16 Mar What are the Different Taxes Truck Drivers Have to Pay?
In the trucking industry, drivers are subject to specific tax return requirements, meaning that every tax return is unique in its own way. First of all, truck drivers must maintain a tax home to be able to claim tax deductions (otherwise, the IRS won’t allow them). A tax home is the general area or city in which you work, and it has nothing to do with where a driver lives. For many of them, a tax home is usually a dispatch center or base, but if you’re an owner-operator and use your residence as a tax home, you should always maintain the property while on the road.
Types of Taxes
Federal and State Income Tax. These taxes are calculated on your tax return. If you’re a company employee, income taxes are withheld from your check. If you’re an owner-operator, then you’re responsible for tax estimation and payment.
Self-employment taxes. These taxes are similar to Medicare and Social Security taxes that company employees pay. According to the IRS, the self-employment tax rate is 15.3%.
Estimated Tax Payments
If you expect to owe at least $1,000 in taxes after subtracting credits and withholding, you’re required to make quarterly payments of income and self-employment taxes. Some financial service providers use current data to calculate estimated taxes, but the IRS allows estimates based on data from the year prior. Visit IRS.gov to find federal tax information.
Recordkeeping and Deductions
To make estimated tax payments, truck owner-operators need to estimate the profit of their business. That profit is also used when you file Form 1040 to calculate the taxes due at the end of the year. If you fail to file a tax return or show deductions, the IRS will determine your taxes that are due without considering your potential deductions.
Purchase vs. Lease
If you have purchased your truck, you will see higher tax deductions in the first 2 years because of the depreciation schedule. You will have little depreciation left by the fourth year, and the driver leasing the truck will see a tax benefit. If you’re leasing your truck, you can deduct the amount of each month’s payment. For the owner-operator that buys a truck, the tax won’t be eliminated by depreciation but paid in later years.
Per Diem Expenses
The amount of money you spend on tips, meals, and beverages when you’re on an overnight business trip is called per diem, and it is tax-deductible. It gets deducted on IRS Schedule C and reduces the income taxes and self-employment taxes owed on the return. So, if you are away from home most of the year, using the per diem allows will save you money.
Maintaining good recordkeeping is essential if you are running an owner-operator trucking business. Visit the Trucking Tax Center on the IRS website for useful information. Golden Tax Relief specializes in trucking owner-operator businesses (among others), so feel free to contact us for the right advice and help in dealing with the IRS.