While death and taxes may be the only certainties in life, of the two, taxes come around way more often. That's why we've put together some of the most common tax questions asked by owner-operators. Answers come from DAT business partner ATBS, the largest tax and accounting firm for owner-operators. ATBS has helped more than 150,000 truck drivers with their businesses.
Q: How much should I set aside for business taxes?
A: It is recommended to set aside 25-28% of your weekly net income for quarterly taxes.
Q: I did not pay my quarterly tax estimates this year. What is going to happen?
A: The IRS will charge underpayment penalties and interest for the tax not paid. At ATBS, our tax department will calculate that charge and include the penalties and interest on your year-end tax return.
Q: How does the Per Diem tax deduction work?
A: Per Diem (per day) is one of the largest tax deductions of an owner-operator. It is a deduction for meals and incidental expenses on the days you are working away from home. The current rate is 80% of $66 per full day, and ¾ of this amount for partial days. Partial days are the day you leave home and the day you return. If you are using a motel/hotel while on the road, Per Diem is still deductible, but not during home time.
Q: Can I use my e-log records to count the days for Per Diem?
A: You can if you have the full year of e-log records.
Q: Can I claim the home office deduction?
A: It is possible for an owner-operator to qualify for a home office deduction, however, you need to meet two tests:
1. The home office must be used regularly and must be used exclusively for the business, and;
2. The home office must be your principal place of business.
If you conduct business outside of your home such as being an over-the-road trucker but use an office space when you’re home to conduct business calls, organize receipts, and overall business functions then it’s possible to qualify for a home office deduction. There has been conflicting information about what qualifies for a home office deduction but if you can prove the office is used exclusively for business then you should be entitled to the deduction. The IRS may challenge the validity of the deduction for a trucker since your truck is considered your primary place of business.
Q: Is fuel tax deductible for truck drivers?
A: Yes, fuel tax is a part of the cost of fuel, so it is deductible as an outgoing owner-operator fuel expense.
Q: Is clothing deductible?
A: Generally, gloves, steel-toed boots, etc. that are required as part of the job are deductible, but not general everyday clothing that everyone needs to buy.
Q: Are medical expenses deductible?
A: If medical expenses exceed 10% of your Adjusted Gross Income you can deduct the amount over 10%. For example, if you have an adjusted gross income of $50,000 and $6,000 of medical expenses, you would multiply $50,000 by 0.1 (10 percent) to find that only expenses exceeding $5,000 can be deducted. This leaves you with a medical expense deduction of $1,000 (6,000 - 5,000).
Q: What is the penalty for not having health insurance?
A: The insurance mandate has been removed. As of 2019, there is no longer a penalty for not having health insurance.
For additional tax Q & A's, go to the ATBS website and read Common Tax Questions For Owner-Operators