Tax deductions for owner operators reduce the amount of self-employment tax and income tax associated with the income reported to the IRS. Self-employed or statutory employees generally file tax deductible business expenses on Schedule C with reported income. Drivers should keep good records and receipts to substantiate any deductions taken.
What Type of Expense Can Be Deducted?
Expenses related to your business are typically tax deductible if you are self-employed. Here is a list of some of the items you might be able to deduct:
- Vehicle expenses, such as tolls, parking, maintenance, fuel, registration fees, tires and insurance
- Trade association dues or subscriptions to trade magazines
- Flat-rate taxes
- Travel expenses, if incurred while being away from your tax base
- Licenses and regulatory fees
- Specialized work gear, such as goggles, boots or protective gloves
- Electronic devices, if only used for work
- Sleeper berth equipment, such as an alarm clock, bedding, curtains, cooking equipment and first aid supplies
- Work related fees for drug testing, DOT physical and a sleep apnea test (If required for work)
- Fees paid to a dispatch service
- Leasing costs
Don’t forget the standard deductions available to anyone, such as child and dependent care, lifetime leaning credits and the child tax credit.
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Know Your Tax Home
To claim travel expenses, you must be traveling away from home. Typically, local drivers aren’t going to be able to deduct travel expenses, but it depends on a few factors. You should determine your tax home to calculate whether you’re traveling away from it or not.
Your tax home is the city or general area where you work, according to the IRS. For self-employed drivers, this is generally the base or dispatch center where you get assignments, not where you live.
The tax home includes the entire city or general area where the work is located, not just a zip code or neighborhood. A tax home is also the main place of business. If the nature of your business means that you don’t have a regular place of business, your tax home may be where you live.
For most drivers, the tax home is typically where a trip is begun and ended. If you are using a residence as your tax home, make sure that you can show you help maintain the property while you’re away from home. If you don’t maintain a home, you are considered a transient, which means you have no tax home.
To reiterate, you must substantiate your expenses. Keep your receipts and log book to validate the purposes of each travel expense. Back up your log books to ensure you have the information at your fingertips if you need it. Documentation requires time, date and place for each travel day.
Per Diem Expenses
While you can track each expense while you’re on the road, you may also use a per diem, which eliminates the need to prove the actual costs of your expenses when you’re away from home. However, you do need to prove you are working away from your tax base. The most current rates are listed in the IRS Publication 1542, Per Diem Rates. To claim the per diem rate, drivers must:
- Itemize their tax deductions.
- Have a tax home.
- Be subject to HOS regulations.
- Meet the overnight rule. Essentially, this means that a driver cannot complete a trip within a single day.
- Maintain documents that they were away from home for every day a per diem is claimed.
Per diem covers meal expenses and incidentals, such as tips and fees. You should still keep receipts for hotels, showers, laundry and other costs. These expenses are deductible.
Maintaining Good Records
Self-employed truck driver tax deductions are a great way to help reduce your tax bill, but you do need to substantiate these expenses. Here are some suggestions to help you stay organized through the year:
- Keep a file to sort receipts by month or by trip. Don’t just put all your receipts into a folder and expect to sort them out in January. Spend a few minutes each week organizing your information to be ready at tax season.
- Store log books in the Cloud and on a hard drive. Dropbox and Google Drive are just two secure places to store your information.
- Use an app to maintain receipts and trip information or make notes on each receipt to help you stay organized in case your filing system becomes messy.
Tax Rules Fluctuate From Year to Year
Be sure to check the rules at the start of the tax year to know the requirements and deductions you can take. This can help you get organized and not miss out on any tax breaks. For more owner operator tax tips, ask your tax professional to review your accounts.