income taxpayers, summarize:
In most cases, you must pay estimated tax for 2021 if both of the following apply.
- You expect to owe at least $1,000 in tax for 2021, after subtracting your withholding and refundable credits.
- You expect your withholding and refundable credits to be less than the smaller of:
- 90% of the tax to be shown on your 2021 tax return, or
- 100% of the tax shown on your 2020 tax return.
Avoid Penalties
If you don’t pay sufficient estimated payments, the result can be penalties. The IRS may just calculate the penalties and bill you. How does the IRS know you owe penalties on interim unfiled figures? They may bill you without knowing all of your facts.
Penalties for 2021 normally arrive post-2021. You and your tax adviser may need to provide details to the IRS to avoid penalty. Systematic receipt retention, estimated tax calculations each quarter, deductions and proof of deductions are important year-round. Business expenses paid in January save as much tax as tax deductible expenses paid in December — and may reduce your first quarterly estimated tax payment. But don’t pay out monies just to reduce taxes. A dollar spent saves less than a dollar in taxes.
In general, penalties are avoided if you make quarterly tax payments in amounts based on actual income tax due. But keep in mind that you may also base your estimated payments on the prior year’s tax. Estimated tax calculations often require the help of your tax professional. Accuracy is critical at tax time to avoid penalties. Most important, keep good books! Why? Because owner-operator quarterly taxes are the year-round responsibility of both you and your tax professional!