Accurate Record Keeping of Expenses and Deductions
Is Critical in Helping Truckers Reduce Your Tax Burden
Is Critical in Helping Truckers Reduce Your Tax Burden
The trucking industry provides a great opportunity for men and women who want to be self-employed as over-the-road truck drivers as well as truckers who want to be company drivers. And it takes a special person to be able to handle the stress of the lifestyle of a tractor trailer driver.
But whether you are self-employed and own your own rig, or you are a company driver, learning to manage your money is crucial to your success. As with any business you will have to deal with taxes, and accurate record keeping of your income, expenses, and tax deductions is critical in helping to reduce your tax burden and plan for your future financial security.
Keeping track of your costs and learning where you can reduce spending is essential. Take the time to prepare and write down a budget and a system for keeping track of your income and expenses. Use a pre-planned itemized worksheet listing tax deductions for otr truckers or design your own. Determining your minimum cost to operate is the first step; know your expenses so that you:
- avoid being caught off guard and can plan for emergencies
- put 10% of your gross income aside for emergencies
- remember to allow for planned and unplanned maintenance
Tax deductions are defined as ordinary and necessary expenses incurred during the conducting of business. Simply translated, this means that extravagant or useless expenses will not qualify as being a legitimate deduction.
Your Tractor Trailer ....
The most obvious class of deductible expenses includes:
- maintains, fuels or otherwise directly keeps the truck and its accessory equipment operational
- diesel, oil, coolant, tires, replacement parts
- fees or charges relating to servicing installation or delivery of these
You ... The Tractor Trailer Driver ...
Many costs associated with traveling away from home are also deductible. Per diem rates for meals can vary from state to state. As of October 1, 2009, the federal standard per diem meal rate for over-the-road truckers was $59 per day. If you were home for part of the day that you started or finished a haul, this amount can be prorated. Other deductible costs directly related to you include:
- paying for shower facilities, laundry
- work clothing boots, gloves and other safety equipment
- equipment and supplies geared towards the business side of trucking than the driving side such as laptops, staples, forms, pens, log books and other office supplies
- maintaining an office in your home to meets the requirements of the IRS as a designated area, equipped with a desk, computer, phone, etc. Discuss this with your tax preparer.
Other Deductions ...
Some deductions are contingent on whether you are employed as a company driver or you are an owner-operator. As an example, if you are an employee and receive per diem for meals, you cannot claim a per diem deduction for meals. As an owner-operator, you can deduct any expense for repairs to your rig. However, if you perform repairs yourself, you can deduct the expense for parts but not for your time.
Owner-Operators cannot deduct:
- the time you incur from working on your own equipment
- the income lost as a result of unpaid mileage
Any expense incurred from the use of lumpers (workers who load/unload the truck) is deductible. However, only the person or company incurring the expense can deduct it. You can deduct the entire pay of lumpers directly employed by you, but only the portion of their pay that you cover if their wages are jointly paid by you and a client.
A word of caution: don't fall into the trap of trying to claim too much and unfortunately triggering an audit. Here are some non-deductible expenses that most truckers need to leave off:
- expenses that were or will be reimbursed by your employer
- clothing that is adaptable for everyday wear
- commuting costs such as tolls, gas, parking
- home phone line
- interest on personal loans
- personal vacations
- student loan interest or student loan principal
Keeping Your Records ...
A good record keeping system doesn't have to be complicated. It just has to be accurate and reflect what you spend and what you take in. Bookkeeping is nothing more than grouping and summarizing all your income and expenses.
To help you record your income and expenses you can make your own Worksheet. All you will really need is an accountant's pad available in any office supply store. (Remember, this purchase is a tax deduction!). Simply list each month across the top of your Worksheet and all your costs.
First list "fixed costs" that remain the same month to month or year to year, such as:
- truck payment, truck insurance, medical insurance
- licenses, permits
- highway use tax
- preventative maintenance, etc.
Next, list your "variable costs" such as:
- fuel, fuel taxes,
- tools, supplies
- telephone, repairs
- parts, etc.
Project out for a year what you think your costs will be then keep a second worksheet with your actual costs each month. Then compare the difference to see if you can rely on your projections. Being able to accurately project your future income and expenses is a tremendous help for tax planning and business management purposes. Next, you should record your monthly income on the worksheet.
Calculating Your Cost Per Mile ...
Knowing your cost per mile (cpm) is very important. Be sure to keep track of your miles each month and calculate your cpm by dividing your costs by your number of miles. Determining the cpm is a good way to keeping track of how well you are doing. Proper realistic planning can and does make the difference between success and failure.
Once you have your system set up you should send your records to your tax preparer on a regular basis. Sending them to your preparer on a Quarterly basis is the best way. By sending your records regularly you will be informed of your current tax situation and get help with planning. This will also help guide you through your financial questions. Another reason is that by having your quarterly estimated taxes adjusted you can avoid penalties. Whether you do your own bookkeeping or have a tax preparer do it, you should always use someone familiar with the trucking industry.
The trucking industry has become more and more complex. And tax laws have become more complex. An expert who knows trucking can provide the best advice concerning methods of depreciating equipment, options concerning equipment purchase and/or lease, as well as keeping up to date on changes in the tax laws that affect the trucking industry.
Sources of Information for this Article:
PBS Tax and Bookkeeping