How the Tax Cuts and Jobs Act Affects the Trucking Industry

April 2019 might seem far away, but the decisions you’re making now are affecting how much money you’ll end up paying next tax season. And with the newly implemented Tax Cuts and Jobs Act  in effect, next years return will be calculated much different than prior years.

To understand how new tax laws affect the trucking industry, and learn how to make optimal financial choices today, read on.

business tax documents
source: Getty Images

What does the Tax Cuts and Jobs Act change?

The Tax Cuts and Jobs Act, which was signed into law by President Trump on December 22, 2017, has brought more change to the U.S. tax code then Americans have seen for the last 30 years. While there are many variables to consider, Troy Hogan a transportation industry tax expert and CPA at Katz, Sapper, and Miller Advisory Group says there are three main takeaways that all trucking companies should be aware of.

1. Depreciation and Equipment Transactions

Previously, bonus depreciation only applied to new property, but it now includes old property as well. From now until the year 2023, acquired equipment that is placed in service will be allowed a 100 percent write off under the newly revised bonus depreciation rules. Starting in 2023, that 100 percent write off will decrease 20 percent each year until it no longer exists at the end of 2026.

Section 179 has been expanded and now allows for up to $1 million in equipment expensing. However, total equipment purchases can’t exceed $2.5 million for the year. Hogan says to keep in mind that some states allow for bonus depreciation, but not the Section 179, and vice-versa.

Like-kind exchanges have gone away for equipment, but are still in effect for real-estate.

2. Per-Diem Programs

Trucking companies who do not currently have a per-diem plan may want to consider adding one. Drivers of companies that do not offer a per-diem plan will no longer be able to claim their own per-diem deduction as an itemized deduction. Therefore, even though tax rates overall have decreased and standard deductions have doubled, some company drivers may see an increased tax bill next year.

That’s why Jim O’Donnell, CEO, and Founder of Trucker Tax Service, told Fleet Owner he has “already heard from one client that his company is going to bump the per diem pay to 16 cents a mile.”

Because per diem pay is considered reimbursement pay, it does not need to be claimed on tax returns. Higher per diem rates put more money in the driver’s pocket and keeps it there. In addition, trucking companies can turn around and write that reimbursement pay off as an expense. It’s a win-win situation, and a simple way trucking companies can attract and retain drivers.      

3. Tax Rates and Entity Tax

C corporation tax rates have been reduced from 35 percent to 21 percent. However, C corporations will still be subject to double-taxation. Meanwhile, S corporation and other pass-through entities will see a new 20 percent deduction for domestic qualified business income.

Hogan has cautionary advice for S corporations considering making the switch to a C corporation. He warns that S corporation shareholders with suspended losses would have to forfeit those losses if a switch was made. In addition, S corporations are not subject to gross income limitations when choosing an accounting method.

how tax cuts affect truckers
source: Walter Hodges/DigitalVision/Getty Images

 

 

 

 

 

 

 

 

 

How should trucking companies react to the Tax Cuts and Jobs Act?

It’s important for trucking companies to understand new tax laws and how to best take advantage of them. But, it’s also important to remember that these tax laws mean different things for different trucking companies. There is no one-size-fits-all approach, it’s all about making the overall best choices for your particular fleet. Even more important, fleet owners must not become so focused on their current year tax situation that they ignore the long haul. Successful businesses consider and plan for the long term.

For example, a fleet owner might consider buying a truck late in the year to gain the deduction. It’s true that will result in lower taxes for that fiscal year, however, the acquisition is just a short-term piece of the equipment’s overall lifecycle. For a truck to be deducted, it must be placed in service before the end of the tax year. That means additional operation, maintenance, and compliance costs now, and for years down the road. And this is all assuming that you actually need the truck.

The best course of action is to meet with a tax expert you trust in order to understand all the changes this new tax code has brought. What is best for one company, may not be ideal for yours. This post does not intend to provide any specific tax advice. 

 

15 Tax Deductions Every Truck Driver Should Consider

First, what is a tax deduction? Essentially a tax deduction is a work-related expense that lowers your annual reported income. That usually means, less tax owed by you.  

If you’re a driver in the trucking industry, you’ve probably run into various expenses out on the road this past year. As stressful as taxes can be, tax time is your chance to claim deductions and get some of that money back.  

Tax Home Requirement for Truck Drivers  

Before a truck driver can claim a deduction, the IRS requires that you have a “tax home,” or address to list on your tax return. This is usually the address where you receive your mail. It could be your business’ headquarters or a personal residence. However, regulations say that you must regularly contribute towards that residence.   

In short, without a tax home, you will not be allowed to deduct business and travel expenses.  

Truck Driver Tax Deductions

Remember, you can only claim deductions on unreimbursed expenses.

  1. Travel Expenses – Includes hotels, meals, and more. There are different methods for recording these expenses. Check out IRS Publication 463 for more details. If you already use the standard allowance method, you can calculate your daily lodging, meal, and incidental expense allowance using the per diem rate tool.
  2. Vehicle Expenses – Most of what you need to keep your office-on-wheels running is deductible. Includes maintenance such as oil changes and new tires, as well as needed repairs. If you own your rig, you should be able to deduct depreciation amounts year to year.
  3.  Fuel – This one has some restrictions. If you paid more than $100 out of pocket for fuel and were not reimbursed, you can deduct some of that amount using standard mileage rates. Remember that it has to be for business purposes. Commuting costs are not deductible.
  4. License and Regulatory Fees – Costs associated with obtaining and maintaining your CDL. Also, the cost of any required classes or training to further your job education are generally deductible.
  5. Union and Trade Association Fees – Required union and truck driving association group dues are usually deductible. In some cases, even voluntary membership dues are deductible if the membership helps you do your job.
  6.  Medical Exams – You’re likely required to visit the doctor for a DOT physical, drug test, or maybe even a sleep apnea study. If you pay out of pocket for any of those, the costs are generally deductible.
  7. Office Supplies – Traditional office supplies like pencils, binders, and calculators can often be deducted as a business expense. You may also be able to deduct costs for job-related office services such as faxing and photocopying.
  8. Trade Publications Subscriptions – As long as the magazines or journals you subscribe to are directly related to your industry, they can usually be deducted. If you have load board subscription fees, they may also be deductible.

    Transport chain and other load securement equipment can be tax deductible.
  9. Load Securement – You can usually deduct the equipment you need to secure your precious cargo. A great excuse to get some new ratchet strapsbungee cordschains, and tarps.
  10. Electronics – Generally deductible when used only for work purposes. Examples include your CB radio, GPS, GPS map updates, and your ELD.  Also, repair costs for these devices are often deductible. You probably use your cell phone, data plan, or laptop for both business and personal reasons. Therefore, these items are usually only 50% deductible.
  11. Tools – This one is almost too good to be true. Your tax return can usually include deductions for almost any roadway tool your job requires: duct and electrical tapes, hammers, pliers, tire irons, and more.
  12. Clothing –  You can usually deduct items if you need them to perform your job. Specialized clothing such as overalls, rain gear, safety glasses, safety vests, and hard hats all fall into this category.
  13. Sleeper Berth – On long trips away from home, you need this off-duty space to prepare for your next shift behind the wheel. Save receipts for items like bedding, alarm clocks, cab curtains, and mini-fridges, as these items are often tax deductible.
  14. Personal Care Items – Hygiene products like soap, toothpaste, razors, and even first-aid equipment. Keep in mind that shower and laundry cleaning costs can also be deductible.
  15. Cleaning Supplies – Just about anything that keeps your rig sparkling clean and ready for service.  Towels, window cleaner, trash bags, and even a personal vacuum can all be tax deductible.  

Claiming your Truck Driving Deductions   

In conclusion, it’s important for truck drivers to be aware of and take advantage of the industry-specific tax deductions available to them.    

However, everyone has unique employment and tax situations. This post does not intend to provide any specific tax advice. Please consult a tax professional if you have specific questions on what deductions apply to your situation.   

2015 Tax Deductions for Truck Drivers

44341824-truck-driver-and-clipboardTax time is upon us again, so we’ve put together a quick guide of tax deductions for truck drivers in 2015. 

Please keep in mind this is not a full, comprehensive list, but a great starting point and a reminder to look into items you may not think are deductible.

Most tax deductions for truck drivers can be used by self-employed drivers, or drivers working for a company. However, some may only apply only to self-employed drivers. For reference, check out the Schedule A (Form 1040), Itemized Deductions information from the IRS. If you are self-employed, check the Schedule C (Form 1040), Profit or Loss from Business information.

Also remember these deductions can only include those expenses that have not already been reimbursed.

Everyone’s employment and tax situations are unique. Consult a tax professional for specific questions or concerns about possible deductions. This blog post is not intended to provide specific tax advice.

  • Travel expenses. Food, lodging and other travel expenses are tax-deductible.You may be able to claim a standard daily allowance for transportation workers, which is $59 a day from January 1st through September 30th, and $63 a day from October 1st through December 31st. For more information, check out the 2015 version of IRS Publication 463.
  • Vehicle expenses. Many truck drivers gather a large number of receipts in this category throughout the year. Vehicle expenses include everything from fuel and parking expenses to road tolls and maintenance costs. License fees are also tax-deductible. Liability insurance premiums are also deductible.
  • Cleaning supplies. Deduct expenses for paper towels, window cleaner and other cleaning supplies need to maintain your truck.
  • Association fees. If you drive for a company that requires you to join a union or group, you can deduct the membership dues.
  • Medical exams and tests. DOT physicals, sleep apnea studies and drug tests can all be deducted from your taxes.
  • Personal care items. Don’t forget to deduct the cost of personal care items you purchase on the road that you would otherwise have at home: razors, pillows, tissues, hand sanitizers, first aid supplies, etc. You can also deduct expenses for showering and laundry facilities.
  • Clothing. If you’re required to wear a uniform, the cost is deductible, as is any cleaning to keep it fresh and wearable. This category also includes footwear and specialty items such as safety glasses, hard hat, steel toe boots, and other safety items.
  • Postage. If your position requires you to mail anything to your company, the cost of envelopes, stamps, boxes, labels, etc., can be included as a tax deduction.
  • Load securement. Items required to ensure a safe load are also deductible, including tie down straps, load chains and bars, bungee cords, tarp straps, and wide load flags and signs.
  • Truck cab essentials. Everyday items like an alarm clock, bedding, and curtains for the cab are generally deductible, as are extras storage bins, thermos and food storage items, and small appliances like a refrigerator and coffeemaker.
  • Tools. Don’t forget to include deductions for basic tools for the road: pliers, hammer, crowbar, flashlights, wrenches, duct and electrical tapes, and other essentials.
  • Fees. If you’re required to take classes or training to maintain your license, those fees are tax-deductible. Whether the training or class is mandatory to federal law, state law or just your employer, the fees are still tax-deductible. Other fees that are deductible include those for CDL licensing and similar expenses. Administrative fees including those for ATM and check reorders are also tax deductible.
  • Association Dues. Dues for associations such as Teamsters, Owner Operator Independent Drivers Association (OOIDA) etc. can be listed a deductible expense.
  • Office supplies. Every day in-cab items like log books are deductible, but don’t forget to deduct the cost of items like a calculator, pens, and pencils and other traditional office supplies, as well as money paid to make copies or send faxes.
  • Connection costs.This category refers to internet and satellite access for your cell phone or Sirius/XM. You can deduct 50 percent of your access fees. The entire cost of your cell phone and laptop is deductible. In fact, the cost of deprecation on your PC can also be deducted if you are required to use it for work. However, the cost of a home telephone is NOT tax-deductible.
  • Business-related subscriptions. Fees for load board subscription is included in this category, as are industry-specific magazines about trucking, transportation, etc. Leisure and hobby magazines are not tax-deductible.