Spring is a time of spring breezes, blooming flowers … and income taxes.
Unfortunately, the tax returns you file this spring are based on last year’s data, so there isn’t much you can do to change the numbers. You can, however, make sure you are claiming every deduction you are entitled to. The best way to do that is often to consult a tax professional. It’s also a good idea to use one that is familiar with your type of business. The bad news is that if you don’t already have a tax professional, it may be hard to find one. It’s a busy time of year for them, and they may not be taking new clients.
Be wary of using those chain tax-service locations you see in the local strip mall. The tax preparers who work there are “qualified” with just one to two weeks of training. They often focus on clients who need help with basic income tax filing, often using standard deductions.
You’ll want someone with an accounting degree who is knowledgeable about trucking businesses.
Many small trucking business owners file as a “sole proprietor.” This option is a kind of hybrid that mingles business and personal expenses and income. It can be the simplest of the choices, but doesn’t provide you with the financial protections of a limited-liability corporation (LLC) or any of the other options. Your tax advisor can help you determine how to register your business to maximize how much of the revenue you keep.
If you file as a sole proprietor, keep in mind that you’ll be paying the Self Employment Tax. This tax is comprised of both the employee and employer portions of the Social Security tax (12.4%) and the Medicare tax (2.9%) and adds up to 15.3% of your income — on top of whatever income tax you owe. The amount can be considerable, but it is only paid on profits, not on gross revenue. The more expenses you can deduct, the lower your profit … and the lower your tax.
With that in mind, consider your purchases in 2022.
Big expenses like truck repairs, tires and fuel are certainly deductible, but other items can also be used as deductions. If you bought a television or a microwave oven to use in the truck while working away from home, you can deduct those as business expenses. Gloves, hard hats and steel-toed shoes (if they are required for the job) are deductible. So are items like air fresheners, flashlights and batteries, cleaning supplies, bed coverings and so on. If it’s used in the truck, it’s probably deductible.
One large deduction many drivers overlook is per diem. The IRS allows a deduction of $69 for meals and incidentals each day the driver is away from home. It isn’t necessary to save receipts to claim this deduction; however, the taxpayer should save record-of-duty status (logging) records as proof of travel, just in case of an audit.
It may not seem like a lot, but if you’re on the road 250 days (five days a week for 50 weeks) you’ll be looking at $17,250 of non-taxable income. Even if you’re gone for partial days, you may be able to claim a portion of the per diem deduction.
Of course, any subscriptions to industry publications or dues you pay to trucking organizations are deductible. If you have expenses for lumpers, chrome polishers or other services, be sure to get a business receipt, or at a minimum, the providers’ driver’s license and Social Security numbers. If you pay any one individual more than $600 in a year, you’ll need to issue them a Form 1099. If you don’t, the IRS could deny your deductions.
For this year, income tax must be filed by Tuesday, April 18. Since the 15th falls on a Saturday, the filing date is extended to Monday — which happens to be a holiday in Washington, D.C., pushing the due date to Tuesday.
If you don’t file on time, the IRS can assess a fee for late filing and another for late payment of tax owed. Even if you can’t pay the tax on time, you can at least save yourself the late filing fee by getting your return in on time.
If you don’t file at all, the IRS could enter a return for you. They are unlikely to find all the deductions and exemptions that your tax preparer will, and you could spend years arguing the final amount owed, racking up fees and interest along the way.
Also remember that the income deadline is also the date any quarterly estimated income tax payments are due. There is a penalty for failure to pay estimated taxes on time, so it’s important to get sound advice from your tax professional. If your total tax liability is less than $1,000, the penalty is generally not charged. You don’t have to make estimated payments if you had no tax liability for the previous year, provided you were a U.S. citizen all year and your tax period covered the whole year.
Finally, it’s never a bad time to upgrade your paperwork process. Every business should have a journal of some sort for tracking expenses. These can range from an actual ledger book to easy-to-use spreadsheets that can be downloaded for free and even software that does all of the storing and calculating for you.
By listing expenses in the correct categories, you’ll make tax time less stressful for both you and your tax preparer. Oh, and remember that the bill from your tax preparer is deductible too.
Cliff Abbott is an experienced commercial vehicle driver and owner-operator who still holds a CDL in his home state of Alabama. In nearly 40 years in trucking, he’s been an instructor and trainer and has managed safety and recruiting operations for several carriers. Having never lost his love of the road, Cliff has written a book and hundreds of songs and has been writing for The Trucker for more than a decade.