Truck Driver Taxes: What You Need to Know
The pay is good, but it is tough being a truck driver. The hours are long, the miles tick by, and, for over-the-road drivers, the comforts of home and family are remote. Necessary sleep can also be in limited supply.
While the income is there, the time and tools to prepare and submit tax returns are not.
Keeping detailed mileage logs for tax purposes, copious notes for each job and expense, and compiling and keeping records only to summarize the information again on an annual income tax return is challenging. Being away from home and not having a personal computer handy makes the annual ritual even more difficult.
Finding an experienced tax attorney or preparer can help truckers avoid the all-too-frequent collisions with the IRS and state tax authorities.
How Much Taxes Do Truck Drivers Pay?
Truck drivers pay a lot of taxes. This includes income taxes, excise taxes, payroll or self-employment taxes, and others. Luckily, with some advanced tax planning, truck drivers may be able to significantly lower their tax bills. Keep reading to find out more about the tax laws for truck drivers.
Tax Preparation for Truck Drivers
There are tax attorneys and preparers who focus on preparing tax returns for truckers. It is a specialty tax area. Truckers need experienced tax pros. This is one of the first questions you should ask any prospective tax advisor before hiring them. An experienced tax pro can limit audit exposure and tax liability.
How do Truck Drivers File Taxes?
Truck drivers usually do not file their own tax returns. They typically hire tax return preparers to file their returns. This is a practical necessity given that many truck drivers.
Most independent contractors and owner-operators report their items of income and expense on their Form 1040 income tax returns each year. These items get reported on Schedule C included with Form 1040. Other truck drivers incorporate a business, such as an LLC. They may benefit from making an election for the business entity to be taxed as an S corporation. This can help reduce self-employment taxes they might otherwise incur.
This article focuses on independent contractors and owner-operators, as explained below. Before getting into their taxes it is helpful to pause to consider truckers who are employees. Taxes are more straightforward for employees.
For employees, the employer has to withhold income taxes and remit them to the IRS. They also have to pay and also withhold employment taxes, such as Social Security tax, Medicare tax, and federal unemployment tax. These truckers just have to file their Form 1040 income tax each year.
The Tax Cuts & Jobs Act of 2017 eliminated most deductions for truckers who are employees. These truckers should make arrangements with their employers to be reimbursed for expenses, as the employers are still able to deduct these costs. This can be a win-win for the truck driver and their employer.
1099 / Independent Contractor Truck Driver Taxes
Many truckers are independent contractors. This includes owner-operators. Independent contractor refers to the arrangement where employers do not withhold taxes. Is 1099 good for truck drivers? Yes and no.
The 1099 contractor arrangement is good in that the trucker’s paychecks are larger. This provides more money for living expenses currently.
Contract pay also has downsides. Estimated payments are one downside. Truck drivers usually have to file quarterly taxes and pay taxes each quarter. If a trucker does not make quarterly estimated tax payments to the IRS, they will have to pay penalties and interest to the IRS for late payments. This is all too common for truckers.
Truck Driver Self-Employment Taxes
Contract pay also triggers self-employment taxes. Truckers who work as contractors have to pay self-employment taxes.
For truckers who do not operate their businesses through legal entities, self-employment taxes are computed and remitted to the IRS on the Form 1040 individual income tax return.
This can easily add an additional 10 percent to the amount of tax due each year.
Tax Deductions for Truck Drivers
Contract work also affords truck drivers additional deductions. Thus, 1099 truck drivers are able to lower their taxes by taking advantage of these tax breaks.
How Much Can a Truck Driver Claim on Taxes?
We are often asked how much in deductions a truck driver can claim on taxes. The answer is as much as the law allows and as many expenses the truck driver can substantiate.
But this is not the right question. The question should start by looking at the allowable deductions, and identifying those deductions that the truck driver actually incurred. So the starting question is what expenses can truck drivers deduct?
List of Deductions for Truck Drivers; Truck Expenses
This includes deductions for tolls, phones and laptops used for work, truck maintenance and oil changes, truck insurance, truck storage fees, licensing and truck license plates, cost of fuel (if a fuel tax credit is not taken), cleaning supplies, trailer rental fees, voluntary memberships, company uniforms (not for everyday wear), gloves for a truck, meals (formal and quick bites), and maps and gizmos, such as CB radios.
Other taxes can also be deducted, including the Heavy Highway Vehicle Use Tax.
These costs add up, so it is nice that they can be deducted.
Travel Expenses for Truck Drivers
Truck drivers can also deduct travel expenses. Travel expenses include airfare, taxis, etc. These expenses are only deductible for travel while away from the trucker’s tax home for overnight travel. This includes travel that is longer than an ordinary workday.
The term “tax home” means the truck driver’s place of business. Many truck drivers have no regular post of duty. They are considered transients (or “tax turtles” who carry their homes on their backs).
Absent a regular post of duty, if the truck driver only makes local deliveries, their tax home may be the entire city. This can include hotshot drivers and other local drivers. These truckers can deduct travel while outside of the city.
If the truck driver is an over-the-road truck driver, the tax home may be the entire country. This can limit the travel expenses that are deductible.
The trucker has to keep receipts or maintain a log to substantiate these expenses. This includes records of the amount, time, place, and business purpose of the travel expense. The IRS auditors are picky about these expenses, so care should be taken to document these expenses.
Is CDL School Tax Deductible?
CDL school is tax-deductible. This may be deductible as a business expense or possibly as an above-the-line deduction. Regardless, the answer is yes, it is tax deductible.
How Much Can Truck Drivers Deduct for Meals?
Truck drivers may be able to deduct their actual costs or the per diem rate. The per diem rates can be found on the General Services Administration website.
Many truck drivers opt to use the per diem rates for the standard meal amounts to avoid having to keep detailed records (see the list of common truck driver problems below for more info on this).
It should be noted that truck drivers do not get to deduct per diem for lodging or hotel costs. Actual costs have to be used for lodging. This means that truck drivers have to keep excellent records for lodging or hotel costs.
Can Truck Drivers Deduct Tolls?
Tolls warrant special consideration. We are often asked whether truck drivers can deduct tolls they pay. The answer is generally, yes! As long as they are not paid or eligible to be reimbursed by an employer, truck drivers who are paid as contractors are able to deduct these costs (note that fines and penalties are generally not deductible; a toll is not a fine or penalty, sort of…).
Are Truck Payments Tax Deductible?
Truck drivers can deduct payments for their trucks. Specifically, they can deduct the interest on the loan (if any), and they may be able to deduct the cost of the truck via depreciation deductions.
Depreciation and Bonus Depreciation for Truckers
Truck drivers may also qualify for depreciation on their trucks. This depreciation deduction is available to owner-operators. Owner-operator teams can also qualify.
This owner-operator truck depreciation can also be very large for drivers. This is particularly true if the truck can qualify for bonus depreciation. This can allow the truck driver to recover 100% of the cost of their truck in the year it is purchased. This deduction may even be available if the trucker borrows most of the funds to purchase the truck.
Section 199(a) for Truck Drivers
Truck drivers may also qualify for the 199(a) qualified trade or business deduction. This deduction can be sizeable for truck drivers.
These tax deductions can go a long way in reducing the amount of taxes owed.
The IRS and state tax authorities focus on truck drivers. Truck drivers have a high probability of non-compliance. This is IRS lingo for they make good targets. This is the case given their higher than average income and their circumstances, recordkeeping practices, etc.
Mail and IRS Notices
The way the IRS and state tax authorities communicate with taxpayers is problematic for truckers.
The IRS still sends most notices by mail. This is a problem for truck drivers as the IRS generally does not deliver notices to truck stops.
The result is that truck drivers often do not receive important notices from the IRS. This may even include IRS audit notices and bank and wage levy notices.
Truck drivers often do not find out about these notices until long after the time to respond to them has passed.
Typical Truck Driver Tax Problems
There are some common types of truck driver tax problems or themes. These problems include issues that arise on audit and also IRS collections issues. They all result in added taxes and stress for truck drivers.
For example, the IRS has a long track record for auditing truck drivers. Truckers are a favorite for IRS auditors. IRS agents often adjust the amount of income that truckers report on their tax returns.
IRS agents base these adjustments on a number of different arguments. One common argument by the IRS is that the truckers reported income is too little given the miles driven. The IRS may recompute the amount of income it thinks the trucker really received. The IRS may also assume that truckers are paid cash tips and include these amounts in income.
IRS agents also take a hard stance with respect to tax deductions for truck drivers. They often deny deductions for truck drivers due to inadequate records or record keeping. They may also argue that deductions are not allowable as they were eligible to be reimbursed by employers. Or they were for expenses that were not “ordinary and necessary” expenses. The IRS may even question whether the expenses are personal in nature.
These stories are chronicled in court cases. Here are but a few of them:
- Truck Drivers Spouse Granted Innocent Spouse Relief for Omitted Truck Driving Income
- Truck Drivers Spouse Granted Innocent Spouse Relief for Omitted Form 1099-MISC Income
- Over-the-Road Truck Driver Not Entitled to Deduct Travel Expenses
- Truck Expenses Not Deductible Due to Inadequate Mileage Log
- Truck Stop Electrification Expenses Deductible, But Travel Expenses and Traffic Ticket Are Not
- Truck Driver Not Entitled to Deduct Meal and Supply Expenses
- Truck Driver Not Entitled to Deductions When Records Destroyed
- Truck Drivers Expenses Not Subject to Higher Substantiation Requirement
- Pilot Escort Driver for Oversize Load Trucks Able to Deduct Mileage but Not Meals
- Car and Truck Expenses Allowed Based on Mileage Not Actual Costs, Absent Records
- Moving Truck Driver Allowed to Estimate Contract Expense Deduction
- Tax Court Upholds IRS Estimate of Trucking Expenses
- Court Determines What Truck Driving Expenses Are Deductible
Trucker Tax Help: We Help Truck Drivers
If you are a truck driver and have tax questions or an IRS problem, it’s time to pull into the truck stop and give us a call. We want to hear from you. Your trucker tax help attorneys.
Call us at (713) 909-4906 or contact us online to schedule an appointment.
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