It takes time to adapt to a shift in employment or pay structure. Whether shifting from being paid hourly to salary or switching from salary to commissions, it can be difficult to adjust. Similarly, there is a significant financial shift from being a company driver to an independent owner-operator, with the most significant change being owner operator trucking taxes.
Taxes are a key consideration when taking the helm as an owner operator and should be a major factor in your trucking business plan. Navigating business taxes for the first time is a daunting task. Taxes tend to be more complex in the first year of trucking ownership, which is why getting organized early is critical to avoid costly truck driver bookkeeping mistakes.
Owner operator trucking taxes include self-employment tax, quarterly estimated tax payments, International Fuel Tax Agreement (IFTA), and Heavy Vehicle Use Tax (HVUT).
As an owner operator you are your own boss, but that comes at a price; you are subject to self-employment tax, which covers Social Security and Medicare contributions. This is typically 15.3% of net earnings and is paid in addition to federal and state income taxes.
The IRS requires paying taxes four times per year instead of once annually. These payments cover both income tax and self-employment tax. It pays to pay on time – there are penalties for underpayment or late payments.
The IFTA applies to interstate truckers who travel through multiple states. This requires tracking fuel purchased and miles driven in each jurisdiction. Quarterly filings ensure that the fuel tax is distributed fairly across states.
The HVUT is the annual tax for operating vehicles weighing 55,000 pounds or more on public highways. This is paid each year by August 31 for most truck owners, with the purpose of maintaining the highways primarily used by truckers. This tax is paid via IRS Form 2290. A stamped Schedule 1 is issued as proof of payment, which is a requirement for vehicle registration.
It may seem impossible to track finances and manage the money while on the road, but staying compliant with owner operator trucking taxes requires a rigorous approach to trucker bookkeeping. Beginning your journey with some good habits, diligently tracking income, expenses, and deductions will set you up for success in the long haul.
It is imperative to separate business and personal accounts – and to keep them as far apart as the east is from the west. Keep detailed records of all loads, settlements, and reimbursements. This is best accomplished by using modern technology to your advantage, such as accounting software designed for truckers and apps for logging expenses on the go.
One benefit of owner operator trucking taxes is the ability to claim several deductions – items such as fuel to operate, maintenance, repairs, and depreciation. Additionally, insurance premiums and permits are deductible along with meals, lodging, and per diem rates for over-the-road drivers. Finally, consider office expenses, including cell phone and internet used for business.
As you acclimate to business ownership and paying owner operator trucking taxes, there are some common pitfalls to avoid.
If you’re used to paying taxes only once a year, it can be difficult to adjust to quarterly payments, but this must be a priority. Late payments may incur penalties even if you are due a refund when you file your return.
As a new business owner, paying self-employment tax is a fresh concept, but this is an area you do not want to fall short. Not only are there underpayment penalties, but the IRS will charge interest on unpaid taxes, which will accrue until the balance is fully paid.
We all lack motivation at times and slip into laziness. As an owner operator, however, it is crucial to stay on top of your expenses. Poor documentation of expenses leads to lost deductions and missed opportunities.
Remaining IRS-compliant is important. Intermingling personal and business funds, whether intentionally or accidentally creates difficulties when filing taxes, increases personal liability and enhances the risk of audits.
As with late filing on most taxes, there are financial penalties for missing HVUT and IFTA deadlines, including accrued interest. However, with missing the IFTA deadline, there’s also the potential to have your license suspended.
Working to avoid the common pitfalls is great, but even better is proactively pursuing helpful tools and leveraging technology. Some helpful tools include mileage and expense tracking software, cloud-based accounting systems for independent truckers, and mobile apps for scanning receipts and organizing logs.
Rookies often look to those with experience in their field for advice and guidance. Those new to paying owner operator trucking taxes can benefit immensely by using a trucking-specific accountant. CPAs and professional tax preparers familiar with IFTA, HVUT, and per diem rules can provide wise counsel to make tax preparation smoother, helping to reduce audit risk and increase deductions.
While there are many facets to owner operator trucking taxes, one component is easy to overlook because it isn’t paid at the same time as your quarterly estimated income taxes – the HVUT. Here at i2290 we have simplified the HVUT filing process, making it easy for you to file on the go with the convenience of e-filing from anywhere.
With so many financial balls to juggle, it’s hard to keep everything straight and mistakes are bound to happen. With i2290, you’re essentially covered; along with free VIN corrections and weight amendments, you will have access to digital copies of your Schedule 1 for seven years and if you run into trouble our high caliber customer service crew will be by your side to serve you.
Create an account with i2290 today for a simpler and more pleasant filing experience!
Special note: This article is for general purposes, and is not intended to provide, and should not be relied on for tax, legal, investment, or accounting advice. The best way to ensure you’re properly filing and paying appropriate taxes is by following IRS regulations and consulting with a tax professional.
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