Tax Law Tips for Truckers in 2019

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Tax Law Tips for Truckers in 2019

When President Trump signed the Tax Cuts and Jobs Act of 2017 it came under immediate criticism by many as a boon to those in the higher tax brackets and a gift to corporations at the expense of mid- to lower-level wage earners. Trump’s administration rejected these characterizations as wrong.

However, as of February 8, total refunds for all filers, the majority of which were personal returns, were $22.18 billion compared to $28.86 billion for the same period last year, a 23.2% drop according to the Internal Revenue Service. The average refund was $1,949, down 8.7% from $2,135 in 2018.

It can be difficult as a taxpayer to make sense of the new tax law changes. We’ve made it part of our job to help break things down a bit. This impacts three groups of industry stakeholders:

  • Drivers employed by carriers (“W-2 driver”)
  • Owner-Operator
  • Truck Carrier

While everyone’s tax situation is different, here is some general information for you that might help.

W-2 Drivers

Company drivers who file an IRS Schedule A are no longer eligible for the per diem deduction. 

Drivers used to deduct the cost of work-related expenses like mobile phones, work gloves, soap used for showering on the road, etc. They used to be able to deduct that on Form 2106. This change is impacting all company drivers in different ways.

The average driver on the road about 300 days a year could often find up to $15,000 a year in such deductions. This has been replaced by a $12,000 personal exemption.

For team drivers, the impact can be higher.

If you have a team, like a husband-wife team, filing jointly, this will create a major dent in your taxable income. It will be especially hard on families that have more than two children.

Between being impacted on the per diem and then perhaps not being able to take the same level of deductions for the number of children that they have, some company drivers are getting hammered. Taxable income can go up by as much as $20,000, $25,000 for large families between that and the per diem.

As in the case of the single driver, that number is not the tax itself but the taxable income. The amount of tax paid will depend upon their bracket.

There may be a per diem workaround for some drivers. If carriers are paying by the mile, you can split that out. You’ll still pay the same dollar per mile. However, if you classify 85 cents per mile as pay, and take 15 cents per mile and classify that as per diem pay, it falls on the non-taxable side. Your overall pay remains the same, but your taxable income goes down. Therefore, you’re able to take advantage of the per diem deduction just simply by the way the motor carrier is paying you.

Larger carrier customers have been inquiring about how to implement such a plan for their W-2 drivers. Talk to your company about this strategy, and call us if you have any questions.

Owner-operators

Generally speaking, Owner-operators get a break with the new tax law. 

Beginning Oct. 1, 2018, per diem increased from $63 a day to $66 a day in the US. It’s about five dollars higher for trips to Mexico and Canada. That change alone, over the course of a full year, will reduce Owner-operator tax liability by about $200-$300.

In order to deduct your travel expenses, you, as the taxpayer, must be away from your home residence or tax home longer than what would constitute your ordinary workday. You must be away from your home long enough that you cannot complete the trip without sufficient sleep or rest.

The rest period must be long enough to require adequate lodging, such as an overnight stay at a motel or in your truck. A short duration of rest, such as a quick nap at a rest stop, does not qualify your travel expenses as deductions because it does not satisfy the overnight rule.

However, it is not necessary that you, as the taxpayer, be away for more than 24 hours in order to meet the overnight rule.

Follows the overnight rule:

If you were traveling on business and you rent a room to sleep or rest during a layover.

Does not follow the overnight rule:

You were traveling several hundred miles, and you need to stop to rest for an hour.

If you have no regular place of business and you do not maintain a fixed home, you may not deduct any travel expenses. A trucker who lives in his or her truck during the entire course of the year cannot deduct per diem meals.

The other big change is with qualified business income. As pass-through entities, (a pass-through entity is anything other than a Class C corporation such as sole proprietor, LLC, S corp. or partnership) you get an additional 20% deduction on top of your business deductions.

Carriers

All Class C corporations get a huge tax break as the new law changes the top corporate tax rate from 35% to a flat rate of 21%. This rate will be effective for corporations whose tax year begins after Jan. 1, 2018, and it is a permanent change.

The other big news for carriers is a change in the depreciation of equipment. There are some accelerated depreciation rules that come into play. In the past, you had to write off equipment over a period of time. Now, you are able to take more of that depreciation up front.

What You Can Do

For carriers (generally those with five or fewer trucks) that are operating as S corporations, check with your Enrolled Agent. Jeff will assess whether or not to change as a C corporation or stay as you are. As of right now, the motor carriers that are filing as S corps are still better off maintaining that S corp. status, maintaining the pass-through entity status, rather than converting to a C corporation. However, that could change with changes in the tax law in future years.

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Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting as well as an Enrolled Agent, a Certified Tax Resolution Specialist and Advanced Crypto Tax Expert.
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Author of the Now What? Help! Series, Jeff defines and deconstructs IRS notices and clarifies the letters and actions the IRS will take to get what they want. He interprets the world of the IRS in a fashion that mixes attention to detail with humor to help you better understand and resolve your tax problems.

The books are available in paperback and eBook on Amazon.

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