Owner Operators - Tax Tips
Frequently Asked Questions
Navigating the tax code as a truck driver or owner-operator is sometimes a confusing experience. Here are answers to some frequently asked questions to point you in the right direction.
I was a company driver for the first seven months of the year and started my business as owner-operator last month. If I take the Section 179 deduction for the tractor I purchased but the business has a loss, can I take the depreciation against my salary as a company driver?
If you operate your business as a proprietorship then yes, you can take Section 179 deduction against your salary. But you may be better off in the long run by not taking it. For example: Let's say you purchase a tractor and the cost would normally be deductible through depreciation over a period of several years. The Section 179 allows you to deduct from $0 to $112,000 of the cost of the tractor in the year of purchase. This may sound good now but if you wait and take the depreciation over the course of several years, when your business is established and more profitable, you will benefit by reducing the 15.3 percent self-employment tax, which a deduction taken now against your salary won't give you. Be sure to discuss this with your tax advisor to review various scenarios before making a final decision.
I need some business advice but I can't afford to pay a consultation fee. What can you recommend?
One of the biggest mistakes made by truckers is making unwise business decisions based on a lack of information or incorrect information. As a self-employed business person it is important to work closely with an accountant and an attorney. Many everyday business decisions can have significant tax and legal ramifications.
Professional advice isn't cheap and many of you may feel you can't afford to hire an attorney or accountant when, in fact, you can't afford not to. Even if it's just a one time consultation to help with an important business decision, it could be well worth it. One wrong decision can cost you everything. Solid, accurate advice is well worth the price. By using advisors that specialize in trucking, you are able to take advantage of years of experience specific to your industry.
Should I incorporate or become an LLC (Limited Liability Company)?
One of the most important areas to get advice is on business entity selection. Do not make this determination without professional advice. So many people incorporate or form LLCs without realizing the long term cost and effect on their business.
In most cases operating as a sole proprietorship is the easiest, most cost effective way to operate a one truck, one owner-operator business. However, other entities may be better depending on your particular situation.
I am a company driver. What is deductible when I'm on the road?
While self-employed individuals can generally deduct any expenses incurred to earn their income, company drivers are limited to non-reimbursed expenses. You are entitled to per diem for meals and any job related motel expenses (keep receipts). A good rule to follow for deductions would be any expenses incurred that are necessary or required in the performance of your job and/or operation of the truck but are not reimbursed by your company. These include things such as uniforms, gloves, logbooks, maps, cell phone, CB, tools, tolls, etc. Remember, as a company driver these deductions are only available if you itemize and are not available if you take the standard deduction on your tax return.
How can I justify my cash payments to my lumpers?
You need to maintain written documentation, such as a daytimer, entering name, address and social security number of the person to whom you have made the payments. Maintaining information given is all that is required. If any one person earns $600 or more from you, then you have to issue a 1099 at the end of the year. If you are working for a household mover who has agencies for lumpers nationwide, then you should be able to get receipts when you pay those people.
My husband owes back taxes from before we were married. Should we file separately? I was told the IRS can take my refund to pay his taxes if I file jointly with him.
Filing separately will increase the tax rates for both of you. A better alternative would be to file jointly but claim "injured spouse" status by filing Form 8379-Injured Spouse Allocation, along with your joint tax return. This will protect your refund amount from being taken to pay your husbands back taxes from before the marriage.