Tax Deductions for Owner Operator Truck Drivers

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.

How Owner Operators Can Reduce the Headache of Bookkeeping

While you might enjoy being the owner and operator of your very own trucking business, you may feel you can do without the accounting and bookkeeping aspect of the job. Luckily, you don’t have to become a master of record-keeping to handle your company’s finances. Here are few tips to get you up and running.

Make It a Daily Practice

Do yourself a favor and get into the habit of carving out time every day to handle owner operator expenses. It’s easy to leave the task for tomorrow or the weekend, but doing so just makes the work pile up more and more. Not only does daily bookkeeping make your life easier, you’ll also have a more accurate picture of how your business is doing so you can plan and adjust accordingly. After all, you don’t want to make business or financial decisions for tomorrow when you don’t have a clear picture of what happened yesterday.

Use the Right Software

There are more bookkeeping and accounting software options available than ever before. Explore your options to decide the best fit for you and your business. Specifically, you might be better off with a cash-based system that allows you to count your income as you receive payments and your expenses as you take care of them. Don’t be afraid to try out different types of software (especially if there are free trial offers) until you find one that’s a solid fit for you.

Consider Going Digital

Because paperwork can take up a great deal of space and become cumbersome to organize adding even more time to your day-to-day workload, go digital when it comes to keeping up with financial documents. This is an especially great idea if there’s already an abundance of paperwork you have to deal with on a daily basis. Keep all those invoices and bank statements on a cloud where you can easily and quickly access them from a computer, tablet or smartphone.

Learn How to Properly Manage Your Cash Flow

One of the first things you should learn when it comes to bookkeeping is the ins and outs of cash flow. Knowing how much money you have available right now can mean the difference between paying your suppliers and employees on time and getting hit with late fees or having team members quit on you. Money or payments you have coming later in the month won’t do you much good right now, especially because those future payments might be delayed.

Prepare for Audits Before They Happen

As a business owner, the last thing you want to deal with is the IRS sniffing around. Bookkeeping for truck drivers involves a great deal of preparation, including audits. Head trouble off at the pass by keeping your personal expenses and accounts separate from your business expenses and accounts. Get and save the receipts for every purchase you make on behalf of your business, no matter how insubstantial that purchase might be. You never know when you’ll need them either for yourself, or for an audit.

Get a Business Credit Card

Business credit cards are a solid idea as you work on keeping your business finances separate from your personal finances, mainly because you’ll have fewer monthly statements and paperwork to keep up with, even if you are going digital. While you can always keep track of your receipts, using a credit card cuts down on time and can make your life that much easier.

Don’t Forget About Tax Deductibles

Speaking of the IRS, don’t forget to look into tax deductibles and write-offs when you’re buying office equipment. For instance, some computers, printers, company vehicles and business software might qualify for tax deductibles. When it’s time to buy equipment for your business, it’s a good idea to have a list of qualifying brands and models that qualify for deductibles before you start shopping.

Bring In the Pros

As stated earlier, there are plenty of accounting and bookkeeping software options for business owners to take advantage of, but nothing beats the advice and insight of a professional accountant who’s familiar with how the trucking industry works. Should you ever feel you’re in over your head when it comes to keeping up with your trucking company’s financial health, or if you have a question you can’t find the answer to, turn to a professional.

Even if you do have an easy time keeping up with your business accounting, it’s still a good idea to check in with a professional accountant a few times throughout the year for financial advice, and to make sure you’re doing everything right. You don’t want to find out the hard way that your business isn’t doing nearly as good as you might have thought.

Bookkeeping is made easier when you have the right tips, software and expert help. Fulfil your business potential by taking care of your company’s financial health. Best of luck!