Tax season can be a nerve-racking time, especially for truck drivers and operators worried they’ll make a mistake severe enough to trigger an audit. Truckers transitioning to owner-operators may be unsure of the tax laws they must follow now that they do not share responsibility with their employer to collect and remit withholding taxes. Lacking the experience and knowledge to prepare taxes can lead to penalties and additional work later. Here are common tax mistakes truckers should avoid:
Your “system” can refer to your record-keeping methods, software, schedule, or all the mentioned. What’s important is that you’re managing your finances consistently. It’s better to commit some time each day to bookkeeping rather than cramming, which makes you more susceptible to making costly mistakes.
Work-related tax deductions depend on whether you’re a company driver or an owner-operator; ultimately, they reduce your adjusted gross income and allow you to pay less in taxes. However, you can’t claim and benefit from these deductions if you’re not keeping a careful record of the costs.
It doesn’t matter how small the amount; all work-related receipts should be saved and organized. After all, small amounts added up can become significant and impact your calculations. Organizing receipts has become more manageable now that there are smartphone apps that can scan and save receipts. It also helps to keep an envelope in your truck to store paper receipts.
Per diem tax laws apply to both independent contractors and owner-operators, allowing truckers to potentially enjoy thousands of dollars in tax savings. So, by not staying up-to-date on per-diem changes and rates, you may not be calculating your deductions correctly and paying more than you should.
Case study: Self-Employed Taxpayer's Income Drops Significantly Before He Can Pay his Tax Liability Our taxpayer was previously a successful commodities trader with The Seattle Board of Trade and was self-employed. Because he was so successful in his business, our taxpayer incurred a substantial tax liability, at one point reaching $1.6 million. Because of a downturn in his business, our taxpayer's income substantially dropped, he lost his ability to trade commodities and had to entirely change his career. Our taxpayer then worked as a delivery driver earning substantially less money than he did in the past. We filed an Offer in Compromise on behalf of our taxpayer and settled the case for $2,000.00 against a $1.6 million dollar liability. Our taxpayer is now free of his prior debt to the IRS.
Many states don’t require fleet owners or independent owner-operators to create a business entity. If you don’t choose a business entity, the state may consider it a sole proprietorship by default. The problem with this as a trucking business is that you may not be able to protect your assets or take advantage of specific trucking industry-related tax savings.
Also, you’ll need a business entity in place if you want to have a legal agreement for a partnership with a motor carrier. A partnership agreement will outline how to split the income and report it on tax returns.
If you’ve transitioned from being an employee of a logistics company to an owner-operator mid-tax season, don’t make the mistake of filing a W2 and 1099 separately. This is also the case if you work for a company part-time but are also an independent contractor.
For example, as an employee with a W2, you should no longer take a mileage deduction if you’ve transitioned mid-year to an owner-operator who is entitled to both maintenance and mileage deductions. Therefore, filing your tax return documents separately from your business income can result in penalties and audit flags.
If you’re in doubt about tax season, consult a tax solutions professional. If you require additional tax-related advice and tax problem resolutions, contact us at Golden Tax Relief.