If you work as a truck driver or plan to enter the industry, you’ll want to consider how to file your taxes. Tax obligations depend on your current employment status. Owner Operators will have to file differently than company truck drivers. Staying on top of your tax requirements will help you manage your income and expenses better. Remember to keep all expense receipts to make the tax filing process go smoothly.
Company driver tax deductions
Drivers, including those who work for trucking companies, will receive a W-2 form from their employers. In years past, truck drivers could make deductions on their tax returns for certain expenses despite being employed by a private company. Write-offs included mileage and travel expenses. However, the Tax Cuts and Jobs Act eliminated travel expenses claimed by truck drivers who receive W-2s from their employers. Once you become an independent Owner Operator as a driver, you will report income through Form 1099 and can claim deductions to reduce tax payments.
The transition from employee to owner operator
Many truck drivers may start as private employees. With taxes automatically deducted from their paychecks, the drivers may not realize filing requirements have changed. Keep in mind that if you switch from an employee to a self-employed employee mid-year, you must file a W-2 and 1099. The tax return will need to show your self-employment income as well as your earnings from an employer.
Another part of transitioning from an employee to an Owner Operator is establishing your tax status. A frequent mistake is incorporating too quickly. Instead, accountants recommend working as an independent contractor for at least a year before changing tax status to a sole proprietorship or establishing an LLC. As an Owner Operator, you will make tax payments every quarter. An individual, sole proprietor, or partner, will use Form 1040-ES to estimate tax payments. Corporations rely on Form 1040-W to calculate taxes owed.
As a new Owner Operator, you’ll want to set aside approximately 20 to 30 percent of your income to pay taxes, according to Keeper Tax. After operating independently for at least a year, you could also use the safe harbor method to estimate tax obligations. Drivers can look at the year prior’s tax liability and divide the amount by four to figure out quarterly payments. Any driver anticipating owing more than $1,000 to the IRS must make quarterly payments to avoid penalties.
As of 2022, the self-employment tax rate set by the Internal Revenue Service is 15.3 percent. The rate includes 12.4 percent for social security and 2.9 percent for Medicare. Higher Medicare taxes may apply to Owner Operators who earn more than $125,000. Tax deductions and tax credits reduce a driver’s liability.
Truck driver tax deductions
Owner Operators and contract drivers can claim tax deductions on their income tax returns. If you get one or more 1099s, you can submit itemized deductions. Any write-off would need proof of payment, meaning you must save all receipts. The following are the top deductions that relate to owning and operating a truck business:
- Truck payments. Truck drivers can write off vehicle depreciation and loan interest accumulated. Additional vehicle costs qualify as tax deductions, including registration payments, fuel, and truck maintenance.
- Mileage. The IRS permits either a standard mileage rate deduction or a vehicle expense deduction. Tolls and parking fees may also qualify as a write-off.
- Insurance payments. Any insurance premiums related to your business can act as a write-off. Types of insurance related to a trucking company include commercial liability, cargo insurance, and property liability.
- Education. You can claim CDL programs as a tax deduction on your taxes. The IRS also accepts write-offs for licenses and permits.
- Travel. For non-local drivers, you may list a certain amount of travel expenses on your taxes. Included travel expenses are lodging, meals, and laundry.
- Association dues. Remember to list any union or association dues as a deduction for truck drivers. If you subscribe to any trade publications, you can include them in your tax return.
- Office supplies. Claim any electronics costs and office supplies related to your business on your tax return. Examples include GPS units, mobile phones, computers, CB radios, and stationery.
- Personal products and Trade-related tools or equipment. Many truckers need personal care products, including bedding, coolers, cleaning supplies, tool sets, and flashlights. An accountant can often include these items as well as itemized deductions.
Truck driving tax credits depend on your eligibility. Tax deductions reduce your taxable income, while tax credits lower your tax liability dollar for dollar. Examples of tax credits include Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit.
Non-taxable truck driver expenses
Remember, you can’t write off non-business expenses on your taxes. You can’t deduct any clothing or gear purchased for personal use. Any mileage between your home and office isn’t a write-off either. Meals or travel expenses on vacation also don’t count toward your deductions. If you’re a contracted driver reimbursed by your client for any costs, they also won’t be included.
You should hire an accountant familiar with the industry to reduce the chance of filing in error or getting audited by the IRS. You'll be subject to penalties and fines if you’re audited and can’t provide supporting documentation. Keep all truck driving expense records for a minimum of three years before purging any records in case of an audit.
CDLjobs.com does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.