Deducting Travel Expenses
In general, personal expenditures such as food and lodging are not tax deductible. However, a taxpayer may deduct these costs while he or she is away from home overnight for business purposes. Instead of deducting actual expenditures, taxpayers can u
As a trucker, you know taxes. You pay a wide array of federal, state and local taxes in the form of registration fees, vehicle fees, fuel taxes and assorted other levies. For instance, you pay at least three levels of taxes on your truck. You register it every year, pay fuel taxes to run it and, depending on your home state, you may pay weight-mile taxes, sales taxes and/or property taxes on the vehicle.
The federal government gets its piece, the state gets some and the county or town gets a share. And then there’s the income tax you have to pay on the money you made last year driving a truck. At times, it seems like it never ends. While you may not have much control over what your state charges you to register your vehicle, you do have the ability to reduce the tax bite Uncle Sam takes each year on April 15 by making sure to take advantage of every business expense deduction to which you’re entitled. The key to this tax relief is keeping good records. It sounds simple, but in practice it takes discipline and a reliable system that’s as high-tech or low-tech as you want.
One of the major surprises small business people of all kinds face when they first start out is paying self-employment taxes. When you work for somebody else, your employer matches the social security and Medicare deductions made from your paycheck. But a self-employed trucker operating a business as a sole proprietorship has to pay these Payroll taxes—the self-employment tax—him or herself.
“Most small business owners are not prepared for the self-employment tax,” says Candace Saari, a CPA with a firm in Roseville, CA. “They can’t believe what they owe when they file their returns. “They need to recognize the fact that that is 15% before they even get to discussing the income tax they owe,” Saari continues. “If they understand that, then they have an understanding of the incentive to not miss out on any deductions or not to overstate their revenue, because they are going to pay more taxes otherwise.” To make sure you don’t pay more taxes than you need to, Saari advises maintaining good records of all revenued expenses. KEEP RECORDS
Of course truckers who regularly make quarterly estimated tax payments to the IRS aren’t faced with as much of a surprise come tax day, but even for these truckers, recordkeeping is paramount. But truckers don’t always do well when it comes to recordkeeping.
“There’s usually a lot of missing information when we start working on a client’s return,” says Howard Abrams, owner of PBS Tax and Bookkeeping in Tarzana, CA, a firm specializing in trucking clients. “If they get a 1099 from a motor carrier they are working for, they may not bring in the settlement sheets even though there were deductions off the settlement sheets,” Abrams notes. “They should compare the revenue with whatever it says on the 1099 to make sure that’s correct. Truckers might purchase some equipment but fail to bring the contract. Or they might bring in their receipts, settlement sheets and 1099s, but forget about their check record or credit card statements, which could show major business-related purchases.”
“One place I find small business operators show a lack of discipline is in keeping track of cash expense,” says Saari. “A lot of time, people may not have the business checkbook on them when they buy things they need for their business, so they reach into their own pocket. If they don’t have an organized way to track expenses, they’re going to miss [recording] cash expenses.” GET ORGANIZED
Tracking your cash expenses does not require a lot of effort, or extra equipment. “By organized I mean one spot where you put all those receipts for cash expenses,” Saari says. “That can be an envelope in the glove compartment of your truck that says postage, or fuel, or supplies, or whatever the expense may be. All you have to do is collect those little receipts all year long. I think a number of people lose out on a number of their deductions because they don’t track these little cash expenses.” Lawrence Wright, a tax preparer at Complete Business Services, Carmichael, CA, agrees. “Every small business has some cash expenses,” he says. “And it’s awfully hard to keep track of them. Like most bookkeeping firms, we have an approach to tracking these things, but it takes cooperation on the part of the business owner. But if they do cooperate, they can catch most of the things that qualify as deductions.”
One in particular is the use of a personal vehicle for business purposes. Needless to say, truckers sped most of their time in the cab of a truck. But there are certainly many times that they use their personal vehicles for things related to their trucking business. These are the expenses to be more aware of—and to keep detailed records of. “With the truck itself, the requirements for records are not as crucial because it’s a single-use vehicle,” Wright says. “They are not going to take their tractor out to the drive-in on Saturday night. But these trucks can require a lot of repair and maintenance.
Where truckers do need to keep mileage records is when they use their personal cars to take care of their trucks. For example, truckers often drive down to the local parts house to buy one or more parts to keep their truck in running order. And they often use their personal vehicle to do that, making it a multi-use vehicle.
“Truckers need to keep vehicle mileage records when they use their personal vehicle for business-related purposes. That can really add up,” Wright points out. “My truckers are constantly doing these sorts of things. If not every weekend, then close to it. There is a significant amount of expense involved with personal use vehicles.” Saari concurs that using the personal car for business purposes and keeping track of those miles can help reduce your tax burden at the end of the year. And using it to get parts is not the only thing that counts as a business expense. For instance, driving your personal use vehicle to the Mid-America Trucking Show in Louisville or to other trade shows to check out the latest equipment is a business expense. If you keep track, you can deduct the mileage, parking fees and tolls. And if you stay overnight, you can deduct your lodging and per diem expenses as well. But you can’t deduct these business-related expenses if you don’t keep track of them. “I find that small business operators show a lack of discipline in logging their business miles when using their personal vehicles,” Saari says. “The opportunity to be able to write off the cost of your personal use vehicle when you use it for business is one of the benefits of being a sole proprietor. It’s an opportunity to take what you might consider a personal expense and turn it into a business expense. Not only do you benefit from the tax deduction, you also benefit because it helps ease the self-employment tax.” After running several thousand miles on the job, keeping track of the few miles you run in your family car doing business related errands may seem like a waste of time. But those expenses add up. “If people could get themselves more organized, they’d find those dollars can add up pretty quickly,” Saari says. “A day planner is a perfect tool for that.” SEPARATE ACCOUNTS
Another tool for keeping track of expenses related to your business is to open a business checking account. “It’s very helpful if the self-employed trucker has a checking account dedicated to his business,” Wright says. “It can be difficult [to prepare a tax return and take advantage of all deductions] if you don’t have one.” “Don’t co-mingle your business cash with your personal cash,” Saari adds. Doing so can increase your tax liability. “I have people who use the deposits from their personal bank statements to track revenue because they don’t have any other way of tracking it. But they could be paying tax on revenue that isn’t from their business.” For example, if you have a roommate who gives you a check for his share of the rent and utilities each month, that money could be confused with the revenue for your business. “You need to find a way to track your revenue outside of using your personal bank statements,” Saari advises. While drivers don’t have the same kinds of tax concerns as owner-operators, they should still keep track of all job-related expenses they incur on the road. Those that are not reimbursed by an employer can be used as deductions at tax time —as long as the driver files a 1040 “long form” and has enough deductions to itemize.
PBS Tax and Bookkeeping Services, Tarzana, CA, lists a number of tax tips for drivers and owner operators on its web site (www.pbstax.com). PBS, which has been working with truckers for 25 years, also provides a downloadable tax organizer for drivers and owner operators. CAN YOU ITEMIZE?
“We list qualifications for drivers that explain whether or not they’re eligible to itemize deductions, assuming their deductions are greater than the standard deduction,” Abrams says. “If they’re single and don’t own their home, they’re probably not going to qualify,” he points out. “Most likely, if a driver owns his own home, he’ll qualify to itemize.”
Items that may be tax deductible include uniforms, gloves, logbooks, maps, cell phones, CBs, and tools. Of course, you may not take these expenses as deductions if your company reimburses you for them. Drivers are also entitled to a per diem allowance for overnight runs. This allowance covers the costs of meals and incidentals while on the road. You may take this allowance as a deduction if your employer does not reimburse you for meal and incidental expenses.
The old saying holds that the only sure things in life are death and taxes. But with your taxes at least you can mitigate the impact.
Prepared by Edward J. Schnee, CPA, PhD,
Joe Lane Professor of Accounting and director, MTA program, Culverhouse
School of Accountancy, University of Alabama, Tuscaloosa.
Disclamer: On this pages of this web site you will find resources concerning the trucking industry. This information was collected from many independent sources. The opinions expressed by each source is their opinion and is not necessarily the opinion of Denise or the CPA Moms. Each article or news item offers a different point of view and the source of each. This information is for general information only.
If you want a specific opinion, please contact me. |
