Truck Driver Tax Planning Tips
Deductions, Expenses and Financial Planning
It takes a special kind of person to be able to handle the stress and demands of the lifestyle of a tractor trailer driver. While the trucking industry provides a great opportunity to make a good living, being self-employed as an owner operator truck driver it also comes with many challenges such as tax planning and money management.
Learning to manage your money, deal with taxes and keeping accurate records is crucial to your success as an owner-operator. Keeping accurate records of your income, expenses, and tax deductions are essential to reduce your tax burden and plan for your future financial security.
We have put together some basic information regarding your expenses and tax guidelines. The following are suggestions/tips to help you prepare for tax filing. It is not meant to replace the benefits and expertise of using a tax preparer. Using the services of a tax preparer who is familiar with the trucking industry is very important and very much to your benefit.
1. Keep track of your costs and learn where you can reduce spending. ATBS is a great resource for tax guidance and services.
2. Take the time to prepare and write down a budget and have a system for keeping track of your income and expenses.
You can use a pre-planned itemized worksheet listing tax deductions for tractor trailer drivers, or design your own.
3. Determine your minimum cost to operate. This is the first step to identifying all your true expenses, and help you to:
- avoid being caught off guard setting aside 10% of your gross income for emergencies
- allow for planned and unplanned maintenance
4. Tax deductions are defined as ordinary and necessary expenses incurred during the conducting of business. This means extravagant or useless expenses will not qualify as being a legitimate deduction.
5. Tractor trailer deductible expenses include:
- costs for maintenance, fuel or other expenses that directly keeps the truck and its accessory equipment operational
- diesel, oil, coolant, tires, replacement parts
- fees or charges relating to servicing, installation or delivery
Many costs associated with traveling away from home are also deductible. One of the biggest deductions for an over-the-road trucker is the meal per diem rate, which can vary from state to state.
Most OTR truck drivers are home only 3-4 days a month. That leaves about 320 days a year for the average OTR driver that you can claim meals at a per diem rate which approximates about $18,880 that you can write off on your taxes. Over-the-road drivers who are away from home for days at a time can claim a standard meal deduction on their taxes. The current rate for DOT regulated workers is $59.00 daily, but is subject to change by the IRS at any time.
If you were home for part of the day that you started or finished a haul, this amount can be prorated. Other deductible costs directly related to you include:
- paying for shower facilities, laundry services
- work clothing, boots, gloves and other safety equipment
- equipment and supplies geared towards the business side of trucking
- office supplies such as laptops, staples, forms, pens, log books
- maintaining an office in your home that meets the requirements of the IRS as a designated area
- equipped with a desk
- equipped with a computer
- equipped with a phone, etc.
- discuss this with your tax preparer
As an owner-operator, you can deduct any expense for repairs to your rig. However, if you perform repairs yourself, you can deduct the expense for parts but not for your time.
Items you CANNOT deduct
- the time you incur from working on your own equipment
- the income lost as a result of unpaid mileage
Any expense incurred from the use of lumpers (workers who load/unload the truck) is deductible. However, only the person or company incurring the expense can deduct it. You can deduct the entire pay of lumpers directly employed by you, but only the portion of their pay that you cover if their wages are jointly paid by you and a client.
8. Non-deductible expenses to avoid
A word of caution: don’t fall into the trap of trying to claim too much and unfortunately triggering an audit. Here are some non-deductible expenses that most truckers need to leave off:
- expenses that were or will be reimbursed
- clothing that is adaptable for everyday wear
- home phone line
- interest on personal loans
- personal vacations
- student loan interest or student loan principal
A good record keeping system
A good record keeping system doesn’t have to be complicated, but it does need to be organized. It has to be accurate and reflect what you spend and what you take in. Bookkeeping is nothing more than grouping and summarizing all your income and expenses.
To help you record your income and expenses you can make your own worksheet. All you really need is an accountant’s pad available in any office supply store. Remember, this purchase is a tax deduction! Simply list each month across the top of your Worksheet and all your costs.
First list “fixed costs” that remain the same month to month or year to year, such as:
- truck payment, truck insurance, medical insurance
- licenses, permits
- highway use tax
- preventative maintenance, etc.
Next, list your “variable costs” such as:
- fuel, fuel taxes
- tools, supplies
- telephone, repairs
- parts, etc.
Project out for a year what you think your costs will be, then keep a second worksheet with your actual costs each month. Then compare the difference to see if you can rely on your projections. Being able to accurately project your future income and expenses is a tremendous help for tax planning and business management purposes. Next, you should record your monthly income on the worksheet.
Calculating your cost per mile – planning can make the difference between success and failure.
Knowing your cost per mile (cpm) is very important. Be sure to keep track of your miles each month and calculate your cpm by dividing your costs by your number of miles. Determining the cpm is a good way to keep track of how well you are doing. Proper realistic planning can and does make the difference between success and failure.
Once you have your system set up you should send your records to your tax preparer on a regular basis. Using a tax preparer who is very familiar with the trucking industry is very important. There can be variables, and a tax preparer knowledgeable about the trucking industry will be on top of changes made to tax laws that affect truck drivers.
It’s a good idea to send your records to your tax preparer on a quarterly basis, is the best way:
- to be informed of your current tax situation regularly throughout the year
- to get help with planning and avoid surprises
- to be continually guided and updated with your financial questions and status
- to avoid penalties
The trucking industry has become more and more complex. And truck driver tax laws have become more complex. An expert who knows trucking can provide you with the best advice concerning:
- methods of depreciating equipment
- options about equipment purchase and/or lease
- changes in the tax laws that affect the trucking industry and will affect you
We hope this post has been helpful, and once again, we stress that this basic information is meant only as a guide and is not intended to replace the professional services of a tax preparer.
Create an emergency fund
How much should I save?
Financial advisers throw out different numbers all the time, but the general consensus is between three and six months worth of household expenses. Now, obviously you can’t set aside all this money at once, so you must create a plan for how you’ll get the funds to put into the account.
Below are 3 easy ways to save money driving a truck:
1. Get a Fridge & Make Your Meals
The easiest way for truck drivers to save money is to get a fridge and stop eating out so much. By passing up the fast food and truck stop pizza, your physical and financial health will be better off. You will need to investment in a portable refrigerator, but if used properly the amount you save will more than pay for the cost of the fridge. Not only will you save money by stocking up on drinks and food at the grocery, it’ll also be way more convenient to eat healthy.
One refrigerator model that has gotten good reviews among drivers is ARB 50 Qt Portable Refrigerator. It’s a little pricey, but it’s one of the best out there. Remember, sometimes it pays to spend a little more for quality that will last than those little coolers that just don’t cut it when it’s time to plan ahead for a week. For a few hundred dollars less, take a look at the Dometic CF-050AC110 Portable Freezer/Refrigerator.
BONUS: Once you decide on the best portable fridge, take a look at these meal tips from TheHealthyTrucker for recipes that are both convenient and delicious.
2. Base Your Budget On Low Mile Weeks
Very few people (truck drivers or not) are able to successfully save money without creating some type of budget. Lucky for you, we have an easy 7 step process for creating the perfect budget for truck drivers. Take a look at that link to find out how it’s done. Once you have your plan in place, stick to it.
Remember: the key is to create your budget based upon low mileage weeks (since most drivers are paid by the mile) and to plan on saving all additional money. Say this to yourself, “more miles means more saving, not more spending.”
3. Use Your Emergency Fund Wisely
Wondering how to even get started creating an emergency fund? We can show you how to do that here first. And once an emergency fund is started, it must be used wisely. When in doubt on if an emergency fund should be used for a purchase, just refer back to the “emergency” part of the name…
- Washer quits working back at home and the kids laundry is piling up? Emergency.
- Currently own the iphone5 but must have the new iphone6 so you feel cool? NOT an emergency!
If there’s a question whether or not it’s an emergency…it’s probably not.
When it comes to saving money, these are just 3 tips to get truck drivers going in the right direction. Start doing these things, stick to them for several months and progress will be made. It’s that simple.