Tax season is just around the corner, and just like other working professionals, truck drivers need to file their tax returns. At this time of the year, company truck drivers should have received their Form W-2 or Wage and Tax Statement. Meanwhile, self-employed truck drivers should secure Form 1099-MISC to report miscellaneous income. Regardless of whether you work for a company or drive your own truck, you should know that the taxes you pay are an essential part of the big picture that is maintaining a country.
Technology has increasingly automated the logistics and delivery processes—it’s happening not just in the U.S. but in other parts of the world, too—and many business owners find that keeping an in-house trucking fleet is costly and restrictive. The obvious outcome is that, sooner or later, outsourced logistics solutions will become the norm. The demand for independent truck drivers is expected to grow, just like what happened with ride-hailing and food delivery services.
With this potential for more business opportunities, players within the logistics support sector, including truck drivers and companies, should learn how to prepare their correct income taxes. Below are the top tips for truck drivers when managing and filing taxes.
Know Your Tax Deductions
It’s important to know all of the allowable tax deductions you can use to bring down the amount of taxes you need to pay to the Internal Revenue Service (IRS). Company drivers are no longer allowed itemized deductions, but the new standard deduction has almost doubled, which has dramatically reduced their taxable income. Independent or self-employed truck drivers, on the other hand, can enjoy deductions that include, but are not limited to, the following:
- Vehicle-related expenses such as repair and maintenance, fuel, insurance, and depreciation expenses
- Travel expenses such as meals, lodging, and even laundry expenses made while on the road
- Occupational and excise taxes like heavy highway use tax
- Trade association and union dues
- Premiums for liability insurance
- Leasing costs like trailer rental fees
There are many other deductions that you can enjoy, but remember to keep the receipts and record the expenses in a logbook to support your deduction claims.
Consider Becoming an S-Corporation
If your annual earnings exceed $70,000, you may elect to set up your business as an S-Corporation. Tax preparation service providers, like Tax Defender USA, recommend this option to minimize self-employment income tax. Under this classification, you’re allowed to pay a reasonable salary to yourself, and additional fund withdrawals will be considered income distributions. In contrast, a sole proprietorship will be subjected to a full self-employment tax of around 15% of all earnings. It would be best to consult with a professional tax advisor before electing to become an S-Corporation.
Contribute to an Individual Retirement Account (IRA)
IRA contributions are tax deductible. You are allowed up to $6,000, and an additional $1,000 if you are over 50 years old, in total annual IRA contributions. Just be sure to make your contributions before Tax Day, or the day on which the IRS expects individual income tax returns to be filed.
You can also deduct additional contributions to a simplified employee plan (SEP) or a savings incentive match plan for employees (SIMPLE), but special rules apply. Deductible amounts will be limited based on factors like the number of employees in your company, whether you’re the only employee of your company, or if you are over 50 years old. Always talk to a trusted tax preparer to know which plan is best for you.
Make Larger Tax Payments for the Fourth Quarter
If you did not pay the estimated tax payments for any of the first three quarters of the year, you should make a sizeable fourth-quarter payment. Doing so will bridge any gap between the estimated and the actual tax amounts you need to settle. It is crucial to avoid IRS penalties, like what happens when you missed the deadline for filing your tax return.
There are many tax tips for drivers. The most crucial tips aim to increase your allowable deductions while decreasing your taxable income. Like any professional or business entity, truckers want to reduce the amount they need to pay the IRS. When preparing and filing your income tax return, it would be best to talk with a professional tax preparation service provider.