Q) I am a Truck Owner-Operator. I would like an advice on deductions on tax returns and how to deal with my IRS tax debt for prior years.
A) Taxes can be one of the most complex aspects of running your own trucking business whether you’re an owner-operator or company driver.
Understanding Trucking Taxes
As a self-employed trucker, you have different tax obligations than company drivers. You’ll need to pay self-employment taxes, income taxes, and make quarterly estimated tax payments, Heavy Vehicle Use Tax, and more. Proper record keeping and working with a tax professional can help reduce your tax burden.
Types of Taxes
- Self-employment taxes – Cover Social Security and Medicare. As a business owner you pay them directly to the IRS. The rate is currently 15.3% of net earnings.
- Income taxes – Federal and state income taxes you must pay on your net business income. Rates vary based on income level and location.
- Estimated taxes – Required quarterly payments toward income and self-employment tax liabilities. If you expect to owe $1,000 or more, you must make estimated payments.
- Heavy Vehicle Use Tax: Business owners have to pay the tax due on highway motor vehicles used during the period with a taxable gross weight of 55,000 pounds or more. An IRS Form must be filed for the month the taxable vehicle is first used on public highways during the current period and paid by the last day of the month following the month of first use.
Key Tax Deductions
Some common deductible expenses:
- Education and Training
- Truck lease payments
- Maintenance and repairs
- Insurance premiums
- Cell phone and communication equipment
- Per diem for overnight trips
- Accounting services
- Business travel
- Depreciation on owned equipment
Per Diem Deduction – A per diem is an allowance based on a fixed amount of daily reimbursements that an employer gives to an employee for lodging, meals, and incidental expenses when the employee is away from home on business.
Common Tax Mistakes to Avoid
Every year, many drivers get audited or pay penalties due to easy-to-avoid errors. Make sure to properly report all income, keep detailed records, and file on time. Don’t overpay estimated taxes or forget to take available deductions.
- Track income and expenses in real time. You may miss some expense documents if you try to gather them later.
- Keep all receipts and maintain detailed records. Documentation is the key to success with the IRS audits.
Handling an IRS Audit
If you do receive an audit notice, respond promptly and gather documents to back up your returns. With supporting receipts and records in order, you’ll have the documentation needed in your meeting.
Signs It May Be Time to Get Tax Help – If any of the following situations apply to you, it’s a clear sign you need to speak to a tax professional right away:
- An IRS audit or examination of your returns has been opened and you need representation.
- You’ve received multiple notices or letters from the IRS about taxes owed, and the balances are growing. Collection notices are never good to ignore.
- The IRS is garnishing your wages or seizing assets like bank accounts. These actions mean collections have begun.
- You’re being charged penalties and interest on top of taxes due, making the debt grow quickly over time.
- You’re struggling with payroll tax debt from a business and can’t get caught up on payments.
- A tax liability is preventing you from renewing your passport or professional license.
- Your multiple years’ tax returns are overdue.
Back Tax Collection Problem
Some industries have a higher tax default rate than others. Truckers frequently suffer from back tax issues since their fluctuating income from load to load makes pyramiding tax liabilities. and they need professional help.
Back taxes occur when you owe taxes from a previous year. They can accumulate interest and penalties, making the situation more stressful. But there’s hope and help available.
Many trucking companies will finance their accounts receivable through a process called factoring. In factoring, a lender pays the trucking company some percentage of their accounts receivable upfront, and then the lender takes the responsibility of collecting on that account receivable when it’s due, usually 30 to 90 days down the road. This way, the trucking company gets money now so that they can buy fuel and make payroll.
When a tax lien is filed, most factoring lenders stop funding. In that case, the trucking company suddenly loses all it’s cash flow. In order to enable the funding to continue, a lien subordination can be obtained that move the tax lien to a position below the factoring lender, thereby protecting the lender’s claim on those accounts receivable.
Steps to Back Tax Relief
- Understand Your Debt: Determine exactly how much you owe, including penalties and interest.
- File Past Returns: If you haven’t filed a return for the years you owe, do so immediately. The IRS won’t negotiate with you unless all required returns are filed.
- Consider Payment Plans: If you qualify, we will negotiate with the IRS to set up an affordable payment plan called “Partial Payment” Installment Agreement. In this agreement, if you are unable to pay off the entire amount of back taxes you owe within an allowed period, any balance left at the end of the term is forgiven and written off.
- Offer in Compromise: In some cases, you may be able to settle your tax debt for less than the full amount owed.
- Currently Not Collectible: If you can prove that paying your tax debt would create financial hardship, the IRS may temporarily delay collection.
- Penalty Abatement: If you have a reasonable cause, the IRS may forgive penalties, though interest charges generally continue until the balance is paid in full.
Seeking Professional Help
Even with careful bookkeeping, you may run into problems with back taxes or an audit. Don’t panic – get expert help right away from a tax relief specialist such as Certified Tax Resolution Specialist. They can negotiate terms, request relief, and represent you to get the best resolution. Tax professionals who understand the trucking industry can offer invaluable assistance in navigating complex tax situations, especially when dealing with back taxes. Getting help doesn’t mean admitting defeat – it means taking action to address the issue before it spirals further. Tax professionals have extensive tools and experience negotiating with the IRS. Their goals are resolving debts, clearing liens and levies, stopping penalties/interest accrual, and getting your taxes and situation into compliance.
Dealing with the IRS alone usually just makes problems worse over time. Get the guidance of trusted experts, Ace Plus Tax Resolution, on your side.