what are 6 common tax mistakes truckers make
All too frequently, truckers who make the move from employee to owner-operator are not as well-versed in the tax regulations that govern the profession as they should be. Unfortunately, this lack of awareness can cause big issues for drivers. Learn how to prevent frequent mistakes truckers make that can cause difficulties and cost money from the experts at M7 Taxes, a supplier of trucker tax services and trucker accounting services.
Tax Liabilities of Truckers
Federal income tax, state income tax (depending on the state), and FICA are all deducted from employee paychecks. FICA is the method by which we contribute to Social Security and Medicare. When you become an owner-operator, however, you will be responsible for making these payments on a quarterly basis.
The self-employment tax catches a lot of new owner-operators off a surprise. They may not generate much money in their first year as a sole proprietor, and as a result, they may believe they do not have to pay much in taxes. However, if an owner-operator earns money through self-employment, he or she must pay some taxes.
M7 Taxes trucking accountants recommend that you save aside 20% to 30% of your net pay. We can assist you to establish how to make accurate anticipated payments that are much more closely connected to your real earnings once you start working with our truck driver CPAs. You won’t owe as much money at the end of the year if you do it this way.
Our trucking tax accountant works with you to create a budget and better understand tax payment schedules so you don’t commit any of the six blunders listed below.
Here are 6 Common Tax Mistakes Truckers Make
1) Filing W2s and 1099s separately.
Whether you have a W2 and 1099 because you switched from employee to independent contractor or owner-operator in the middle of the year, or because you are a part-time employee and an independent contractor at the same time, both of these documents must be filed as part of your personal income tax return as a trucker.
When drivers bring their 1099 to our smart trucking tax service, they often say they’ve already filed a tax return on their W2 wages. Unfortunately, this results in a great deal of extra effort and money. All W2 income and company income, as well as any K-1s from other pass-through organizations, should be included on your personal tax return.
Never file your personal tax return until a professional has reviewed all of your income, including W2 and any business sources, as this can lead to penalties and other problems.
2) Making C-Corp and S-Corp Elections Too Soon
Owner-operators should settle into their business before electing a C-Corp or S-Corp, according to our trucking accountants, because these firms incur significant administrative costs. You’ll need at least six to twelve months of operational data for our CPAs to thoroughly assess whether it’s cost-effective. You may not be able to wait due to differing regulations for motor carriers or other factors, but you should try to postpone these decisions as much as possible.
Truckers should ideally begin their careers as corporate drivers to gain experience driving a truck and knowing how the costs associated with that truck will affect them. They should wait six to twelve months after becoming an independent contractor before looking for an owner-operator role. They may then choose to work as a lone proprietor or form an LLC. All of this must be completed before deciding whether to form a C-Corp or an S-Corp.
Our business advisers at M7 Taxes work with truckers to assist them in making these critical decisions at the correct time.
3) Failing to choose the best tax service for truckers
There are many fly-by-night tax preparation services to choose from. While most aren’t technically dishonest, they aren’t particularly knowledgable about truck driver tax preparation (or anyone, for that matter).
Before they begin processing taxes, seasonal tax preparers go through three or four weeks of training. They don’t know anything about taxes, let alone the complexities of tax preparation for truck drivers.
Truckers should hire a tax preparer who is familiar with tax law and all of the deductions available in their industry. For example, there have been a lot of changes with per diem, particularly since the tax cuts became law in 2017.
For those unfamiliar with transportation taxes, per diem, which applies to owner-operators and independent contractors, can be a strange idea. Owner-operators are entitled to a per diem deduction for the time they spend away from home, although the amount varies from year to year. We stay up to date on these changes at M7 Taxes, and we know exactly how to calculate this per diem pricing.
The per diem deduction can save you tens of thousands of dollars in taxes. It’s double the individual rate if you’re married. Find out if you qualify for the per diem deduction by speaking with one of our trucking accountants.
4) Using the Wrong Mileage Deduction
If you don’t hire a CPA who specializes in assisting truck drivers, your tax preparer may inadvertently take a mileage deduction for the miles driven by the owner-operator during the year. However, this is inaccurate; employees who receive W2s are no longer eligible for this deduction, while owner-operators are eligible for both mileage and maintenance deductions.
A blunder like this can result in an audit flag, which could lead to problems down the road.
Our truck driver CPAs at M7 Taxes design your tax return in such a way that it reduces both your audit risk and your tax liability.
5) Not Having a Partnership Agreement
When starting a firm, you must consider issues such as how to divide profits among partners. Mistaking a partnership for something else is a typical blunder. We’ve seen truckers who believe they’ve formed a partnership with a motor carrier but have yet to register any type of business entity with their state. As a result, there is no partnership agreement in existence, and this will determine how the relationship will function when it comes to tax time.
How that revenue is distributed, how it is reported on tax returns, and whether other 1099s need to be filed when there is no partnership agreement in place raises a slew of issues.
If you wish to work as a partnership with someone with whom you have a solid relationship, make sure you are convinced that the relationship will survive adversity.
Make sure you have a business entity and a partnership agreement in place as well. That way, if you can’t work out some difficulties, you’ll have a legal document to fall back on if you can’t. It’ll essentially make decisions for you and be less likely to cause a rift in your relationship.
6) Listening to “Truck Stop Accountants”
Truckers frequently converse to others at truck stops, over CB radio, or in Facebook trucker chat clubs who may be able to offer guidance on trucking bookkeeping, trucking accounting, and taxes. However, keep in mind that they are unlikely to be CPAs for trucking companies.
For all of your tax, bookkeeping and accounting services, you should turn to M7 Taxes skilled transportation accountants.
Best Tax Service for Truck Drivers
If you’re a truck driver and you’ve recently noticed you’ve made some of these errors, give us a call at M7 Taxes. We’ve seen everything. We’ll answer your questions and, more than likely, pose some of our own. We’ll also work with you to devise a strategy for avoiding mistakes in the future.
Call, email, or fill out the form to get the finest guidance from top CPAs for truck drivers.
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