If you are an owner-operator trucker, you likely enjoy the freedom of being your own boss. However, one of the most important aspects of starting a new business for owner-operators is understanding how taxation works.
As an employee of a regular business, your company will handle your taxes. Mother companies directly take these taxes out of your paycheck, so you do not need to worry about paying extra to the government. However, as an independent contractor, it is your responsibility to pay these taxes directly to the IRS quarterly.
Since you technically run a business (even if you have no employees), the IRS offers some tax deductions to offset your business expenses. Here, the trucking experts at Kavkaz Express LLC present the following guide on what deductions you can take advantage of, as well as some other considerations you should keep in mind when doing your taxes.
Types of Taxes that Owner-Operator Truckers Are Responsible For
The IRS currently requires that everyone pays a base rate self-employment tax as well as routine federal and state taxes. The current rate of self-employment tax, as set by the government, is 15.3%. This payment covers Medicaid (2.9%) and Social Security (12.4%).
On top of this percentage, the IRS also requires that you pay other federal and state taxes. The percentage can vary based on your location; however, withholding around 30% of your income for all taxes required by the IRS is a good rule of thumb. A tax professional can help you review data from income statements and expense documents, ensuring you comply with all tax laws.
Most Common Tax Deductions for Truck Owner-Operators
Here is a list of common tax deductions that trucking owner-operators may take advantage of:
- Depreciation of your truck's value
- Fuel, transportation, and travel costs
- Maintenance costs for truck
- Equipment or tools for your truck (jack, tire iron, snow chains, pressure, steel-toed boots, work gloves, etc.)
- Phone, computer, and/or internet expenses (based on which are necessary for your business)
- Home office (if you coordinate from a room in your house and use this room for no other purpose)
- Fees from the trucking association
- Retirement plans, license fees, and insurance
Furthermore, if you have just started your business, you can include startup costs as a tax deduction. If you took out loans to help start your business, you might also be able to deduct the interest you pay on business loans. You should only deduct expenses that are both normal and necessary.
Why You Should Track Trucking Business Expenses
Keep a meticulous record of all tax-deductible expenses that you'll include on your yearly taxes. This includes keeping track of receipts and general bookkeeping and logistics. You can either do this yourself or hire a tax expert to take care of it for you. Either way, documentation is essential.
Because the IRS can call for an audit of your business, it is important to provide evidence to prove that all of your expenses were necessary. Otherwise, you could face a fine.
Tips for Tracking Business Expenses
Owner-operator truck drivers should use the following tips to effectively track their expenses in case the IRS questions the validity of any costs:
- Keep paper and electronic records and evidence of all of the expenses that you deduct from your taxes, including your daily expenses while traveling (food, drinks, and tips), which you must count dollar-for-dollar as you spend. Maintain these records for at least three years.
- Do not overspend on equipment or supplies for your trucking business. All expenses that you log should be reasonable and related to your enterprise.
- Keep an expense log. Label and save receipts related to your expenses and any credit card records relevant to your business (for tolls, weigh stations, etc.). Keeping a separate business credit card is good practice for all owner-operators so that you can separate your personal expenses from business expenses.
Common Trucker Tax Myths
Here are some common myths about taxes for anyone who operates trucks:
- Many people believe they will not owe taxes within the first year they start their business. This is not true, although you may not need to pay quarterly tax just yet (always consult a tax professional).
- You cannot deduct the cost of your dog unless you use it as a security measure. That means the dog must always stay with the truck.
- The IRS does not audit everyone. Audits only occur if there are suspicious activities on your taxes. IRS audits are also more common if you make over $100,000 as someone that's self-employed.
Looking for Extra Help with Goods Transportation?
For owner-operators who run a one-man operation, you may require extra help depending on the amount of work you receive. If you need to contract someone for dry van or refrigerated trucking, contact Kavkaz Express LLC.