UPDATE: This article was updated on 1/7/2020 to have most updated information regarding tax information for the current year.
As the April deadline approaches, most Americans are buried in receipts and tax forms to avoid overpaying their taxes. The changing tax code rules and regulations could make even Einstein pull his hair out.
There are numerous standard deductions available for freight brokers, shippers, and truckers. These deductions help reduce taxable income. A change beginning with 2018 tax filing, the personal standard deduction was raised to $12,200 for individuals. It has risen to $18,350 for Head of Household and $24,400 for married couples who will file jointly. It is beneficial to use standard deductions if itemized deductions are a lesser amount. There are no standard deductions for businesses. Business expenses can continue to be Form C deductions. Examples of business deductions are insurance, licenses, office supplies, travel expenses, professional fees (such as accounting fees, load board subscriptions, etc.), advertising, phone, loan fees, retirement contributions, and vehicle leases.
Partially deductible items include a home office, car, transportation expenses, and meals while on the road. A Per Diem is the amount allowed to be deducted per day while on the road. The per diem for owner-operators with an overnight stay:
80% of $66 per day
Depreciating Property deductions include office equipment like computers, copiers, and printers. It also covers trucks, trailers and other heavy equipment. A frequently missed deduction is casualty losses. When a truck is involved accidents during the previous year, the associated expenses are deductible.
Contributions to an IRA, SEP, or 401(k) are tax deductible up to a $6,000 limit ($7,000 if you’re over age 50). While most companies make it easy to invest in retirement by offering 401(k)s, it’s more work for the self-employed. Banks, credit unions and financial planners will help set up a retirement plan that will plan for the future but allow for tax savings now.
For the self-employed, a big portion of taxes goes to self-employment taxes. People who work for a company have a portion of their Social Security and Medicare paid by their employer. Self-employed workers are responsible for paying these in full which is 12.4% for Social Security and 2.9% for Medicare.
Keeping meticulous business records is key to lowering taxable profits. Doing so will free up money to invest back into the business. Hiring a tax preparation professional is a good idea for shippers, drivers, or freight brokers. Errors or missed deductions may cost more money than a professional tax preparation fee. Due to the tax code changes it’s wise to consult with someone familiar with the new changes and the trucking industry.
Direct Freight Services provides a cloud-based platform to post and search for loads as well as have access to credit reports, weather reports, alerts, and other functions to help your business grow. Direct Freight provides an easy way to post and find loads, and the $34.95 monthly subscription fee is a business deduction. Visit DirectFreight.com and get started today!
Sources:
https://www.irs.gov/pub/irs-pdf/f1040sc.pdf
https://www.dat.com/blog/post/6-ways-truckers-can-lower-their-2018-tax-bill
https://www.irs.gov/publications/p946
https://www.irs.gov/newsroom/tips-to-know-for-deducting-losses-from-a-disaster