The Tax Cuts and Jobs Act greatly affects how owner-operators may file and pay their taxes. As an independent truck driver, understanding how to apply these changes to your business could save you thousands of dollars in taxes.
The Tax Cuts and Jobs Act document spans 1,100 pages. Fortunately, even if you only understand the basics of the new laws as they apply to small businesses, S-corporations, LLPs, LLCs, and sole proprietorships, you will receive the benefit of this new tax plan.
Purchasing a new truck or trailer
As an owner-operator, your truck and trailer are necessary investments. Having the latest safety features and technology can help you minimize expenses, and make the most of your time on the road. These expenses are tax deductible, making them an even more worthwhile investment.
If buying new equipment is in your future, then you will be glad to know that depreciation for tax purposes improved with the latest tax laws. Now, 100% of your purchase is automatically depreciated during the year you put the equipment into service. Moreover, you can opt out, and use the old depreciation schedule if it works to your advantage.
Pass-through tax advantage
Every taxpayer with Qualified Business Income (QBI) can take advantage of an additional tax deduction of 20% if they have a partnership, sole proprietorship, or S-corporation. So the first 20% of your total business income in 2018 was tax-free. For many drivers, this new deduction adds up to thousands in savings.
Tax experts say that owner-operators should expect a tax break of between $2,000 and $7,000. They will pay taxes on only 80% of their total income for the year. For example, an owner-operator with a tax filing status of “single” making $63,000 per year will save almost $4,000 in taxes. Those with a “married” filing status and drivers with kids will get an even bigger tax break.
Recent changes to per-diem allowance
As of October 1, 2018, owner-operators can deduct $52.80 per day from their income when they must spend the night away from home. This is a $2.40 increase. IRS rules state that the driver must be away from their tax home “substantially longer” than a regular work day, and they must sleep away from home on the days they claim per diem as well.
The importance of keeping business records
Keeping track of every expense and all income will help you file your taxes correctly. If you don’t already use a smartphone app to help you track tax-deductible expenses, this is a great time to start. Technology to help you stay organized is easily accessible, and it can help you minimize your tax burden by making sure you get all your deductions.
Staying organized on the road is much easier if you capture your paper receipts with an app like Hubdoc or ReceiptBank. The IRS accepts digital receipts, so there is no need to hang on to the paper copy. All uploaded receipts are saved automatically to the cloud. Both of these apps sync with Quickbooks.
It may be time to re-think your business structure
Trucking companies pay one of the highest tax rates of any business type in the United States. While the new tax laws will help ease that burden for owner-operators, now may be a good time to discuss the possibility of transitioning from a sole proprietorship to an S-corporation. For drivers making more than $65,000 per year, the move may help them save even more money at tax time.
The newest set of tax laws offers many benefits for owner-operators growing their trucking businesses. To take full advantage of the legislation and minimize your tax burden, be sure to work with an owner-operator trucking tax expert. The challenges faced by owner-operators are unique when it comes to taxes, so having someone on your side who understands your business and goals are crucial to your ability to succeed and make a good living.
Connect with us
If you are looking for an exciting career, then contact RCX Solutions at (866) 336-9697. We offer owner-operators the option of taking mileage or percentage pay of 70% to 80%. All owner-operators receive a monthly 3% safety bonus as well as fuel discounts with Pilot, Loves, and Petro.
If your goal as an owner-operator is to stay successful and independent, you need a great partner. RCX Solutions proudly offers local owner operator trucking jobs in the Arkansas area with the best routes, scheduling options, and compensation packages.
We look forward to hearing from you!