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Taxes for Owners-Operators: Everything You Need to Know

Last Updated on  September 2, 2022  By  Eform2290 Editorial Team
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Taxes for Owners- Operators: Everything You Need to Know

In America, truck driving is not only a physically taxing job, but also an undervalued one. Despite the substantial income, the life of a truck driver is difficult. Driving for long stretches can be exhausting and most of this time is spent alone. Along with these hardships, state truck taxes are also an essential aspect of their everyday life. Truck drivers who own their truck are called owners-operators. They take care of their own tax payments and are required to pay their taxes unlike a normal W-2 income.

So, if you're an owner-operator, it is important to know your tax obligations and responsibilities. You need to keep track of your taxes throughout the year and file them within due deadlines to avoid penalties and fees. With this article we have summarized a few that can help you if you are operating in the United States.

How Often Owner-Operators Pay Taxes?

As an owners-operator you are required to make quarterly estimated tax payments. This means you must file a tax return annually and forward any taxes you owe. The good news is that you can deduct many of your expenses from taxes, which can help you lower your overall tax liability. Complying with this rule not only avoids a hefty tax penalty, but also prevents any possible surprise tax bills that may arise as the Tax Day approaches.

Different Taxes That Owners- Operators Have To Pay?

You are responsible for paying various taxes. These taxes help maintain the roads and infrastructure you use every day. Here is a breakdown of the various taxes Owners- Operators must pay:

Self-Employment Taxes: These taxes are similar to Social Security Taxes and Medicare taxes, which are automatically deducted from the paychecks of traditional W-2 earners. At present, the self-employment tax rate is 15.3 percent (12.4 percent for Social Security and 2.9 percent for Medicare).

Estimated Tax: This is the method of paying taxes on income that isn't subject to withholding (e.g., self-employment income). In most cases, anyone who is expected to owe at least $1,000 in taxes after deductions for withholdings and credits must make quarterly payments for self-employment and income taxes. IRS Form 1040- ES contains an estimated tax worksheet and quarterly due dates and payment options.

Tax tip for owners -operators: Consider paying estimated taxes monthly. It will not only let you avoid high quarterly payments, but you'll also get a better handle on your overall income and the health of your finances!

Federal Excise Tax

This tax is imposed by the government for:

  • Import
  • Sale by the manufacturer
  • Sale by the retailer
  • Use by the consumer or manufacturer
  • Federal excise tax is always due quarterly

When do you pay this tax?

If you file federal excise tax, you pay quarterly, according to these deadlines:

  • Quarter 1 (from Jan to March) has a deadline of April 30
  • Quarter 2 (from April to June) has a deadline of July 31
  • Quarter 3 (from July to September) has a deadline of October 31
  • Quarter 4 (from October to December) has a due date of January 31

If your deadline for federal excise tax falls on a Saturday, Sunday, or holiday, the due date is the next business day.

How much do you pay?

To determine the amount of excise tax you must pay, you may refer to the Form 720 & can get a detailed idea about your tax liability.
On line 10 of Part III, find the amount of the amount that's due. You pay the total amount with your Form 720.

If you overpaid, you can choose to take the difference against your next tax return or get a refund.

Heavy Vehicle Use Tax

One of the taxes you are required to pay as an owner operator is the Heavy Vehicle Use Tax. You can use Form 2290 to file and pay the Heavy Vehicle Use Tax.

While the form to determine your tax amount has no additional requirements, the Heavy Vehicle Use Tax form does. You must already have an EIN - Employer Identification Number to file Form 2290.

When do you have to pay HVUT?

For the vehicles that are in service throughout the year, the filing is once. For the newly purchased vehicles, form 2290 has to be filed by the last day of the month following the month of first use. See Form 2290 due dates.

How much HVUT do you pay ?

This clearly depends on the number of vehicles, the mileage of your truck, gross weight of your vehicle and a few other factors. You can check our FAQs section to get a better clarity on this topic.

Owner-Operator Tax Deductions

An owner-operator is considered an independent contractor and not an employee. This means you can deduct a lot of expenses that other employees may not.

Here are some of the most common deductions that you may find useful.

  • Interest paid on Business Loans
  • Start-up Costs
  • Home Office Expenses
  • Travel Costs
  • Lease Truck Cost
  • Retirement Plan Contributions
  • Permits & Licence Fees
  • Business Supplies
  • Depreciating Property
  • Insurance Premiums
  • Truck Repairs & Accessories Costs
  • Accounting Service Charges
  • Communication Equipment Costs
  • Meal Allowance

Understanding taxes and tax deductions as an entrepreneur is one of the most important aspects of working as an owner-operator. It is also advisable to speak with a professional tax attorney who can assist you understand the various ways you can deduct business-related expenses on your tax return. These professionals assist with tax preparation for owner-operators and provide simple Owners- Operators tax solutions.

Up To What Amount Can An Owner-Operator Claim Tax Deductions ?

As an owner-operators are entitled to substantial tax deductions to the extent permitted by law and to the extent you can prove those expenses. For instance, you can claim up to 100% of the cost of vehicle repairs and up to 80% of your per diem expenses. Per diem is the tax-deductible amount that the IRS assumes you would spend on meals, drinks and tips. This is usually incurred when you are away from home overnight on a business trip.

Deductions For Meals for Owners- Operators

To be entitled to per diem on a trip, you must spend the entire night away from home. If you return home at night, even after working an 18-hour day, you won’t be entitled to per diem expenses.

Depreciation And Bonus Depreciation for Owners- Operators

Depreciation of your vehicles under owner operator tax deductions is also possible. If the vehicle qualifies for bonus depreciation, you can recoup the entire cost of the truck in the year you bought it. This trucker’s tax deduction is also available if you have borrowed most of the money to buy the truck.

Is CDL School Tax Deductible?

The Commercial Driving Licence school is tax deductible. It can be deductible as an above-the-line trucker’s tax deduction or as a business expense under owner operator tax deductions. In either case, the answer is yes. The CDL school is tax deductible.

Are Tolls Deductible for Owners- Operators?

Tolls are worthy of special consideration. They aren't considered fines or penalties, which are generally not deductible. So the answer is usually, Yes! As long as tolls are not paid or reimbursed by the client, you are entitled to deduct these expenses.

Mail And Notices Of IRS

The way the IRS and state tax authorities communicate with taxpayers is a challenge for owners- operators like you. The IRS still sends the majority of notifications by mail. This can be a challenge for you because the IRS does not typically deliver notices to truck stops.

As a result, may not receive important communications in the form of essential notices from the IRS. It may happen that you only get to know about it when the deadline for responding is long passed.

Challenges in Tax Preparation for Owners- Operators

The challenges in tax preparation for Owners- Operators can be never ending. These problems that you may face can also result in additional taxes and burdens.

For instance, the IRS sometimes assumes that you may have received cash tips and adds those amounts to income as well. There is a slight possibility that an owners- Operators' tax deductions claim for deduction can be rejected because of incomplete or conflicting records.

As an owner-operator, there are different federal and state taxes that you might be obliged to pay. States have different tax rates depending on the state you drive through. Some states have reciprocal agreements, meaning if you live in one state and drive in another, you only have to pay taxes in your home state. This can make things even more confusing and difficult to keep track of. Fortunately, there are good tax attorneys who specialise in these truck tax laws.

For truck taxes such as Heavy Vehicle Use Tax, you can check out eForm2290.com which allows you to file your HVUT in a few steps & gives you a stamped schedule 1 copy within a minute.

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