Will I have to report a gain if I am considering trading my old truck?
If you trade business property for other business property of a "like-kind", you will be able to defer recognition of a gain or loss. While your gain will eventually be subject to income tax, you may be able to defer taxation for a number a years. Keep in mind that any fully depreciated asset with a market value will result in a realized gain because there is no basis left in a fully depreciated asset! Generally a loss occurs when as asset is held for a short period of time that little or no depreciation could be written off on. The property in a like-kind exchange does not need to be transferred simultaneously in one transaction. However, in order to qualify for nonrecognition treatment of the gain or loss, the newer truck acquired must be identified within 45 days and received within 180 days of trading the old truck.
As an owner operator, do I have to report fuel surcharge paid by my company as income?
Owners operators of heavy truck/tractors are paid a fuel surcharge by the companies who lease their vehicles. The companies should include these surcharges in the Forms 1099-MISC they issue to the owner operators. The IRS has received information that indicates that some companies may not be including these fuel surcharges in the payment amounts shown on Forms1099.
Owner operators should check with the companies leasing their vehicles and confirm whether or not the company is including the fuel surcharges in the 1099s issued to the owner operators. Unreported fuel surcharges can be a significant issue for owner operators since unreported income can total $30,000 to $50,000 per year for one truck/tractor. With diesel fuel at $3.00 per gallon, for example, the fuel surcharge is $0.31 per gallon.
If the amounts shown on Forms 1099 issued to the owner operators do not include the surcharge the owner operator must include the fuel surcharges in the income they report on their tax returns. If the surcharges were not reported for prior years, the owner operator should file amended income tax returns to correct the oversight and avoid additional penalties and interest.
Likewise, companies who issue Forms 1099 should also check to make sure they are including the fuel surcharge in the Forms 1099 they issue. If they are not, they should file amended Forms 1099s to correct the error.
What is the purpose of form 2290, Heavy Highway Vehicle Use Tax, and who must file?
You must file Form 2290 and Schedule 1 for the tax period beginning on July 1, 2015, and ending on June 30, 2016, if a taxable highway motor vehicle is registered, or required to be registered, in your name under state, District of Columbia, Canadian, or Mexican law at the time of its first use during the period and the vehicle has a taxable gross weight of 55,000 pounds or more.
You may be an individual, limited liability company (LLC), corporation, partnership, or any other type of organization (including nonprofit, charitable, educational, etc.).
Use Form 2290 to:
- figure and pay the tax due on highway motor vehicles used during the period with a taxable gross weight of 55,000 pounds or more
- figure and pay the tax due on a vehicle for which you completed the suspension statement on another Form 2290 if that vehicle later exceeded the mileage use limit during the period
- figure and pay the tax due if, during the period, the taxable gross weight of a vehicle increases and the vehicle falls into a new category
- claim suspension from the tax when a vehicle is expected to be used 5,000 miles or less (7,500 miles or less for agricultural vehicles) during the period
- claim a credit for tax paid on vehicles that were destroyed, stolen, sold, or used 5,000 miles or less (7,500 miles or less for agricultural vehicles)
- report acquisition of a used taxable vehicle for which the tax has been suspended
- figure and pay the tax due on a used taxable vehicle acquired and used during the period
- Use Schedule 1 of (Form 2290) to:
- report all vehicles for which you are reporting tax (including an increase in taxable gross weight) and those that you are reporting suspension of the tax by category and vehicle identification number (VIN)
- as proof of payment to register your vehicle(s) (unless specifically exempted) in any state. Use the Schedule 1 stamped and returned to you by the IRS for this purpose
The 2290 is a tax assessed for the year beginning July 1st and ending June 30th (installment option is no longer available). The 2290 tax is assessed to the owner of the truck on the 1st of July if the truck is driven at least 5,000 mile after that date. If the truck was not driven 5,000 miles after July 1 the purchaser of the truck would owe the tax, no matter when the truck was purchased. The tax due is generally $550 per year and is due August 31st.
What is a TRAC (Terminal Rental Adjustment Clause) lease?
A TRAC lease is specifically designed for over-the-road vehicles (semi-tractors and trailers). This lease contains a Terminal Rental Adjustment Clause (TRAC) that guarantees your business a certain residual price for the vehicle when the lease expires. This is the most common type of lease for business owners who want the option of buying the vehicle for a pre-determined price at the end of the lease.
Benefits of a TRAC lease include:
- lessor gets tax benefits of ownership and passes these benefits to you in the form of lower monthly payments
- cash availability can be matched with special structures such as seasonal, step-up or step-down payments
- ownership interest in which you retain full control of the vehicle at the end of the term if you choose to own it with a guaranteed residual price
TRAC lease contracts contain a Terminal Rental Adjustment Clause, that in effect, grants you a fixed price purchase option for the vehicle at lease end, usually expressed as a percentage of the initial value, and that requires you to pay any deficiency if you choose not to purchase the vehicle at lease end and the net sale price is less than your fixed purchase option price. It is usually structured in 2-5 year terms and delivery costs are limited to 10% of equipment cost
Can I deduct deadhead miles as "lost revenue" on my tax return?
No. All expenses for “deadhead” miles driven are accounted for as deductions for truck operating costs. Since 100% of the expenses for the operation of the truck are claimed as a deduction on the tax return, "deadhead miles" are not considered. The IRS does not allow for losses, allowance or credits for “lost revenue” or “deadhead” miles driven, however you are allowed to write-off deductions for the actual costs incurred in operating the truck such as fuel, repairs, preventive maintenance, tires, and supplies, etc.
When are estimated tax payments due?
1st quarter - April 15th
2nd quarter - June 15th
3rd quarter - September 15th
4th quarter - January 15th
Why is the IRS cracking down on more taxpayers?
The IRS has been stepping up efforts to make sure that taxpayers are paying their fair share of taxes, especially as the federal budget deficit soars. About 40,000 more individual tax returns were audited in fiscal 2017 than in 2016, and the number has more than doubled since 2015. For 2017, the tentative federal tax enforcement budget is up nearly 10% from last year.
There is no way to 100% audit proof a tax return. However, there are steps you can take to minimize the chances that the IRS will challenge yours, including ways to make sure that you don't have any of the new potential red flags that the IRS is currently targeting.
REPORT ALL TAXABLE INCOME
To reduce chances of an IRS audit, report all your income. In the current economic climate, unreported income is a major concern with the IRS especially if you are self-employed and report income on a Schedule C of Form 1040. The IRS estimates the annual "Tax gap" between what taxpayers should pay and what they actually pay at $290 billion, and has said that underreporting income accounts for 80% of this gap.
The IRS may look beyond W-2s and 1099s that report income. They may examine all of your checking and savings accounts from December of the year prior to the year that is under examination through January of the following year, 14 months in all. You may have to provide that information for your children's bank accounts, too. the IRS will be looking for deposits substantially in excess of the income you reported. You will be asked to explain any deposits that were not classified as income, such as proceeds from a home equity loan, account transfer, an inheritance and gifts. So, make sure that you report all of your taxable income. Go over all of your bank deposits as the IRS might, and see if you can account for all deposits in excess of the taxable income you report.
MORE INCOME MEANS MORE VIGILANCE
With income of $200,000 or less, you have about a 1% chance of being audited according to the IRS. Audits of taxpayers in this income group rose only slightly the past three years. With income of more than $200,000 up to $1 million, your chance of an audit triples to about 3%.
This means the higher your income, the more vigilant you must be about avoiding errors, omissions and questionable deductions. There also is more reason to hire a professional tax preparer. And there may be more reason to lower your taxable income by investing in tax-exempt bonds and other means.
DON"T CALL A HOBBY A BUSINESS
Be cautious about reporting as a business any hobby that is only minimally profitable as an increasingly common practice that the IRS frowns upon because you are not allowed to deduct losses from a hobby, but you can deduct losses from a business. A real business may lose money. As long as you have records showing that you made a legitimate effort to create a real business, you can deduct the loss. This means running the activity in a businesslike manner, with a business plan, a separate bank account, and good records of income and expenses. If you report business expenses including auto, travel and entertainment expenses, that are relative to your income, that also could draw extra scrutiny from the IRS. Keep thorough records of income and expenses for your business. Be aware that you do have to report all income from a hobby. The good news is that you can deduct expenses of the hobby to the extent of that income.
BE CAREFUL ABOUT HOME OFFICE DEDUCTIONS
In addition to unreported income, IRS examiners often focus on deductions from a home office. Therefore, filing form 8829, expenses for business use of your home, might attract IRS attention and trigger an audit.
When a taxpayer who is audited has filed form 8829, many IRS districts now are making it mandatory for a revenue agent to physically visit the taxpayer's home by appointment. During the visit, the agent will look around and take pictures to determine whether there really is a home office, whether it's set up exclusively for business and how large a portion of the home is taken up by the office.
You should consider restricting the square footage you report for a home office to less than 20% of the total space in your home. You might end up with a slightly lower tax deduction that you are technically entitled to, but you may reduce your exposure to an audit.
PROOF OF CASH and NONCASH DONATIONS
The IRS appears to be taking a much closer look at cash and noncash charitable donations, especially ones that are very large relative to the taxpayer's income. Giving 10% of your income to charity is far above the norm, which is around 2%. Thus, donating large amounts relative to your income may be a red flag to IRS examiners. Gifts of property, especially those valued at more than $5,000, often draw scrutiny.
All charitable deductions must be backed up by written verification now, such as a letter from the charity or a bank record of the gift, or, for cash donations under $250, a bank record recording the gift. So, if you really donate substantial amounts and have supporting evidence, such as receipts, letters from recipient organization, and/or bank statements, take the deductions. Avoid making cash donations, it's better to use a check or credit card.
BACK UP HOME BUYER'S CLAIM
New laws in 2016 and 2017 created tax credits for many taxpayers. However, the Treasury Department found that about one out of every 10 claims for the tax credit is faulty, for a total of more than $600 million in claims that will not be allowed. The IRS has frozen thousands of tax refunds and initiated more than 100,000 examinations of questionable claims.
More than 580 people under age 18, including a four year old, claimed the credit, even though they are not eligible. The IRS suspects that some high income parents who were not eligible for the credit, had their low income children claim the credit. Another, perhaps more innocent mistake might be claiming the credit if your income was over the limit. So, to avoid inviting an audit, be familiar with all of the requirements for the home buyer's credit, and follow it. be sure to attached form 5405 and proof of closing to you tax return.
DON'T EXAGGERATE MORTGAGE INTEREST
During the housing boom, many people refinanced their home with "cash out" mortgages, pulling out home equity to use for living expenses. The IRS announced that it will extend a regional project scrutinizing mortgage interest to a nationwide level. The regional project found many people reporting large mortgage interest deductions in relation to their income, a potential audit red flag. So if you are reporting lets say $20,000 in income, you would be wise to attach a brief statement explaining how you can handle such a big mortgage, for example, you are pulling from your savings to pay the mortgage.
DECLARE OVERSEAS ACCOUNTS
The IRS has announced that it expects to collect $8.5 million in back taxes from Americans with foreign bank accounts over the next few years. The IRS is pressuring foreign banks to name names. For example, the US and Switzerland reached an agreement requiring Swiss banks to provide account information if the IRS suspects any tax evasion by account holders. So if you own or have authority over a foreign financial account, you are requires to file Report of Foreign Bank and Financial Accounts (FBAR) to the IRS if the aggregate value of all your foreign accounts exceeds $10,000 at any time during the calendar year. Be sure you do it.
What are some important tax tips to consider?
Defer Income - if you have income you can defer and report in the new year's taxes, do so. Hold your last batch of invoices and send them out in early in the year; it will save that bit of money by paying the taxes into the following year.
Contribute To A Retirement Plan - Whether you choose to convert your traditional IRA to a Roth IRA or not, make sure you contribute the maximum amount you can before the year's over. It's one of the easiest ways to save money on your taxes.
Use Your Flexible Spending Account - If you have a flexible spending account (also known as a health savings account or medical/health care spending account), use up what's left in your account. And if you haven't opened one yet, check into what your company offers. Be sure to specify the amount of your wages that you want to have placed in your flexible spending account.
Invest In Your Business - If you need to make investments in your business - new equipment, upgraded machinery or real estate improvements - then invest before the year's end for the write-off on your taxes.
Save Energy - Energy-efficient improvements in your residence before year's end can get you a tax credit. Though installing a new metal or asphalt roof may be out of the question between now and January 1, you can purchase energy-efficient windows, doors and appliances. And if you're just itching for another home improvement project to tackle over the holidays, install a solar water heater or solar panels for another credit of up to 30% of the cost.
Itemize your deductions - Keep track of your business expenses and put them into your itemized deductions; don't forget home office purchases, supplies, fees for memberships in professional organizations, technological costs (web hosting, website design, internet costs). Be sure all your itemized costs are for the business and you have the receipts.
Donate to a charity - Make charitable donations before the year's end for the write-off, but don't make the mistake of sending out checks dated on or before December 31 and thinking they will qualify. The IRS specifies that checks mailed out must be postmarked by the last day of the year. You can also make donations through major credit cards, as long as the charges are authorized by the end of the year.
Contribute To A College Savings Plan - Save for your kids and save on your taxes - up to $14,000 for a college savings plan. The magic $14,000 limit keeps you under the federal gift tax.
Pay Your Next Health Insurance Premium - If you're self-employed, you can deduct 100% of the cost of health insurance premiums (up to the total of the net earnings of your business). That can be a rather hefty deduction, since it includes costs for your spouse and dependents as well. You can pay ahead - cover your first premium of the new year, and you can claim it on your 2015 taxes.
Pay Into A Specialized Account - Some employers offer the opportunity to contribute into specialized accounts, including dependent and commuter accounts. A dependent account covers the cost of child care, and a commuter account covers the cost of commuting expenses. Both have limits, but both can help you save on your taxes while paying for stuff you have to pay for anyway.
What is IFTA, which jurisdictions are members, and what is a qualified motor vehicle?
IFTA is the International Fuel Tax Agreement. Through IFTA, member jurisdictions act cooperatively to administer and collect motor fuel use taxes. IFTA provides a uniform administration of motor fuels use taxation laws with respect to qualified motor vehicles operated in more than one member jurisdiction.
The 48 contiguous States of the United States and the 10 Canadian Provinces are members of IFTA.
A Qualified Motor Vehicle is a motor vehicle used, designed, or maintained for transportation of persons or property and:
1) has two axles and a gross vehicle weight or registered gross vehicle weight exceeding 26,000 pounds or 11,797 kilograms; or
2) has three or more axles regardless of weight; or
3) is used in combination, when the weight of such combination exceeds 26,000 pounds or 11,797 kilograms gross vehicle or registered gross vehicle weight.
Do I need an IFTA license, and what if I have motor vehicles in two or more jurisdictions?
If you are based in a member jurisdiction and operate a qualified motor vehicle in 2 or more member jurisdictions, yes. If you usually operate your vehicles only in one jurisdiction, but make occasional trips outside the base jurisdiction, you may elect to purchase trip permits for that occasional travel. Permitting services can usually be contacted from any major truckstop. Contact a permitting service for rates. Your "Base Jurisdiction" is (1) where qualified motor vehicles are registered (IRP), (2) where operational control and operational records are maintained or can be made available, and (3) where some travel is accrued.
What are benefits to licensee and jurisdictions from IFTA membership?
The IFTA licensee benefits by (1) one license and one set of decals for each qualified motor vehicle to operate through all member jurisdictions, (2) one tax return filed each quarter with the base jurisdiction, (3) one tax payment or refund, (4) one audit by the base jurisdiction, and (5) reduced administrative costs.
Base jurisdictions benefit by (1 ) fewer taxpayers, (2) lower administrative costs, (3) increased audit coverage, and (4) increased enforcement.
What is "freight factoring" and how does it differ from a bank loan?
Freight factoring services involve the purchase of accounts receivables of a trucking business at a discount. Factoring services differ from a bank loan since the emphasis here is on the value of the receivables. The transaction involves three parties the seller, the buyer and the factor. A loan adversely impacts the company's debt to equity ratio. Creditors and investors are particularly sensitive about this ratio and avoid companies with excessively high debt to equity ratios.
What services are offered by freight factoring companies and how do they operate?
The basic service offered by factoring companies is that of providing cash. Factoring companies purchase accounts receivables of a business. The business can use these proceeds to carry on with its operations. A large number of freight factoring companies are operational and most of them have a comprehensive data base of various brokers and customers and their credit ratings. Access to such a data base offers a business the benefit of choosing the best clients those who honor their bills on time and are really credit worthy, while avoiding slow paying clients. Some factoring companies also provide direct deposit cash advances into a variety of fuel card accounts, such as Comcheck, EFS, Comdata, TCH and TCheck.
Freight factoring companies use a database that provides a daily list of billing follow-up calls to be made. These calls provide early identification of documentation, delivery or damage problems. They also identify receivables that may be hard to collect on, while helping a trucking company's carriers avoid any additional potential problems. The services eliminate the need for and costs of permanent skilled staff found within large firms.
There are several steps involved in freight factoring. First of all, the trucking company needs to submit the freight bill that it wants to be funded to the factoring company. This is the case when the trucking company does the invoicing on its own. In some cases when invoicing is also done by the factoring company, the trucking company only needs to inform the factor about the deal with a client. The trucking company can get an advance of 80%-97% of the invoice or the bill of loading, depending on the credit tenure and the creditworthiness of the client. The remaining amount is kept as a reserve by the factoring company and paid after the invoice is cleared by the trucking company's client. The reserve is a provision to cover short payments, payment of less than the full amount of the invoice by the debtor, or a payment received later than expected. The factoring company also deducts its monthly charges from the reserve kept by it. These charges are decided on the basis of the credit rating of the trucking company's client, the number of days of credit involved and the total volume of business given by the trucking company to the freight factoring company.
A freight factoring company generally provides its factoring services on a contractual basis. Before signing a contract, the freight factorer seeks detailed information about a trucking company, its owners, financial details, customers list and some documents that can verify this information. A factoring company generally tries to determine the creditworthiness of the trucking company's customers, independent of their credit history with the trucking company's business.
What are the advantages and disadvantages of "freight factoring"?
Advantages of freight factoring include:
(1) Improves working capital: Freight factoring companies aim to resolve the working capital needs of trucking companies by converting their slow paying truck bills to immediate cash, thus eliminating the waiting period. Factoring services provide cash to trucking companies when they need it the most. This allows the trucking company to continue its operations, without facing a liquidity crunch,
(2) Keeps the debt to equity ratio in check: If a company used loans to overcome liquidity problems, it debt to equity ratio would rise. This is not a good sign for creditors and investors,
(3) Pay bills on time: Factoring services a trucking company to pay its bills on time and avoid any interest from accruing,
(4) Focus on growth: The trucking company can use the money provided by freight factoring companies to invest in expansion and growth,
(5) Prevents hassles of extracting payments from clients: Retrieving money from clients can be a rather tedious task. Freight factoring companies take the responsibility of collecting the necessary payment from clients, while providing the trucking company a significant portion of the billed amount,
(6) Invoicing: Some freight factoring companies also perform invoicing on behalf of their clients,
(7) Reduces credit failures: Freight factoring companies provide access to its database for creditors and their rankings, thus reducing credit failures,
(8) Cost savings: Factoring services reduces the need for a trucking company to appoint full time staff to ensure clients with high credit ratings, speedy invoicing, timely follow-ups sending and extracting payments from clients, and
(9) Risk reduction: Some freight factoring companies assume a part of the risk arising from the failure to pay by the trucking company’s customer.
Disadvantages of freight factoring include:
(1) Recourse: Everything runs smoothly till the time that a trucking company’s clients pay their bills on time. What happens when a client delays the payment beyond the normal 30-60 day cycle or refuses to pay up at all? In such cases, the factoring company can withhold the trucking company’s reserve and charge back the full amount. This is known as recourse. So it is important that you choose a customer that has a good credit record,
(2) Misuse: Factoring can be misused by some companies to “dress up” their balance sheets by showing cash instead of accounts receivable at the end of their financial year,
(3) Over 90-day invoices: What happens when a trucking company’s invoices are for over 90 days? There is a problem here because most factoring companies do not purchase invoices or account receivables that have a timeframe of more than 90 days. Most factoring companies borrow funds from banks at a much lower rate and then lend this money to trucking companies at higher rates. They earn a good fee if the credit period is less, while their margins come under pressure with an increase in the credit period, and
(4) Higher costs: Factoring services are costlier than bank funding. Hence, businesses with a small spread between revenues from a sale and the cost of conducting that sale should not resort to this funding option. Small spread outfits need to make sure that the charges being made by a freight factoring company are not higher than the benefits derived from the quick receipt of funds.
What are NAICS codes, why are they important, and what happended to the SIC code system?
The Internal Revenue Service requires that businesses report their Principal Business Activity Code on their federal tax return. There are over 400 business activity codes from which a business owner or accountant can select as the appropriate one for their principal activity from a table in the tax return instructions. However, for many small- and medium-sized businesses, even this level of detail does not provide enough specificity to determine which is the right business activity code for the business.
Since the IRS business activity codes are based on the North American Industry Classification System (NAICS pronounced Nakes), NAICSCode.com has constructed a more detailed searchable index of NAICS codes, their descriptive titles, and over 18,000 additional terms that provide alternative descriptions of these industries. With this level of detail, you should be able to find the right business activity code for almost any type of business.
For owners or accountants preparing tax returns for a business, the business activity code is the most important indicator used to determine the peer group for comparison in the IRS audit screening programs. The IRS uses computer programs to compare financial ratios of a business with the same ratios for a comparable grouping of businesses in the same industry and within the general size range. Companies that show substantially different ratios from the average for their industry group are more likely to be flagged for further scrutiny.
The Standard Industrial Classification (SIC) has been replaced by the North American Industry Classification System (NAICS pronounced Nakes). The SIC system was established in the 1930s to promote uniformity and comparability of data collected and published by agencies within the U.S. government, state agencies, trade associations, and research organizations. It was developed as an establishment based industry classification system that classified each establishment (defined as a single physical location at which economic activity occurs) according to its primary activity. The SIC covered the entire field of economic activities by defining industries in accordance with the composition and structure of the economy.
NAICS is based on a consistent, economic concept. Establishments that use the same or similar processes to produce goods or services are grouped together. The SIC, developed in the 1930s and revised periodically over the past 50 years, was not based on a consistent economic concept. Some industries are demand based while others are production based.
What types of deductions can I claim as a truck driver? (Most Asked Question)
Truck drivers, whether they’re owner operators or company drivers, are subject to special rules and have a number of deductions and allowances available to them. Quite often though these deductions are missed when they do their own taxes or have them done by someone who is not familiar with the trucking industry. We will cover some of those rules and look at some of the most commonly overlooked deductions.
The first and most important thing to consider is records. Without supporting records you will not be able to claim many of the deductions you might otherwise be entitled to. It is important to keep receipts for everything you buy and use in or around your truck. Your log books are also important records. In the event of an audit your log book establishes how many days you were on the road during the year and is considered proof of your actual days on the road. You can keep your records in a journal, a computer or on scratch paper, but if you’re called in for an audit you need to have receipts and/or written records showing the item and what the expense was for.
According to the IRS travel expenses are ordinary and necessary expenses that you pay while traveling away from home for your business or profession. An ordinary expense is one that is common and accepted in your field of business, trade or profession. A necessary expense is one that is helpful and appropriate to your business. An expense does not have to be indispensable to be considered necessary. However, you cannot deduct expenses to the extent they are lavish or extravagant.
Anything you spend on, in or around the truck would normally be considered a deduction. For example: Antennas, batteries (for the flashlight as well as the truck), binders, blankets, boots, briefcase, calculator, CB repairs, CB’s, cellular phone, chains, checking account fees (ATM fees for the extra charge because you’re away from your home bank), chrome, cleaning supplies, comchek charges, coveralls, Federal Express (UPS, Postage for business mail or other mail which is necessary because of your absence from home), flashlights, gloves, hand tools, ice box, insurance, laundry, legal fees (not fines, but the cost for legal fees to defend yourself and court costs), lights, log books, luggage, lumpers, maps, motels, office supplies, pens, permits, pillows, radio, repairs, ropes and equipment, safety equipment, safety glasses, scales, scanner, sheets, showers, signs, special clothes, special equipment, stapler, staples, stereo, storage, sun glasses, tarps, taxi, tires, tolls, tool boxes, truck organizations, truck parking, truck wash, truckers newspapers and magazines, TVs, and uniforms not used for personal use.
This list is by no means complete but it should give you the idea. If you take an expense and it’s later ruled invalid you can be charged penalties for any additional tax due from the time the tax would have originally been due. There are also a few other items worthy of more specific mention.
Non-deductible expenses include (a) expenses that are reimbursed by the carrier you are leased to or the company you drive for; (b) clothing that is adaptable to everyday wear; (c) personal vacations; (d) over-the-counter medications, personal hygiene items, toiletries and supplements (e) personal services such as haircuts and massages; (f) expenses as it relates to the ownership and welfare of pets (The IRS disallows pets as personal non-deductible travel companions and not deductible for security purposes); (g) interest on personal loans; (h) time you incur from working on your truck; (i) income loss as a result of deadhead and/or unpaid mileage; (j) downtime; and (k) actual out-of-pocket costs for meals purchased on the road. A per diem allowance is claimed instead and based on number of days you travel away from home for the month.
PER DIEM ALLOWANCE (Available for Schedule C owner operators and qualified self-employed truckers; company drivers who file a Schedule A are no longer eligible for the deduction)
The Standard Meal Allowance or per diem is different for truckers than it is for others. It is currently $66 per day CONUS travel limited to 80%. Taking the standard deduction relieves you of the responsibility of keeping records and receipts for all your meals, and most will find that the $66 per day allowance will cover your actual expenses. There are special rules that apply to the meal deduction that you should also be aware of. If you get home, or pass by the house during the day you will have to pro-rate your deduction for that day. For example, you’re out on the road and decide to pass by the house to collect your mail and check out the homestead. You arrive home at 6:00 am and stay for 3 hours. Divide the day up into four 6 hour periods (Note: IRS rules state you can use any period that you consistently apply and that is in accordance with reasonable business practice.), so you would have the following four periods in the day - Midnight to 6 am - 6 am to Noon - Noon to 6 pm - and 6 pm to Midnight. Since you arrived home at 6 am and stayed till 9 am you would be eligible for the standard deduction for the other three periods which is $52.80 ($66 x 80%) for that day. If you arrived home at 10 am and stayed till 1 pm then you would be eligible for two periods or 50% of the daily deduction. This same system would also apply to days when you arrived home for a few days off or left home to go back out onto the road. In the event of an audit your log book would be used to validate your time at home and on the road, so hang on to those old log books. The per diem rates and applicable percentage limitations from 2002 forward as follows:
Rev. Proc. 2011-47
CONUS = Continental U.S.
OCONUS = Outside Continental U.S.
In order to claim travel expenses you must have a (Tax Home). This is the place where you live when you are not on the road. A PO Box is not a tax home! If you live in your truck and do not have a physical street address then you cannot claim any travel expenses. In addition to a physical address, you also must have living expenses at your main home that you duplicate because your business requires you to be away from that home. Using your parents or another relative or friends address as your tax home is only valid if you pay that person an amount equal to the going rate for a room in the area and regularly use that room when you are off duty as your residence. In the event of an audit you will have to substantiate these expenses to prove that you have an actual tax home. If you can’t you will probably lose all your deductions for travel expenses and will then be subject for fines and penalties for the amount of the tax increase.
it is not always possible to get (Receipts) for cash which you spend on the road and the IRS realizes this. They will allow you to present handwritten receipts for these expenses as long as they are not excessive and are normal and expected expenses for your business. A few examples are laundry, truck washes at a drive thru type wash bay, and pay phones when used for business calls (calls home to chat with the family are not business calls and are not deductible!). In these cases you should write on a piece of paper the date, the amount and what it was for, or in the case of phone calls who it was to. This hand written receipt is considered proof of the expense by the IRS.
if you use (Lumpers) and are not reimbursed by the company for the amount you pay the lumper, or are only reimbursed for part of the cost of the lumper you can deduct the amount you paid or the difference if you were partially reimbursed. Get a receipt from the lumper which includes his name, address, social security number, the company at which you used his services, the date and the total amount you paid him.
Remember, records are the key to getting all the deductions you are entitled to and in the event of an audit are required to back up the deductions you claimed. Get receipts for everything when you are on the road and if no receipt is available make your own receipt for the expense. Keep your receipts together and record them somewhere, in a journal, a notebook or a computer so you can total them up at the end of the year.
How long should I keep business records?
Generally the IRS has only 3 years from the date you filed to come after you for extra tax. There are two exceptions (1) if your return omits more than 25% of your income, the IRS has 6 years to audit you, and (2) if you file a false and fraudulent return with the intent to evade tax, there is no limit on your being audited.
Can I claim a deduction for business miles traveled in a passenger vehicle?
You have a choice of two ways to calculate and deduct business vehicle expenses driven on a passenger vehicle: the standard mileage and actual cost methods. As a general rule, if you use a newer car primarily for business, the actual cost method provides a larger deduction. However, the standard mileage rate may work better for some people and requires much less recordkeeping. With the standard mileage rate, you cannot also deduct your operating expenses such as gas, repairs, license tags, and insurance, but you can deduct parking fees, tools, and any state and local property taxes on the car or truck. No matter which method you use to claim auto expenses, you will need to keep accurate records. The best way to keep auto use records is with a log book, sold at office supply stores. Or just keep a notepad in your glove compartment. If your tech savvy, store the vehicle data in a personal digital assistant, such as a Palm Pilot. However you do it, whenever you drive a personal car for business, record (1) the date of the trip, (2) your destination, (3) your mileage (round-trip), and (4) who you visited and your business relationship with that person. Also, keep vehicle servicing receipts showing the mileage at the first servicing of the year and at the last servicing. This is one way to prove annual miles driven. If using the actual cost method, you should save all of your receipts incurred in driving and maintaining the vehicle. The following is a list of IRS mileage information from 2002 forward: (1st column=business mileage; 2nd column=medical/moving mileage; 3rd column=charitable contribution mileage; 4th column=source)
Business Mileage Medical/Moving Charity Mileage Source
2002 36.2 Cents/Miles 13 Cents/Mile 14 Cents/Mile Rev. Proc. 2001-54
2003 36 Cents/Mile 12 Cents/Mile 14 Cents/Mile Rev. Proc. 2002-61
2004 37.5 Cents/Mile 14 Cents/Mile 14 Cents/Mile IR-2003-121
2005 40.5 Cents/Mile 15 Cents/Mile 14 Cents/Mile IR-2004-139
1/1/05-8/31/05 1/1/05-8/31/05 1/1/05-8/31/05 Pub. L. 109-73
48.50 Cents/Mile 22 Cents/Mile 14 Cents/Mile IR-2005-99
9/1/05-12/31/05 9/1/05-12/31/05 9/1/05-12/31/05
2006 44.5 Cents/Mile 18 Cents/Mile 14 Cents/Mile IR-2005-138
2007 48.5 Cents/Mile 20 Cents/Mile 14 Cents/Mile IR-2006-168
2008 50.5 Cents/Mile 19 Cents/Mile 14 Cents/Mile IR-2007-192
1/1/08-6/30/08 1/1/08-6/30/08 1/1/08-6/30/08
58.5 Cents/Mile 27 Cents/Mile 14 Cents/Mile IR-2008-82
7/1/08-12/31/08 7/1/08-12/31/08 7/1/08-12/31/08
2009 55 Cents/Mile 24 Cents/Mile 14 Cents/Mile IR-2008-131
2010 50 Cents/Mile 16.5 Cents/Mile 14 Cents/Mile IR-2009-111
2011 51 Cents/Mile 19 Cents/Mile 14 Cents/Mile IR- 2010-119
2012 55.5 Cents/Mile 23 Cents/Mile 14 Cents/Mile IR-2012-02
2013 56.5 Cents/Mile 24 Cents/Mile 14 Cents/Mile IR-2012-95
2014 56 Cents/Mile 23.5 Cents/Mile 14 Cents/Mile IR-2013-95
2015 57.5 Cents/Mile 23 Cents/Mile 14 Cents/Mile IR-2014-114
2016 54 Cents/Mile 19 Cents/Mile 14 Cents/Mile IR-2015-137
2017 53.5 Cents/Mile 17 Cents/Mile 14 Cents/Mile IR-2016-169
2018 54.5 Cents/Mile 18 Cents/Mile 14 Cents/Mile Rev Proc. 2010-03
2019 58 Cents/Mile 20 Cents/Mile 14 Cents/Mile IR-2018-251