This topic is very important for every Owner operator like us because we understand that we are running a business now, and like every other business we must file and pay our taxes. Which means our profit will be impacted if we miss out on a legit tax deduction that is under our nose, just because we are not well informed or confused and we end up overpaying the IRS.
You want to succeed as an owner operator and earn the money you expect, it is imperative that you educate yourself on how to manage effectively your business money. You will be very happy with how much cash you keep when you have a plan for taxes deduction. We always recommend finding an expert on the subject that will help you clarify what can an owner operator claim on taxes, at least for the first years until you get comfortable and maybe do it yourself.
Every self-employed situation is unique, but in the following overview, we will list the most common deductions for tax purposes that will help you avoid pitfalls on the Tax Code and will help you save some money during tax season, making your trucking business life so much easier all over the year as well.
What can an Owner Operator claim on taxes by categoryThe most important thing, to begin with, is to remember to keep a record of all of your expenses, write down the type of expense, date and amount in your logbook. Save the receipts in a binder and recording them later into your bookkeeping program. Paying with a credit card can be helpful too to validate the expense.
Capital ExpensesAs part of what owner operators can claim on taxes, the IRS recommends that you capitalize instead of just claiming costs. They encourage you to invest in your business to make it grow. Expenses on business start-ups, improvements or purchasing business assets add value to your trucking business increasing your net worth like the following examples:
The Tractor.- You have a few options to write off the cost of your truck, like these 3; 1)during the year the vehicle is put into service depreciating it by 50% of the cost, 2) immediate expensing and 3) normal depreciation for a recovery period of three or five years. But it can also be used as a combination of all 3 if it applies to you.
Tractor Lease.- Having a lease-purchase agreement can help you deduct the expense. Just don’t forget that the down payment is not part of a lease agreement and you won’t be able to deduct it.
It can be confusing to know what owner operators are allowed to claim on taxes, but one thing is for sure you won’t be allowed to deduct personal expenses, you need to find a way to make this expense as if is part of your company expenses. For example having some expenses that your company and your living expenses, try to divide the total cost and deduct a percentage of that cost. You most likely use your home for your living but also for your trucking business, right? Then you might choose a room and the garage as part of the business facilities deducting the home repairs, mortgage, utilities, etc. Check with your accountant for your specific situation.
Business ExpensesTake a look at the Deducting Business Expenses from the IRS webpage, you will see that they define business expenses the following way: “the cost of carrying on a trade or business. These expenses are usually deductible if the business operates to make a profit”. Keeping this mind let's look at the following examples that can be deducted as business expenses:
Operating Expenses.- Obviously this is part of what an owner operator can claim on taxes this is the most common expenses in the business and of course, they are deductible. Fuel, maintenance for your truck, insurance plans, permits, government fees, along with the self-employment tax and any other fee you get to pay to continue running your company.
Food and Meals.- Having meals away from your home, metro area or municipality, you may definitely deduct up to $63 per day. This will only apply if you need to stop for a meal in order to rest to continue performing well while driving. Just never forget to keep your receipt as we mentioned before
Lodging.- Yes, you can deduct lodging, and just like on meals don't forget to save your receipt. And one other important thing; in order to claim this expense you are required to have a residence, being an itinerant it could not be possible for you to claim lodging, even meals can be affected by this situation, because they will consider that you are never away from home if you don't have any.
Expenses you have on the road.- You are allowed to include in this type of expenses your personal laundry, maps, safety gear, your logbooks, office supplies, cleaning supplies, tools, cargo straps and any other related expense that you consider necessary to perform your job well.
Communication Expenses.- You are able to deduct the cost of your cell phone, cell phone accessories, phone cards, pager, your cell phone plan, internet, satellite radios, CB radio, and subscription are deductibles with their proper receipt. All these items are part of what you as an owner operator can claim on your taxes.
Other Expenses.- Is possible to deduct also some of the following: computer and software that you use for your trucking business, business-related subscriptions, medical exams like drug testing, DOT physical, eye exam, glasses, apnea studies and any other medical exams related to your trucking compliance. You can also deduct retirement and insurance plans for your spouse and for yourself. Per diem, if you are away from home overnight, accounting services, bank fees,
Expenses that are Not DeductibleYou can easily get confused, especially filing your own taxes or if someone told you what can an owner operator claim on taxes and then you try to claim some of those expenses that are definitely not deductible. You might give the IRS a reason to audit your owner operator business. So be very careful when you are not paying the services of an expert.
You cannot deduct the following: Street clothing, your time performing maintenance for your truck, dog as security, deadhead and unpaid miles and income lost for downtime.
Now you know what can an owner operator claim on taxes, but remember that you need to keep your records of every expense for you to claim it. We believe that is a smart idea to find help from a tax preparer whom can help you keep the most money and that it will keep you informed on any changes in the law that could affect your owner operator business.