5 Commonly Overlooked Tax Deductions for Truck Drivers
Truck drivers working as independent contractors are able to claim a number of deductions when filing their tax returns. As opposed to truck drivers who work for companies (and receive a W2 detailing their earnings), independent contractors who file their taxes using a 1099 form can deduct certain expenses that are associated with their professional responsibilities.
A strong grasp of these deductions can result in substantial tax savings. This guide will review some of the basics of tax deductions for truck drivers and explore the deductions in detail to help minimize tax payments. While it may seem burdensome to keep track of every small expense, purchases that may seem mundane and insignificant can add up and become costly. Saving on the taxes from these purchases can greatly impact a driver’s bottom line.
According to the IRS, truck drivers can deduct “ordinary and necessary expenses of traveling away from home for your business, profession, or job.” The terms “ordinary and necessary” refer to the normal and essential expenses of the job, to the exclusion of anything lavish or luxurious as well as any personal expenses.
Traveling away from home, according to the IRS, means that “your duties require you to be away from the general area of your tax home.” The term “tax home” does not refer to your primary residence. The IRS defines the term as “the entire city or general area where your main place of business or work is located.”
To claim tax deductions, it is imperative for truck drivers to establish their work home. Think of a work home as a place of business. For truck drivers that work for a company, their tax home is usually the office of the business or a dispatch location. Drivers that function as owner-operators should make sure to clearly designate a business location, even if it is a personal residence.
For expenses to qualify as tax deductible, they must be incurred while traveling “away from the general area of your tax home.” The duration of the traveling must be “longer than an ordinary day’s work.” To clarify this phrase, the IRS continues to explain that longer than an ordinary day’s work means that the traveling necessitates “sleep or rest to meet the demands of your work while away.” This provision is important – travel expenses can only be deducted by long-distance drivers who aren’t home everyday by dinnertime.
The implications of operating without a clear tax home can be costly. In one widely-known occurrence, a driver who failed to do so could not deduct any travel expenses from his income, resulting in the loss of thousands of dollars by paying taxes on all of the travel expenses. This simple yet important step is crucial for truck drivers and should not be overlooked and will lead to positive financial benefits.
5 Commonly Overlooked Deductions:
This includes all physical maintenance of the truck, as well as any costs pertaining to documentation, licensing, and fees. Owner-operators can also include yearly depreciation of the vehicle’s value as a deduction. Payments for fuel are also tax deductible. Any repairs made on the vehicle as well as regular maintenance costs are deductible. In addition, owner-operators can deduct other costs associated with owning a vehicle, such as insurance premiums, leasing payments, or interest paid as part of a loan used to obtain a vehicle.
Many different types of supplies are included in this category. This can include all supplies needed for the upkeep of the truck, including tools, electronic devices, and items used to assist with loading and unloading the vehicle. Other items, such as logbooks, cleaning supplies, and any other items needed in the truck can be tax-deductible. Clothing can be tax deductible so long as it is specific to the job and is not applicable outside of the work setting. Cell phone and internet costs can be deducted if they are used solely for business purposes. If such items are used for both business and personal purposes, the full cost cannot be deducted.
If a driver is working away from his or her tax home, as discussed above, travel expenses can be tax-deductible. This can include meals, lodging, personal care items, and any sleeping-related items for the truck itself, if that is the sleeping location for the driver.
Any trade materials can be deducted, as well as the cost of joining a professional union or collective association. Drivers that are required to take a medical exam or any other qualifying test can deduct any expenses associated with such exams.
Depreciation of electronics
If a driver is using his or her personal equipment such as a cell phone or laptop computer to communicate with contractors or for other business purposes they are allowed to depreciate such equipment and get a tax deduction. Also deductions for things like CB radios and radar detectors can be written off.
2017 Tax Code & Per Diem Deductions
The new tax code passed in 2017 includes a number of changes that have ramifications for truck drivers. Generally speaking, truck drivers have the option of deducting specific amounts for their daily travel expenses (such as food and lodging), or they can deduct the daily per diem amount, which varies based on the location of the driver, among other circumstances.
While deducting per diem amounts may alleviate the stress of recording every single dollar spent, it is still important to keep good records. Drivers must still be able to show that they are incurring these expenses away from their tax base.
Simply speaking, the new tax code removed per diem deductions for employee truck drivers. In lieu of per diem deductions, the standard deduction amount was doubled. However, many drivers spend more than this amount on business-oriented expenses, and thus end up paying more taxes than expected. In fact, many drivers who would normally receive a tax refund were shocked to find out they owed the IRS thousands of dollars in taxes.
Fortunately, owner-operators are still permitted to utilize per diem deductions as per the new tax code. Not only that, but owner-operators benefit in other ways from the new tax code. Considered “pass-through businesses”, qualifying owner-operators can receive additional deductions of up to 20% of their business profits.
Owner-operators reap many financial benefits, with a plethora of tax deductions at the top of the list. After reviewing all of the information above, it is absolutely imperative to meet with a financial professional for a full review to ensure that all relevant expenses are deducted. With the right steps taken in advance, profits can be maximized and tax payments minimized, resulting in a fiscally-strong business. To learn more about filing taxes and similar concerns, get a free consultation or get pricing on our virtual tax prep services.