The market for used trucks has hit one of its highest points in history—with no sign of slowing down.
ACT Research reported that in March the average used Class 8 truck brought the third-highest price on record, jumping to $52,388 per sale from $43,791 just a year before. The all-time high of $55,000 was recorded in 2015 and may be in jeopardy over the coming months and years. Technavio, a global technology research company, estimates that the used truck resale market will expand at a compound annual growth rate of more than 4% between now and 2025.
But what’s driving this growth, and why do experts believe it will continue for the immediate future? Let’s look deeper at this explosive growth in used truck prices.
A Shortage of New Trucks
The COVID-19 pandemic created shortages and delays throughout the supply chain, including the raw materials and parts needed to build new Class 8 trucks. Meanwhile, demand for new trucks continues to rise. FTR Transportation Intelligence reported that more than 42,800 new trucks were ordered in January, up 144% from the year before.
With more trucking companies looking to purchase vehicles and manufacturers unable to keep pace, the secondary market for used trucks has increased. There is hope, however, that as the pandemic fades away, the supplies needed to build new trucks will return to normal levels—but it may take some time for the price of used trucks to recover.
Strangely, it’s one of the smallest components that’s holding up production. A shortage in the semiconductor supply chain has reduced the availability of computer chips, which are used in both tractors and passenger vehicles. The average tractor can use anywhere between 15 to 35 chips, but pandemic-related slowdowns, two factory fires, and congested West Coast ports have greatly decreased availability.
While things like wiring harnesses, foundry parts, axles, or tires can be added after a truck is assembled, a lack of microchips can slow the entire assembly. These challenges combined with increases in new orders have created an unbalanced market.
As of March 1, the reported backlog of trucks ordered and waiting to be built stands at 228,000. At the current build rate, it would take almost a year to simply clear the backlog if no other orders were placed. Part of that problem is also staffing. The COVID-19 pandemic impacted the ability for manufacturing workers to be on-site, resulting in a labor shortage.
The Benefits of Used Trucks
Auction and retail prices for late-model, low-mileage used trucks, in particular sleep truckers, are up. These models are at their highest point since J.D. Power began tracking the segment in 2015. Used trucks tend to hold their value more than other vehicles as drivers must adhere to strict standards to stay on the road. A lot of truckers also invest in their vehicles, adding amenities once they own the truck—both to make it more comfortable while on the road and to increase potential resale value.
According to J.D. Power, the average sleeper tractor retailed in March was 68 months old and had approximately 458,000 miles on it. Its selling price of $57,489 cost almost 30% more than just one year ago. Due to new truck shortages, companies that traditionally cycled trucks out on a three-year or five-year cycle may hold on to them longer, further reducing the availability of used trucks.
High Demand + Low Supply = Pricey
The need to carry freight has remained strong, and trucking companies with staffed drivers on the road can start charging higher fees. Those extra funds could, in turn, be used to purchase more expensive vehicles if and when they become available.
Contract freight rates are near record levels, as are spot rates, after season adjustment. This has been exacerbated by people leveraging online ordering and delivery, along with the distribution of stimulus checks that provided many families with additional income.
That said, the trucking industry as a whole finds itself in an odd predicament. There is a strong need for drivers and trucks but not enough of both. Companies and owner/operators will have to decide if they want to invest in a newer used vehicle, make improvements to their existing ride, or get in line for a new truck now. With the end of the pandemic hopefully in sight, there is hope that the production of new trucks can increase in the coming months.
What You Need to Know About Food Truck Financing
The food truck industry grew steadily between 2014 and 2019 as these mobile restaurants became a trendy way to serve different cuisines to a hungry clientele. In fact, the industry grew 6.8% year over year during that time, peaking at more than $1 billion.
Then the COVID-19 pandemic hit.
Like many industries, food trucks were hit hard by the impact of the coronavirus. While food trucks could continue to operate during the pandemic, the customers they relied on to stay afloat disappeared, especially in urban areas.
Food trucks have long benefitted from parking in downtown metropolitan areas, feeding lunch to the masses of office workers. With more employees working remotely from home, the lunch crowd vanished. So did the demand for food trucks to attend large gatherings or other well-attended social events, forcing many to close their doors.
The Coming Food Truck Resurgence
Hopefully, for food truck owners the worst is now in the past. With states lifting restrictions and more people returning to normal life, the opportunities that originally spurred massive growth will soon return. Entrepreneurs interested in starting a food truck—or those who stopped during the heart of the pandemic—will soon want to re-enter the market.
Many, however, will require financing, both for the truck itself and equipment used inside. Here are a few things to consider when shopping for food truck financing.
1) Choose a commercial vehicle lender.
Food truck financing can be a little different than getting a loan for another small business. If you have good credit, you should be able to get a loan—but instead of approaching a bank, find lenders that specifically offer vehicle loans. Some companies even offer vehicle financing tailored for food trucks. As with other loans, food truck owners will need to make a down payment, put down some collateral, or include a co-signer.
2) Plan to purchase a truck in good condition.
It may be tempting to buy a fixer-upper, but many companies will not provide commercial vehicle financing if the truck is not a worthy investment. Plus, there is nothing more frustrating than losing potential income from a lengthy breakdown. It may be worth it to pay a little extra for a reliable vehicle.
3) Consider a business credit.
A business credit card or business line of credit may be required. It can be difficult to start any business, and some creditors may want more information or a history of success in the food business before offering a loan. If you are starting new, it may be difficult to get a traditional loan. You may need to use business credit until you prove your business acumen to a larger lender. If that’s the case, food truck owners will need a good credit score and may have to offer personal collateral.
4) Don’t forget about equipment loans.
Of course, food trucks require more than just the truck. They house special equipment, like a stovetop or a deep fryer, to cook food on demand; they also need refrigeration to keep ingredients safe. Equipment loans typically use the cooking items you are leasing as collateral, so if you default on a payment they will be taken away.
5) Leverage an SBA microloan.
Perfect for food trucks, the US Small Business Administration’s Microloan Program provides up to $50,000 to borrowers. Borrowers can use these funds to purchase supplies, equipment, and food inventory. These can be an excellent way to get a food truck off the ground once the vehicle has been acquired.
6) Explore other ways to finance your food truck.
Crowdfunding can be a viable method as well. Think Kickstarter or GoFundMe. Food trucks have boomed during the time of social media with trucks using Twitter, Facebook, and Instagram to announce their location, share pictures of what people are eating, and even release special deals. Food truck owners can get creative, offering loyal customers a small cut of the profits or a special per—five free meals per month, for example—in exchange for an investment.
The Bottom Line
The COVID-19 pandemic has brought great uncertainty to the food and beverage world, but it’s also time to rethink how things are done. Food trucks have proved to be a solid business for those who can make delicious food and find a market to sell it to. There are multiple ways to finance a food truck, so if you have the desire to get started, you can find several paths to lead you to your dream.
Tax season is here, bringing the usual avalanche of tax-related questions. While truck drivers do not need to be experts in the tax code, certain tips and tricks can make this time of year a little less painful—both for your wallet and your mental health. Let’s look at five common tax myths truckers need to know.
Myth 1: April 15, 2021, is the deadline to file.
Usually, April 15 is the deadline for tax returns to be postmarked to the Internal Revenue Service without facing a possible fine, but that has changed this year. Filers now have until May 17, 2021. Better yet, there is no requirement to be granted the extension; it is immediately given to everyone. Truckers who currently feel rushed to finish their returns—or are figuring out when they will put them together between long trips—have a little bit of extra time. The April 15 deadline is scheduled to return in 2022.
Myth 2: Owner/operators do not need to pay quarterly taxes.
This is a big misnomer that gets many independent contractors in trouble, regardless of industry. Owner/operators work as their own business and as such must manage their tax payments to the federal and state governments (this is compared to a traditional employee who will have taxes withheld). Owner/operators need to set aside money each quarter—think about 25% of income after deductible expenses—and pay it to the government.
Failing to make these payments can result in penalties but owner/operators also have to make sure not to pay too much. While the federal government will give you a return, an overpayment is akin to giving the government a free loan of any earned income that could be spent, saved, or invested. It may take some practice, but owner/operators need to be cognizant of their income, what existing taxable deductions they can take, and keep track throughout the year for an accurate total.
Myth 3: Truckers need to keep receipts for every meal they eat.
Over-the-road truckers can spend weeks on end without ever going to their permanent home. As a result, they can benefit from the per diem food benefit allowed through the IRS. Truckers with work that takes them away from home overnight are allowed to charge the government on the IRS Schedule C form. This directly reduces self-employment taxes and does not need to be itemized. As long as a trucker eats below $60 to $70 on food each day, they will make that money—and more—back with taxes.
Myth 4: You can deduct deadhead mileage and days off for illness.
Sadly, this one is not true. Owner/operators can only deduct actual expenses while working on the profit being made. Things like time off and deadhead miles cannot be deducted. However, some things that truckers occasionally overlook can be. Truckers who travel with a dog can write the dog off as a security expense if the dog is always with the truck. Permits and license fees can also be deducted along with accounting services, repairs, and interest paid on business loans. There are lots of valuable deductions if you know where to look.
Myth 5: More deductions increase your chance of an audit.
The IRS will closely look at your returns but there is no guarantee you will face an audit. It is best to be honest with all your deductions and only use the ones that pertain to your situation. The IRS knows how to spot potentially fraudulent deductions, so be honest and upfront.
Take the time to understand the deductions you take and keep detailed records where possible. These records can prove invaluable, ensuring first that you get all the deductions owed but also holding up to the scrutiny of an audit. Owner/operators must face a lot of difficult tax issues to run their business. It may be beneficial to hire a professional or take a course to fully understand how to manage your tax situation. While the IRS does not want to charge penalties and conduct audits, they also want to ensure every person pays their properly owed amount.
Owner/operators are in the position to make important business decisions that impact their future success. Your semi-truck can either be the means to your financial gains or a detriment—which direction you go depends on the choices you make around your truck. When it comes to buying versus leasing, there’s not a clear-cut answer. Your unique situation and goals play a large part in your decision to buy or lease a semi-truck. Ultimately, it comes down to the type of truck you want and how you prefer to spend your money.
Buying a Semi-Truck as an Owner/Operator
The average price of a new or newer truck is well over $100,000. Do you have the capital to make this purchase? If not, take a look at financing. Either way, you’ll start to accrue equity. The purchase can also be used as a tax write-off; talk to an accountant or tax professional before you make the purchase to understand all the tax considerations. Additionally, you’ll save money on insurance as rates are often cheaper than those for leased vehicles. If you have good credit and the truck is not terribly expensive, you may not have to make a down payment, depending on the company issuing the loan.
With a new truck, you’ll also get the latest in mechanical technology. This may mean saving money on operating costs and fuel, as many are more energy-efficient than older models. It’ll also come with a factory warranty which covers service issues and any problems that come up during the warranty period.
If you want to purchase, but a $100,000-plus price tag is outside of your investment range, you can buy a used truck for as low as $15,000. Keep in mind that you may end up paying to keep it up and running.
Leasing a Semi-Truck as an Owner/Operator
If you’re not able to buy your truck or you want to limit your financial risks, leasing may be the best option. A lease contract usually lasts anywhere from three to five years. Once your agreement is over, you’ll return the truck, and you can start another lease on a new truck. If you choose to break your lease before it ends, you’ll pay a penalty; the amount of the penalty is a lump sign that’s stated in the contract.
Make sure you read the fine print on your lease agreement. Often, there are rules and requirements you must follow while you have the truck. Like a personal vehicle, you may have a limit on your mileage. When you turn the truck in at the end of the lease, you’ll have to pay for each mile you go over it.
There are two types of lease: conventional or lease-to-own. With either, you don’t need to put down a large amount of money upfront. Oftentimes, you don’t need good credit; some leases don’t even require a credit check.
A conventional lease has a set period of time in which you make monthly payments. You’ll have the freedom to walk away from your truck when your contract is over. Another benefit is gaining insight into the real-life costs of owning a truck without some of the hassles. Many conventional leases come with a servicing agreement for any maintenance or service needs that the vehicle needs during the extent of the contract.
A lease-to-own agreement means you have the option to purchase the semi-truck at the end of the agreement. There will be a buy-out price set in the contract which may be negotiated before you sign the lease. With this type of lease, you’ll need to haul enough merchandise or goods to pay the monthly payment. If you don’t, the leasing company can repossess your truck.
What Should I do?
Commitment is the biggest difference between the two options to purchase or lease a semi-truck. A conventional lease can be a short-term commitment that may provide the freedom to walk away from your truck. Though you’ll spend less money upfront, you won’t build any equity. Overall, you may pay more money than if you were to buy it outright. Insurance is typically higher on a leased semi-truck than one that you’ve purchased. You also can’t make it your own by modifying or updating it the way you would if you owned it.
Buying or leasing a semi-truck is ultimately a financial endeavor. But it doesn’t end there; it also comes down to your goals and long-term vision for yourself as an owner/operator.
After a very long year, the 2021 tax season is upon us. As an owner/operator, properly filing your tax return is crucial to the success of your operation. Navigating the increasingly complex tax code can be arduous, though. Multiple deadlines, numerous deductions, and various available exemptions and credits… filing your taxes can feel nigh on impossible. Those in the industry, however, know preparation is key. Plan ahead to ensure you have all the necessary documentation you need to properly file your taxes by the expected deadlines.
Here’s how owner/operators can prepare for the 2021 tax season.
Which Tax Forms Do Owner/Operators Need?
Let’s begin by answering the most basic question: Which tax forms am I expected to file? This depends entirely on your specific employment status—are you an employee of a trucking company, an independent contractor, or an owner/operator?
If you are employed as a driver for a carrier company or similar, you should receive a standard W-2 form for filing your taxes. The W-2 details the amount of wages you were paid during the previous fiscal year of employment. This form is the most straightforward filing procedure since there are no job-related expenses.
If you are an independent contractor or owner/operator, however, you will receive two tax filing forms: a 1099-MISC and a 1099-NEC. What’s the difference between the two? The 1099-MISC is an information return form (similar to a W-2) used to report payments made from a business to an independent contractor. Any independent driver who makes more than $600 from one particular source will be expected to complete a 1099-MISC from that source. The 1099-NEC, on the other hand, is used for independent contractors to report payments received from businesses for work performed. Independent contractors and owner/operators are required to complete and file both the 1099-MISC and 1099-NEC forms with the IRS.
When are the Filing Deadlines?
Don’t get slapped with a hefty penalty by missing the appropriate filing deadlines. The IRS penalizes workers for multiple reasons, including failure to file taxes and failure to pay taxes. Penalties include steep fines, seizure of property, and even jail time. Protect yourself by knowing the important filing and extension dates.
- February 12: The IRS begins accepting and processing individual tax returns.
- April 15: The date for employees to file their returns or request a deadline extension.
- April 15: Any unpaid taxes must be paid in full to avoid owing interest and penalties.
- October 15: Final date to file for those who requested a deadline extension.
Notice that April 15 is an especially important date as it is the deadline to file your returns, request an extension on filing, or pay any unpaid taxes to the IRS.
What’s the Recovery Rebate Credit?
This year, many working individuals will have the ability to receive a tax credit if they did not receive a stimulus check. If you received the maximum amount of payment from both federal stimulus checks, then there is no impact on your taxes and you do not need to report the stimulus payment as income. If you are one of the many owner/operators who did not receive the full stimulus payment amount from one or both stimulus packages due to your level of income, you may be eligible for the Recovery Rebate Credit. The Recovery Rebate Credit is designed to either increase tax refund amounts or decrease the amount of taxes owed for workers who did not receive the full economic relief payments from the federal government.
To be eligible for the Recovery Rebate, you must be a U.S. citizen or U.S. resident alien, cannot be claimed as a dependent for tax year 2020, and you must have a Social Security number valid for employment. To determine whether or not you are eligible for the Recover Rebate, fill out the Recovery Rebate Credit Worksheet in the Instructions for Form 1040 and Form 1040-SR.
Filing your taxes can be intimidating, as the United States tax code becomes increasingly complicated each year. Rest assured, you don’t have to go at it alone. If you are concerned with your ability to file your taxes correctly and on-time, hire a professional tax preparer to help guide you step-by-step through the filing process. Protect yourself and avoid making common mistakes by filing the correct forms by the appropriate deadline.
The COVID-19 pandemic created a situation where e-commerce sales have grown astronomically—with total online spending in the month of May reaching upward of $82 billion (an increase of 77% year-over-year). This rapid increase in online sales also led to an upsurge in the demand for trucking services, and with trucks having limited storage capacity, the trucking industry as a whole has seen a steep uptick in demand and revenue—in September alone dry-van spot rates hit a record high of $2.37 per mile. With success comes responsibility: More than ever, it’s important for owner/operators to ensure their taxes are filed accurately and on time to maximize their return and avoid penalties.
Here are five things CPAs must be aware of when filing taxes for truck owner/operators:
1. Per Diem Rates
Filing taxes as an owner/operator can be complicated and navigating the tax code can feel arduous. One of the most beneficial tax incentives for an owner/operator is the ability to deduct certain costs under the travel expense tax category, including a per diem tax deduction equal to 80% of $66 per day. In order for an owner/operator to be eligible to receive a per diem deduction, the IRS has two specific requirements:
- The owner/operator will be away from home overnight while traveling for work
- Work requires travel substantially longer than the length of a workday
Be sure to keep track of receipts from travel expenses, including meals and lodging, in order to capitalize on all per diem tax deductions and avoid losing hard-earned money while on the road.
2. Mileage Deductions
For owner/operators, the IRS considers a semi-truck to be a qualified non-personal use vehicle, which means mileage cannot be deducted as a part of business expenses. This is because owner/operators are taxed only on the profit they make and receive deductions for time off and “deadhead miles,” or miles driven without a load on a truck’s trailer. Although mileage cannot be deducted while on the road since the truck is considered a non-personal vehicle, what can be deducted are actual expenses for the truck such as fuel costs, oil changes, minor and major repairs, insurance, and even tires. Additionally, while truck mileage may not be deductible, mileage on personal vehicles used for work can be deducted if the vehicle is used for business-related driving such as during trips to a supply store or the bank.
3. Depreciating Property Deduction
One of the largest tax deductions owner/operators are eligible for is the depreciable property tax which allows owners to deduct the depreciated value of the equipment that they use—most importantly, their truck and trailer. Owner/operators have the option to choose from a variety of different depreciation schedules in order to meet their specific tax needs, providing owners with the option of an expense deduction up to $1 million for a new truck in the first year of service. The depreciating property tax may be one of the most important tax deductions an owner/operator needs to be familiar with.
4. Tax Form 1099-NEC
For the tax year 2020, the IRS resurrected the 1099-NEC (non-employee compensation) tax form requiring owner/operators to file their taxes differently than they have in the past. Typically, at the end of the year, an owner/operator would receive a 1099-MISC form from the companies they contracted as a driver for, fill out the form, and submit that form to the IRS. This changed for 2020; now the IRS requires owner/operators to complete both the 1099-NEC and the 1099-MISC. The 1099-NEC is used exclusively to report the compensation received by contractors for fees, commissions, rewards, and other forms of payment for services rendered while the 1099-MISC is used to report miscellaneous income such as rent or legal settlement payments. Ensuring the appropriate tax forms are correctly filed within the IRS deadline is important to prevent the IRS from performing an otherwise unnecessary audit of an owner/operator’s finances.
5. Security Dog
If an owner/operator brings their dog on the road with them, there are circumstances where expenses related to the dog can be used as tax deductions. If an owner/operator uses their dog as a form of security for themselves and their truck, then expenses related to the dog while on the road are tax-deductible. These expenses can include dog food, training, veterinarian bills, or other expenses incurred in the process of caring for the dog. In order to utilize this tax deduction, the IRS requires any dog used as a guard dog must receive training from an accredited training service or school—the cost of training is deductible as well.
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