Office: (404) 975-4800

Commercial Financing

How Owner/Operators Can Prepare for Tax Season

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.

What’s the Difference Between an Owner/Operator and an Independent Contractor?

What's the Difference Between an Owner/Operator and an Independent Contractor?

The trucking industry is one of the largest employers in the United States, with roughly 9 million people in trucking-related jobs. Of that number, 3.5 million are truck drivers. Many truck drivers are classified as either independent contractors or owner/operators—two titles that are often incorrectly used interchangeably. The reality is this: An owner/operator is always an independent contractor, but an independent contractor is not always an owner/operator. While this may seem like semantics, the truth is there are very real distinctions that impact a driver’s workload, finances, and autonomy.

What is an Owner/Operator?

An owner/operator, in short, is someone who both owns their equipment—or finances their equipment through a financial institution on their own accord—and operates their equipment as their career. In other words, an owner/operator is “an independent contractor with a business attached to their name.” Owner/operators have the ability to operate under their own authority, which means they can legally transport freight independently without a carrier company contracting them. One of the upsides to being an owner/operator is you get to keep all of the revenue generated for each haul. Because owner/operators own their trucks and function as businesses, they face more responsibilities than independent contractors. Unlike many independent contractors, owner/operators are responsible for all of the maintenance and repairs on their trucks, the record-keeping for their taxes, the insurance for themselves as well as any other drivers they may employ, and scheduling and planning out their pickups and deliveries.

Not all owner/operators are 100% independent, though; some choose to lease onto a carrier company. Leasing onto a carrier company means an owner/operator provides the company with a truck and driver in exchange for guaranteed steady workflow from the carrier company for the duration of the contract. While this is a type of independent contracting, the driver still owns the truck and is therefore classified as an owner/operator. There is a downside, however, to leasing as an owner/operator; if an owner/operator gets into a lease with a carrier company, the driver cannot “haul freight for other companies or brokers that the company they are leased to [does] not have an agreement with.”

What is an Independent Contractor?

An independent contractor is a driver who signs into an agreement with a carrier company that will provide them with operating authority and guaranteed hauls for the duration of their contract. In exchange for the operating authority and guaranteed hauls, independent contractors usually have to give a percentage of their earnings to the carrier as part of the contract agreement. Furthermore, independent contractors do not necessarily own their trucks; oftentimes, they have to lease the equipment from the carrier company contracting them. While leasing the equipment from the company is more cost-effective up-front, if the driver decides to leave the carrier, the truck stays with the company and the driver is out of the money they paid to lease the vehicle during their time with the company.

One major benefit to being an independent contractor is contractors who are not in a lease-to-purchase agreement typically have less responsibility when it comes to the maintenance of the truck or any repairs that may come up during a haul as the driver does not own the vehicle. This is important because repairs on semi-trucks run anywhere between $10,000 and $20,000—and that’s without taking into account lost wages while the truck is off the road. With this in mind, many novice drivers begin their careers as independent contractors until they are financially ready to branch off on their own.

What Are the Biggest Differences Between an Owner/Operator and an Independent Contractor?

Ultimately, the difference between owner/operators and contractors comes down to three important aspects: ownership of the truck, operating authority, and autonomy. As an owner/operator, if you are unhappy with the company you are carrying for, you can leave and take your truck with you. Independent contractors, however, may not own the truck they’re driving, so if they’re unhappy with the carrier company, they can leave but won’t retain ownership of the truck—the carrier will. As an owner/operator, you also have the operating authority to legally deliver freight throughout the United States without a contract through a carrier. As an independent contractor, on the other hand, you can only operate a truck under the operating authority provided by the carrier you contract for. Even if you own your truck as an independent contractor but do not have legal operating authority in the United States, if you leave the company providing you with operating authority, you lose the ability to legally haul freight. There are pros and cons to being an owner/operator or an independent contractor, and depending on where you are in your driving career, you should take the time to weigh your options carefully and make the decision that is best for you.

Find out what owner-operators should do to achieve success!

Read Now

 

5 Things CPAs Must Be Aware of When Filing Taxes for Owner/Operators

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:

    1. The owner/operator will be away from home overnight while traveling for work
    2. 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.

Visit our blog to stay up to date with the latest industry news!

Read Now

5 Biggest Owner Operator Expenses

missionpic

As of 2019, the average gross salary of an owner/operator is $220,591. However, this figure does not take into account the expenses incurred each week. On top of standard expenses, the installation costs of a new tractor can run a hefty price tag (over $100,000). For owner/operators, this presents a unique challenge of navigating their budgets.

The key is this: Like any business owner, you need to have a thorough understanding of your cash flow as a trucker, especially if you’re an owner/operator. By asking the necessary questions—“What are the costs of my expenses?” and “What is my net profit after taxes?”—can save you from encountering many financial troubles. By identifying your specific losses due to expenses, you’ll unlock the key to success as an owner/operator.

Here, we present five of the biggest owner/operator expenses and how to account for each in your total budget.

1.Fuel

Fuel is by far the greatest expense to those owning and operating a truck; the average fuel cost for owner/operators ranges from $50,000 to $70,000. You don’t have to estimate your fuel costs each week, month, or year, though. Plan in advance by sorting out your truck’s average cost per mile. This is done by dividing your fuel cost per gallon by average MPG, then multiplying that number by the expected number of miles you’ll drive. Once you have that number, the next thing to do is figure out your fuel efficiency.

The most effective way to get the ideal fuel mileage is by finding the best RPM to run your engine. When you pull your load with torque and not horsepower, you’ll burn less fuel because your truck will use less energy.

2.Your Truck

The truck itself is another large expense, and the primary truck-related expenses pertain to maintenance and tires. Though the price for maintenance may vary depending on other factors, such as the age of the truck, make, and model, alongside the quality of maintenance, you can still expect it to run you approximately 10% of overall costs. It’s helpful to budget for more than you think your maintenance will cost to avoid any financial surprises. Make sure to set aside a maintenance fund.

Furthermore, the average annual tire expense for retreading can exceed $4,000. This number is contingent on variables like miles driven, load weight, number of tires you have, types of tires you purchase, and wear patterns of the truck. When it comes to making the most cost-effective decision in purchasing tires, it’s important to consider the cost and expected lifespan of the tires.

3.Food & Drink

Even for the everyday person, dining out can quickly add up. Owner/operators are constantly on the go, and the prices of food and snacks are often significantly higher on the highway. This means it’s especially important to budget for eating at restaurants, snacks, and drinks. Once the budget is set, do your best to stick to it.

There are a couple of ways you can cut costs when it comes to food and beverage. Invest in keeping a mini-fridge and microwave in your sleeper. Owner/operators are also given a per diem tax break for travel expenses, including meals. As of last year, the per diem rate is 80% of $66 per day. Just be sure to save all receipts for qualifying tax deductions.

4.Taxes

As a hired truck driver, you hardly have to worry about taxes because the company handles such matters. However, owner/operators are responsible for paying a variety of taxes, including but not limited to the fuel tax, federal heavy vehicle use taxes, self-employment tax, and so forth. To avoid any unnecessary stress or confusion, use of a professional tax preparer to ensure you receive every possible deduction and your returns are handled properly.

5.Insurance

Trucking insurance also packs a hefty price tag, costing owner/operators anywhere from $8,000 to $14,000. Some coverage is required, while other insurances are optional. Common insurances needed are Truckers General Liability, Primary Liability, Physical Damage, and Non-Trucking Liability. Be sure to examine your coverages carefully as all insurance isn’t created equal. An insurer might offer cheaper coverage, but that doesn’t necessarily mean it’s the protection you’ll need on the road. Just as essential as having an insured truck is having health medical coverage for yourself. Be sure to factor this must-have into your budget as well.

For more information on how to achieve success as an owner/operator, be sure to follow our blog to stay in-the-know with the latest industry news.

Tax Update for Owner Operators and Fleet Owners

IRS Brings Back Form 1099-NEC

The IRS form known as 1099-NEC is returning for the 2020 tax year. The 1099 form has been in use for a long time—it’s the tax form used for independent contractors to report their taxable income. The NEC variant hasn’t always been in use, however, as it was replaced in the early 1980s by an updated, more robust version of 1099 MISC. This year, the form you’ll use to report information about your income as an independent contractor has changed. In this article we’ll describe why that is and what you need to know to be prepared. Filing taxes correctly can save you a lot of time, money, and headache—so make sure to do your due diligence and brush up on what’s new for 2020, and read our other tips for trucking success once you’ve made a plan for this tax season.

Supposedly, the revival of this tax form is in response to the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), which now requires businesses to file new information returns that are specific to their 1099 (aka non-employee) workers by January 31 of each year. The PATH Act created new problems with the IRS and its ability to process data, because the due date for 1099-MISC forms those same workers would have to file wouldn’t be due until March 31. In order to skirt this issue, the new version of 1099-NEC, available on the IRS website, contains a new box for indicating non-employee compensation (NEC). Note, the 1099-NEC form isn’t replacing 1099-MISC. Rather, it’s a supplemental form that deals with NEC. As we’ll explain later, 1099-MISC is used to report many different types of miscellaneous income, and for that reason, it still remains in use for employers, businesses, and non-employed contractors alike.

How This Affects Fleet Owners and Drivers

If you work for a fleet or are a fleet owner yourself, it’s important to acknowledge this change. If you’re an operator, this will be the form you’ll have to fill out and supply to both the government and your contract supplier, which is slightly different from the 1099-MISC you’ve likely filled out in previous years and will have to fill out again this year. If you’re a fleet owner, this will be the form you’ll have to issue to your independent contractors in 2020.

Form 1099-MISC, which most seasoned owner/operators should be familiar with, is what’s called an information return businesses of all kinds use to report payments to outside independent contractors. This form is also used for other types of income payments like royalties and rent payments, which only applies to certain types of businesses. Any contractor who makes more than $600 from one particular source will receive a 1099-MISC from that source. For the most part, the 1099-MISC is filled out a lot like form W-2, except it has extra boxes for giving information about non-employed contractors.

The 1099-MISC form is an information return used to report types of payments made to independent contractors. Payments included can come in the form of royalties and rents as well, but for most O/Os, this form will be used to assess what you owe based on what outside businesses paid you during the last fiscal year.

Here’s a full list of income types that can be reported on a 1099-MISC:

  • Royalties
  • Rent
  • Fishing boat proceeds
  • Medical and health care payments
  • Substitute payments in lieu of dividends or interest
  • Crop insurance proceeds
  • Excess golden parachute payments
  • Gross proceeds paid to an attorney

So, What Do You Report on 1099-NEC?

1099-NEC is for reporting non-employee compensation. These include the following taxable payment types to independent contractors: fees, commissions, prizes, awards, and other forms of potentially non-monetary forms of compensation for services rendered. For every 1099-NEC, there are multiple copies that need to be sent to the proper parties.

Use this checklist to make sure your 1099-NEC copies get sent to the proper places:

  • Copy A: Send this copy to the IRS
  • Copy 1: Send to your state tax department, if your state collects income tax
  • Copy B: Send to your independent contractor
  • Copy 2: Send this copy of the state return to your Independent contractor
  • Copy C: To be kept for your business records

Have More Questions about Taxes?

Taxes can be difficult to manage, which is why we make a point to keep our readers updated on the latest changes to tax code and different financial strategies for owner/operators. If you’re interested in what truckers have been doing to find enough capital to stay afloat during the coronavirus pandemic, read our blog on short-term financing. Keep up to date on the state of trucking in America by reading our posts on supply chain and employment topics, which you can find here. If you’re new to trucking, and want to get started with your own fleet or your own rig, contact us with any questions you might have and we can help you get started in a brand new career.

An Owner/Operator’s Guide to Financing During a Pandemic

A lot of things are up in the air in light of the COVID-19 pandemic. If your business had just decided to put money down on future investments, or didn’t have much squirreled away to begin with, it can be difficult to trust the market to keep your business going steady—no matter if you’re an independent O/O or a fleet owner.

A survey Overdrive sent out in May found that their readers’ number one concern was freight pricing. Their second biggest concern? Cash flow.

These issues are pretty severely entangled with one other. Recently, we’ve seen some owner/operators in the perfect positions, geographically, start making money hand over fist, whereas other O/Os (only a couple thousand miles away) lost money every day driving half-full or even totally empty trucks. While there is some strategy available to maximize your business success during this uncertain time in freight, there are some problems that won’t budge without a heap of capital behind them.

Below, read our guide on the best ways to find financing during the pandemic.

Start with a PPP Loan If You’re Eligible

Paycheck Protection Program loans from the government’s Small Business Administration are, hands down, one of the most cost-effective ways to finance your business. These loans are designed to help small businesses pay their employees while the economy is slowed due to the coronavirus. As long as you do the proper research and only spend PPP loan funds on designated expenditures, your loan will be entirely forgiven once the term ends.

Unfortunately, these loans don’t always have the best legs. For some employers, a PPP loan will make sure you and your employees keep getting paid, but only for a time period of two to three months. But if your business hasn’t picked back up by that time, what will you do?

Research Private Lenders

If you haven’t been able to get a hold of a PPP loan, or you’re worried about what will happen once that loan runs out, it’s time to start researching and comparing private lenders. Financing is an important part of the job as an independent owner/operator, fleet manager, or truck dealership.

Most people won’t have $40,000 to $100,000 lying around to purchase a new rig for their business outright, and dealerships will always need large amounts of capital to meet the fluctuating demand for different semi tractor-trailer models. As a result, financing purchases has become the norm for O/Os and dealerships alike. While it can be more difficult to find favorable options as a dealership owner, there are plenty of options available to someone looking for private financing for a dealership.

Keep Your Eyes Open for Bad Deals

When financing a new truck, it’s crucial to take the process slowly and read all of the literature given to you by the lender. For the most part, your options as a future owner/operator include either taking an upfront traditional loan to finance your truck, or you can lease a truck for a certain period of time. Often, the comparison between these two options can be where a bad faith lender will try to take advantage of truckers new to the game—so it’s especially important to research which of those options best suits your lifestyle before you ask for cash.

Long leases will generally be more expensive in total than conventional loans, and they’ll leave you with no property to sell at the end of the deal to help recoup what you’ve paid. But if you’re worried about the market or expect to spend only a fixed amount of time in trucking, leasing your truck has the potential to be the most cost-effective option.

If You’re Buying, Save as Much as You Can Ahead of Time

The logic here is simple: Any money you can put down on your truck on Day 1 is money you don’t have to pay interest on. In addition to your credit history, having a large amount of capital on hand can act as collateral and help you get the best possible loan package. Plus, truck costs won’t quit once you’ve got your truck all to yourself. The first months with a new truck will inevitably be filled with small optimizations—technology changes, small additions, and the occasional stylistic upgrade. In order to make your truck the most comfortable and efficient it can be, you’ll need some cash set aside.

Contact a Lender You Can Trust

Always choose a lender with a long history in the business. Mission Financial has been providing truck financing for decades to owner/operators, dealership owners, and even capital to help keep your commercial fleet up and running. Contact us if you still have questions about the best ways to stay afloat throughout the coronavirus pandemic.

Archives

Sign Me Up!

Stay up to date with the latest news in the commercial trucking industry.

Contact Us
close slider