As an owner-operator or independent contractor in the trucking industry, your taxes look different from those of a company-employed driver. You must pay your taxes yourself and keep track of numerous work-related expenses to deduct from your taxes. This guide will help you file taxes as a truck driver, and navigate tax preparation as an owner-operator, ensuring you maximize your deductions and minimize stress.
Ensure You’re On Top of Your Quarterly Taxes
Unlike company drivers, who have taxes automatically deducted from their paychecks, owner-operators must pay taxes every quarter. The self-employment tax rate is 15.3%, divided into 12.4% for Social Security and 2.9% for Medicare. You’ll use Form 1040-ES for individuals, sole proprietors, and partners, while corporations use Form 1120-W.
To avoid unexpected tax bills, set aside 25-30% of your weekly net income for quarterly taxes. Failing to pay quarterly taxes can result in penalties, including underpayment fees and interest on unpaid taxes.
Maintain Records of All Expenses
Keeping and tracking expenses is crucial for tax preparation. Collect a receipt every time you make a purchase and organize them by categories such as food, fuel, and maintenance. Store your organized receipts in a file cabinet or digitize them for easy access. Online platforms like QuickBooks are often the best receipt-storing solution for businesses.
Records of your expenses support and prove your right to the deductions you claim on your tax return. If you are audited, the IRS will ask you for these receipts.
Related: How Do I Set Up Quickbooks For My Trucking Company?
What Qualifies as a Tax Deduction for Truck Drivers?
Owner-operators can write off various business expenses, including the per diem deduction for meals and incidental expenses while traveling. The per diem tax deduction rate as of October 1, 2021, is $69 per full day and $51.75 per partial day. For 2021 and 2022, the IRS temporarily allows 100% per diem deductions.
To track per diem expenses, you can create a calendar or schedule specifically for this purpose. Mark the days you are on the road and label the days you depart and return. You can give your accountant the total number of days and let them do the heavy lifting.
Related: Bookkeeping for Truckers: A How-To Guide
Common Tax Deductions for Owner-Operator Truck Drivers:
- Truck depreciation and interest payments
- Truck maintenance
- Fuel
- Trucking association fees
- Cell phones, computers, and internet expenses
- Tools and equipment
- Business insurance, taxes, and licensing costs
- Home office
- Association dues
- Cell phone/computer expenses
- Specialized clothing and safety gear
- Education and training for CDL licenses
- Tools and equipment
- Insurance premiums
- Meals for long-distance drivers
- Travel costs (hotels, tolls, parking)
- Medical exams required for work
- Office expenses
- Personal products (coolers, logbooks, GPS, bedding, etc.)
- Subscriptions to trucking-related publications
- Taxes and licenses
- Vehicle expenses (depreciation, fuel, insurance, loan interest, registration, repairs, and maintenance, tires, washing)
Some expenses aren’t deductible for truck drivers, including:
- Clothing suitable for everyday wear
- Commuting costs between home and business headquarters
- Fines and penalties related to traffic violations
- Personal living expenses
You can also deduct expenses for job-related clothing items, new and necessary truck parts, and even expenses for a dog if it serves as a security measure for your truck. A home office deduction may be possible if you use it regularly and exclusively for business purposes. Speak to your professional tax advisor to find out what you can claim as a write-off.
Explore Potential Tax Credits
Before filing, determine if you’re eligible for tax credits, such as those related to the COVID-19 pandemic. For example, the American Rescue Plan Act provided a $1,400 stimulus check, and Form 7072 offers tax credits for self-employed individuals who missed work due to COVID. Don’t forget to include charitable donations on your tax return.
You can also explore what the Employee Retention Credit can get you back from the federal government- have a FREE consultation with our friends at Better Accounting Solutions to see if you qualify for this little-known tax rebate.
Organize and Prepare for Next Year
Once you’ve filed your taxes, it’s essential to plan for the next tax season. Create a system to track expenses, receipts, and income throughout the year. Consider using bookkeeping software or hiring a professional bookkeeper. Regularly reviewing your finances and staying organized will make tax season easier and less stressful.
Work with a Tax Professional
To ensure your tax return is completed accurately, consider hiring a trusted accountant or tax preparer. They can help you stay organized and meet quarterly tax deadlines, and let you focus on doing what you do best: driving and managing your business.
K9 Bookkeeping is the trusted partner of many trucking companies already and is highly regarded for its affordability, communication, and results. Schedule a free meeting today to find out why hundreds of small businesses across the United States LOVE K9 Bookkeeping!
Related: Why Should You Use K9 Bookkeeping?
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