The deadline for filing U.S. income taxes is now less than a month away — April 15, to be exact.
By now— hopefully — you’ve gathered all of your receipts, perused the tax forms and instructions available from the Internal Revenue Service (IRS), and consulted your tax professional to make sure you choose the most favorable options to minimize your tax liability.
Let’s Get Real
If you’ve actually done all the things outlined in the previous paragraph, you’re in a small minority of truck owners.
Most folks (including this writer) are more likely to wait until just before the filing deadline and then rush to get their tax return completed and submitted on time.
As an owner-operator, one choice that will definitely impact your tax liability is your choice of business entity.
Self-Employment Tax
Most owner-ops — especially those with a single truck — choose the “sole proprietor” form of filing. This filing method combines your personal and business earnings, so you’ll only need to fill out one tax return.
One advantage of filing as a sole proprietor is simplicity. There’s no need to register a corporation or other entity or to keep separate books for your business.
There are disadvantages, however.
One that looms large is the 15.3% self-employment tax.
If you work for an employer and your income and taxes are reported via a W2 form, you pay 6.2% of your income for Social Security tax and another 1.45% for Medicare, totaling 7.65% of your income. But that’s only half the tax that’s due for Social Security and Medicare. Your employer pays the other half (another 7.65% of your income).
If you work for yourself, you’ll pay both halves of the tax, totaling 15.3%. That amount is calculated from the 1099 forms you receive and is calculated before deductions are applied.
This is in addition to any income tax you owe on the profits from your business.
Standard Deduction Increase
There is, however, good news for owner-ops who are filing individual returns: The standard deduction increased for this tax year and is now $14,600 for individual taxpayers and $29,200 for those who are married, filing jointly.
About 90% of taxpayers use the standard deduction. Unless you’re paying a lot of interest on your mortgage and making sizeable charitable contributions, there’s a good chance you’ll fit in the category of taxpayers for whom the standard deduction is larger than the total of actual deductions they can accumulate.
Per Diem Rate Change Could Help
A change in the per diem rate (the daily amount allowed by the IRS for meals and incidentals) could also help to reduce your tax liability. The per diem, or standard meal allowance rate for transportation workers was increased to $80 per day on Oct. 1, 2024. In other words, From Jan. 1-Sept. 30, 2024, the rate was $69 per day. If your travel takes you to Canada or Mexico overnight, the old rate of $74 became $86 on Oct. 1.
In order to claim per diem for a specific day, you must spend the night away from home. That’s not difficult for most over-the-road drivers — but you’ll need to keep copies of your logs in case you are asked for evidence. On days that you left or returned to your home, you can claim 75% of the per diem amount.
There’s a different per diem system for any business traveler that you can choose, but it’s more complicated. The IRS approves different per diem amounts depending on where you travel. If you choose this method, you’ll need to look up the IRS approved amount for every area where you spend the night and keep track of it all year.
Of course, you could simply save all your receipts for meals and incidentals and claim the actual amounts rather than per diem — but that’s a lot of paperwork (and chances are that you’ll earn far less).
If you’re actually spending $80 per day on meals, you aren’t likely to have enough profit left over to worry about owing taxes on, anyway.
Filing as a Corporation
If your trucking business is a corporation or other entity, you may need to file one tax return for your business and then a personal return as well. It’s more complicated, but filing as a corporation does provide you with some opportunities for tax savings that you might not otherwise have had.
For example, if you use property that you own for your business, you may find it advantageous to legally rent the property to your business. For example, if you use your personal garage to park or perform maintenance on your truck, the corporation could rent that property.
The advantage is that the corporation can deduct the cost of the rental as a business expense. You’ll have to claim the income on your personal return, of course — but rental income isn’t subject to the 15.3% self-employment tax.
Don’t Forget Depreciation
Additionally, any money you spend on the garage, like a new roof or siding, can now be depreciated as a business expense. Vanessa Gant, owner and founder of ProVision Accounting Solutions advises trucking business owners to consult a professional to make sure the business is set up correctly before attempting rental and other deductions. You may need to consult both accounting and legal professionals.
Gant also cautions truck business owners to be knowledgeable about how depreciation works.
Your truck loses resale value every year, and that amount is deductible as a business loss.
The rules for depreciation, however, offer some choices and you may be able to claim depreciation on different schedules, depending on the type of property and IRS rules.
Keep in mind that your truck isn’t the only thing that depreciates: Computers, appliances, some tools like welders or even buildings can be depreciated.
Pay on Time
Finally, Gant has this advice for owner-ops: “Don’t flush your money.”
Quite simply, she’s referring to making your tax payments on time, including your estimated quarterly payments. Being late can result in a penalty for not filing on time and another one for not paying on time.
Even if you can’t file your return by April 15, you’ll save money if you pay what you think you owe on time, even if you file later.
No one looks forward to tax time, but understanding the rules and using them to maximize the income potential of your business helps your hard work pay off.
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.
