Types, Deduction, and Tips on Tax for Trucking Business: A Complete Guide

Types, Deduction, and Tips on Tax for Trucking Business: A Complete Guide

Another year has come, and you’ve trotted many more cities and states on your trucks. Eventually, you, as an owner-operator, will need to take steps to pay your annual obligation— the tax.

While the tax-paying norm remains the same for the trucking businesses, the tax regulations may change every year. This is something the truck owners must navigate through to pay their taxes accurately.

It’s also important to understand the tax regulations in order to save a significant amount of money on this obligation through tax deduction.

If you own a trucking business and are worried about paying tax this year, read this general guide to tax for a trucking business.

2 Types of Taxes Truckers Have to Pay

As an owner-operator or a professional trucker, your taxation system is kind of exceptional. Your taxation filing will be like a business owner. At the same time, you’ll receive the facility of deductions specified for truck drivers.

You basically have to pay two types of taxes:

1) Self-Employment Taxes

As a trucker and the sole proprietor of your trucking business, you’re supposed to pay a self-employment tax directly to the IRS (Internal Revenue Services) every year.

It’s similar to the concept of a person employed by a company who needs to pay the Social Security and Medicare taxes out of their salaries or wages.

This tax rate is 15.3%, broken down into 12.4% for Social Security and 2.9% for Medicare. You can calculate your tax amount by deducting your yearly business expenses from the yearly business revenue.

It may happen that your expenses are greater than your income which means you’ve met a net loss this year. In that case, you can subtract your loss from your gross income on page-1 of Form 1040 or 1040-SR.

2) Income Taxes (Federal and State Income Taxes)

Income tax in a trucking business is dissimilar to an employee who goes through the tax withholding process each year.

Instead, the income tax for the owner-operator trucker is calculated on their tax return. If you’re estimating to pay $1,000 at least in taxes, you have to pay self-employment and income taxes on a quarterly basis.

Estimation of tax can be done in the following ways:

  • Actual Estimation

Since your income as a trucker may vary each year, the actual estimation is the best method to use for predicting your tax. It’s simply monitoring and calculating your quarterly business profit to make out the quarterly income tax.

This method is very effective in terms of keeping up with the profit and tax calculations throughout the year while avoiding being caught off-guard.

  • Safe Harbor Estimation

It’s not an estimation type where you calculate your profits and tax amount on current accounts like actual estimation. However, it’s a simpler way where you just divide your previous year’s tax liability by ‘four’ to conclude this year’s quarterly tax estimation.

But since your current year’s income is unpredictable or may vary by far less or more than the last year, it might not be a safe harbor after all.

Additional Taxes in Trucking Business

Navigating the world of taxes will educate you on additional taxes that an owner-operator must pay apart from the two types of taxes. The liability of these taxes depends on your trucking business’s size, expansion, number of employees, etc.

The additional taxes in a trucking business may include:

  • Franchise tax: If you’re operating your trucking business as a corporation, partnership, or limited liability company in certain states, you have to pay a franchise tax every year.
  • Excise tax: An excise tax is an indirect form of taxation system. Common excise taxes for a trucking business can include diesel fuel, tire, Federal Highway Use Tax, etc.
  • Gross Receipts tax: Gross receipts taxes may be applied to a trucking business by some states instead of a state income tax. Here, gross receipts or revenues of the trucking business are taxed.
  • Property tax: If a trucking company owns a property or real estate, it must pay a property tax to the local government.

Tax Deductions in Trucking Business 

Like every business owner, professional truck drivers or owner-operators look for ways to reduce their tax liability. Luckily, there are certain accounts of expenses on which a trucker can enjoy tax deductions.

To prevent overpaying taxes, you must know what those accounts of expenses are to receive tax deductions. Below are a few accounts of that sort:

  • Fuel and fuel tax
  • Office supplies
  • Uniforms
  • Bookkeeping fees
  • Business travel
  • Insurance premiums
  • Permits and license fees
  • Depreciable property
  • Protective equipment (safety vests, steel-toed boots, etc.)

These are some of the tax-deductible expenses you may monitor and keep note in your bookkeeping. Make sure you have proper records of these expenses to file taxation with the IRS.

You may also want to take note of the expenses that aren’t tax-deductible. They are:

  • Personal outings or vacations
  • Residential phone connections
  • Downtime expenses
  • Commuting costs
  • Expenses reimbursed by the company you’re working for

Tax Credits to Reduce a Trucker’s Tax Liability

Tax credits aren’t like tax deductions. However, a truck business owner can significantly reduce his tax liability by tax credits.

You may get tax credits in the following accounts:

  • Earned income credit
  • American opportunity credit
  • Child tax credit
  • Child and dependent care tax credit

The US government has reintroduced a tax credit facility to encourage new truck drivers to join the trucking industry. It further accounts for the existing truck owners to compliantly work throughout the year and power up the country's supply chains.

Tips to Minimize Taxes of a Trucking Business

Proper bookkeeping and timely calculation throughout the year can help you minimize your taxes on your trucking business by maximizing deductions. After all, minimizing taxes is a vital strategy to prevent revenue leakage in your business.

Below are a few proven tips to achieve that state:

  • Purchase Your Supplies Late

Practice buying your necessary supplies for business at the end of the year. Rather, spend on the business essentials. This will potentially lower your tax bracket.

  • Prepare for an IRS Audit to Avoid It! 

What we mean here is to be thoroughly equipped with the proper documentation and expense records. It’s highly likely that the IRS may audit your company and tag a red flag on it due to improper documentation. 

  • Keep Thorough Financial Records

Knowing the financial records of your trucking business like the palm of your hand is the key to making the right decisions. It helps you take the business a step further each year.

And obviously, it maximizes your business profits while minimizing taxes.

  • Hire a Professional Tax Specialist 

Calculating your small to medium trucking business may seem less expensive, but it entails a lot of issues. Instead, hire a tax specialist to get the job done with zero errors while saving a lot on taxes.

Final Words

So, this is pretty much all about taxation in a trucking business. As an owner-operator, you can get some significant tax benefits for your business. However, your business must be compliant with state law and regulations to achieve those benefits. You must also know the various types of taxes to avoid overpaying of taxes and maximize your business profits.

Remember, filing taxes properly will take your trucking business a long way. So, instead of messing up with the numbers and figures, hire someone professional to accomplish the task smoothly.

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