It’s that time of year again: The snow is falling in many parts of the country, and every truck owner’s dreams are filled with new steer tires, engine overhauls and chrome accessories. Hopefully, your dreams are more of the family type — spending the holidays with loved ones and sharing time, love and gifts.
But the end of the year does bring some business options, too. Decisions made now can impact how much tax you’ll pay this year and next.
Take steer tires, for example. A quality set can easily cost $1,000, including mounting and balancing. As a business expense, you won’t pay income tax on the cost of those tires. And, if you’ve had a great year and made a tidy profit on which you’d like to reduce your taxes, you’ll want to spend that $1,000 now, before the calendar runs out on 2020. On the other hand, if you expect your business to break even or even show a loss for the year, it might be better to hold off on that tire purchase until after Jan. 1 so the expense will count for the 2021 tax year.
You can make the same decision about needed repairs or other expenses, including the last fuel fill of the year. You may even be able to pay your insurance bill early so you can count the expense in 2020, although paying it late is not an option.
Don’t forget that the “income tax” you’ll pay on your profits will include self-employment tax. Self-employment tax is your Social Security tax of 6.2% plus Medicare tax of 1.45%, for a total of 7.65%, plus an identical share that would have been paid by your employer (if you had one). The grand total will be 15.3% on TOP of your income-tax liability.
It’s obvious that you’ll want to take each deduction during the tax year that benefits you most. You won’t have a choice for many expenses, but for expenses in December you may have the option of waiting if doing so benefits your budget.
December is a great time to gather up those receipts, too. Remember, every penny you can show was spent on the business is a penny you won’t have to pay income tax on. If you walk into your tax advisor’s office April 14 with a shoebox full of paper receipts, there’s a good chance your tax return will be late. Start preparing now.
Receipts for fuel, repairs and maintenance, and truck items are a no-brainer, but drivers often overlook smaller expenses that add up as well. Products such as cleaners and accessories for the truck — including bedding, air fresheners and other items — are considered business expenses, provided they are used for the truck. Tools, flashlights and batteries, sunglasses and other items can also be business expenses.
Industry publications can be business expenses too — but don’t try to claim your copy of The Trucker, since it’s free. Dues paid to trucking unions or organizations such as the Owner-Operator Independent Drivers Association (OOIDA) are business expenses. Clothing such as rain gear, gloves and steel-toed boots may be deductible. The IRS allows a deduction for a percentage of phone and internet expense. You use both in your business, so take maximum advantage.
If you claim the standard IRS deduction for meals and incidentals, your records should include documentation of the days you spent away from home. Copies of your records of duty status will do the trick, but if you’re using electronic logs you may need a printout for your records in case of an audit.
Motels, parking fees and shower costs that aren’t reimbursed may also be deductible. Don’t forget ATM or fuel card fees, and if your bank charges service fees for your business account; you can subtract those, too.
If you purchase a laptop computer, a tablet or even a smartphone, you may be able to claim at least a portion of the cost as a business expense.
If you don’t already have a tax advisor, now is a great time to find one. You might easily find someone to complete your tax forms, but you should be confident that your advisor is taking advantage of every opportunity to save you money. Another advantage that a tax professional who is familiar with trucking can offer is advice for next year.
Finally, the end of the year is a great time to review your business practices. You should know your cost-per-mile of operation, including where the biggest areas for improvement are. You may decide, for example, that adding aerodynamic accessories to your equipment will help. Not only is the purchase cost a business expense you can deduct, but you’ll also get the fuel savings. You may find that your repair costs and down time are costing you more than the payment on newer equipment would. A good tax advisor can help with these types of decisions.
As an owner-operator, you’ve got a business to run year-round. A little extra attention at year’s end, however, can help jump-start a better — and more profitable — new year.