Here is a list of the most commonly asked business questions we receive from owner-operators, and our answers to those questions.
Q: How do I keep track of how my business is doing?
A: The best way to track the health of your business is by keeping good records of your revenue and expenses. You can do this by saving and recording all of your receipts and using them to build a profit and loss statement. With this, you’ll be able to see how your business is performing month to month. You can drill down further into your profit and loss statements by keeping track of expenses by category. From here you’ll be able to see the areas of your business where you’re struggling and the areas you can improve.
Q: What’s my breakeven point?
A: Your business typically has to pay for its own costs and support your personal needs. Your business plan should help you determine at what revenue point (daily, weekly, monthly, or at how many miles) you have to hit to cover all these costs. This is known as the breakeven point or breakeven miles. Factor in your personal costs as part of your business plan and re-evaluate costs at least every six months or whenever there is a significant change in your business or personal life. For example, consultants at ATBS work with small business owners on this process regularly and help customize their client’s plans to become their personal “profit plan.” This is the minimum amount of money you should aim to make or miles you should plan to drive in order to at least keep your business from losing money.
Q: Should I have a trucking business plan?
A: Before you start a trucking business, the first thing you should do is write up a business plan. Understanding how your business is going to operate might change over time, but writing out the basics will provide you with a roadmap.
Q: What is Per Diem?
A: In its simplest terms, the Per Diem deduction is a tax deduction that the IRS allows to substantiate ordinary and necessary business meal and incidental expenses paid or incurred while traveling away from home. The Per Diem rate is set by the IRS. The current rate (as of October 1, 2021) is $69 per day in the Continental US. You may hear the amount of the deduction quoted as $55.20. That is because the IRS usually only allows you to deduct 80% of that rate.
Q: What is IFTA?
A: The International Fuel Tax Agreement (IFTA) is a pact between the lower 48 states and the ten Canadian provinces that require all interstate motor carriers to report fuel taxes. IFTA was put in place to replace the old fuel tax system, in which trucks were required to have a separate decal for every state they operated in. The current IFTA reporting system simplifies the hassle of reporting fuel tax for trucking companies (including owner-operators) who operate across IFTA jurisdictions by reducing paperwork and minimizing the compliance requirements. At the end of each quarter, you must submit an IFTA report that lists the miles driven and the gallons purchased. These reports will determine either the amount of tax still owed or the refund you are due. Keep in mind that IFTA is not an additional tax. IFTA was put into place to redistribute the tax to the states where the fuel is actually being used, not where it is purchased. This means no matter where you buy the fuel, you're paying the fuel tax in whatever states you're driving in.
Q: What is HVUT?
A: The Heavy Highway Vehicle Use Tax is a tax imposed yearly by the IRS on anyone who owns and operates a heavy highway vehicle (Class 6, 7, and 8 trucks are included) with a taxable gross weight of 55,000 lbs. or more on public roads. These taxes currently have a maximum of $550 per year (taxes increase as the taxable gross weight of the vehicle increases), and they are used for highway construction and maintenance. The FHUT tax season runs from July 1st until June 30th of each year, and is reported using the IRS Form 2290. The form must be filed on the first month that the vehicle is used on public highways, not when the vehicle is registered.
Q: What are the biggest expenses an owner-operator faces?
A: Fuel, Truck, Insurance, Taxes, Food/Drink
Q: How much should I plan on spending on fuel?
A: On average, owner-operators may spend anywhere between $50,000 and $70,000 per year. Thanks to the ever-growing list of smartphone apps and fuel cards, you now have the tools you need to ensure you are paying the lowest price possible for fuel whenever you fill up.
Q: How do I get the best fuel efficiency?
A: Fuel is the largest annual business expense you will face every year as an owner-operator. Fortunately, it is also the expense that you have the most control over. You can control how fuel-efficient you make your truck/trailer, how fuel efficiently you drive with speed and braking, and even though you don’t control how much you pay for fuel you do have the ability to use fuel cards and other discounts to help reduce these costs. We have several resources in our Knowledge Hub about reducing fuel costs but a good place to start would be clicking here.
Q: How much should I set aside for taxes?
A: We recommend setting aside between 25% and 30% of weekly net income for quarterly taxes.
Q: How much should I set aside for maintenance?
A: At ATBS, we typically recommend saving between $0.05 - $0.12 cents per mile for general upkeep and repairs. Many factors play into this recommendation including age of equipment, driving habits, type of freight hauled, and more.
Q: What business entity should I be?
A: The three most common types of entities for owner-operators are sole proprietorship, S corporation, and a limited liability company (LLC). When deciding on your business structure, the two main factors to consider are owner liability and income taxation. Each structure comes with different tax consequences so it is important you make your decision based on your business needs. Here is a free e-Book that goes into much more detail on the different business structures.
Q: Should I buy or lease my truck?
A: It will be very difficult to purchase a truck upfront, which means you will have to decide whether to join a lease-purchase program with a carrier, or purchase a truck through a truck financing company. Through a lease-purchase program, you won’t own the truck, but you will be making monthly payments on the truck until the contract is up. At that point, you can purchase the truck or start a new contract with the same or different carrier. You can also decide to purchase a truck through a trucking-specific financing company. This way you don’t have to lease your truck through the carrier you decide to drive for. When you finance a truck, you slowly make payments on the truck until you eventually own it.
Q: Should I drive on the spot market or lease onto a carrier?
A: When a driver decides to become an owner-operator, most will make the decision to start by leasing with a carrier rather than getting their own authority. By doing this, you still have the freedom of being your own boss, but you will have the protection of a fleet to help you find loads and to help pay for some of the upfront costs.
The breakeven point, as of 2018, for deciding between spot market and leasing onto a carrier is $.48/mile. If you can earn more than an additional $.48/mile by running on the spot market it might be worth making the switch. This $.48/mile is calculated from the additional costs that come with not leasing onto a fleet. You have to consider this along with the lack of security that comes with running on the spot market.
Q: How do I decide what company to lease onto?
A: A few of the things that should be considered are where you want to drive, what type of operation you want to run, and how the fleet treats owner-operators. Carriers will list what parts of the country you will be driving in and what types of freight you will be hauling. Once you have found a few options based on your driving preferences, you should do a little research on the reputation of each fleet. Figure out how much they pay per mile, if they pay their drivers on time, if they consistently have loads available, and any other information that is important to you in deciding what carrier to lease on to.
Q: How much does it cost to get your own trucking authority?
A: This list does not include the daily expenses owner-operators already face while leased onto a carrier, but rather new expenses unique to running with your own authority. The list also does not take into account the lost revenue from taking time off the road to make the switch to your own authority. The extra ramp-up expenses/lost wages must be considered in addition to what the table lists below:
Truck: Lease: $1,600 - $2,500 per month Purchase: $50,000 - $200,000
Trailer: Lease: $500 - $600 per month Purchase: $25,000 - $50,000
Insurance: $15,000 - $30,000+ per year
DOT number (Form MCS-150) and operating authority application (Form OP-1): A one time fee of $300
BOC-3 Form: A one time fee between $20 - $40
IFTA Decal: $10 per year
IRP Credential: $1,700 per year
Once you have an active U.S. DOT number, you must pay Unified Carrier Registration (UCR) fees: $59 per year
Drug and Alcohol testing: $75 - $110 per year
Load Board: $35 - $150 per month
Of course, not everyone will experience the same expense totals during the switch to running their own authority. That said, we estimate that you should be prepared to spend an additional $30,000 for the first year under your own trucking authority. Another expense to consider is the cost to set up and run a business entity if you do not have one already. With these costs in mind, it’s important to look at your business & personal finances to make sure you are monetarily ready to make this switch. Overall, we estimate in the first year, you will need to generate, on average, $50,000 or $0.48/mile in additional revenue to make the switch financially worth it.
Q: What insurance do I need?
A: Owner-operators on their own authority need primary liability insurance, cargo, physical damage, bobtail, and non-trucking insurance. Owner-operators leased onto a carrier have primary liability coverage provided by the fleet, however, they usually still have to purchase bobtail, non-trucking, and physical damage insurance.
Q: How much do owner-operators make a year?
A: This can obviously vary drastically based on a multitude of factors, but the average net income for leased and independent operators combined went from roughly $71,000 in 2021 to $64,000 in 2022.
Q: How much should I pay myself?
A: Oftentimes, lease-purchase owner-operators believe that if they decide to pay themselves a set salary then that is what they will be paying taxes on. Your "payroll" is the amount that is left over after all of your business expenses are paid and you’ve already set aside money for taxes.
Q: How does ATBS help owner-operators?
A: Over 150,000 owner-operators have made the choice to hire ATBS over the past 20 years. We offer a variety of services, specifically for owner-operators, including accounting, bookkeeping, and tax preparation. We also offer unlimited business consulting for our RumbleStrip Professional clients. A dedicated business consultant will help answer your questions and assist you in keeping your business successful and profitable. If you’d like to learn more about ATBS services or want to get started today, give us a call at 866-920-2827 or chat with us at www.atbs.com.