Updated: May 7
On December 20, 2017, the United States Congress passed the largest reform to the Internal Revenue Service Tax Code since the early 1980s. This legislation will begin impacting taxpayers in 2018 and through December 2025. Although the legislation was originally expected to simplify the tax filing process, many of the changes have added complexity to the tax code and filing process. Below is a summary of certain key parts of the legislation that will impact many truck drivers, both company and owner-operator. For a complete guide on the changes, please download our free eBook, The Owner-Operator’s Guide to the Tax Cuts and Jobs Act.
Qualified Business Income Deduction
Under the Tax Cuts and Jobs Act, a significant change was made that adds a 20% deduction for taxpayers who have “Qualified Business Income” (“QBI”) from a sole-proprietorship, partnership, or S-corporation. The term QBI is generally defined as the amount of net income from a qualified trade or business. Owner-operators will receive the new pass-through entity QBI 20% deduction no matter what business structure they operate under. For the average single sole proprietor owner-operator, this will save approximately $2,000 in taxes starting in 2018. There are limitations, thresholds, and exclusions relating to the calculation of the deduction and you should seek a tax preparer who understands trucking to determine this amount.
Depreciation and Section 179 Expensing
The new tax law changed these rules and extended the use of bonus depreciation. For now and through the year 2022, businesses are allowed to immediately deduct 100% of the cost of eligible property in the year the property is placed in service. Previously, bonus depreciation was only available for new property. This rule has been eliminated and bonus depreciation may be used for both new and used property.
Section 179 permits the immediate expensing of certain depreciable tangible personal property – like tractors and trailers – up to a maximum amount of $500,000. The Tax Cuts and Jobs Act expanded the definition of Section 179 property and increased the maximum amount that a taxpayer may expense to $1,000,000 and increased the phase-out threshold to $2,500,000.
Like all parts of this new tax legislation, extreme care and expert advice are needed for Section 179 Expensing. For instance, owner-operators should not automatically assume that it’s a good business strategy to take full depreciation for 2018 or 2019 taxes even though it might be allowed.
The new tax law significantly increased standard deduction amounts. The increase in the standard deduction will likely benefit those taxpayers who do not itemize today. Generally, many company drivers who have itemized their deductions under past tax law will likely not itemize in the future as their itemized deductions will not exceed the standard deduction.
Under the new tax laws the per diem deduction is still available to owner-operators. This is a significant tax advantage to the owner-operator; however, it appears that the Tax Cuts and Jobs Act has eliminated this deduction for company drivers. This could increase the tax liability for the average single company driver making $47,500 by approximately $600. (But remember, the Standard Deduction has been increased which might offset some of this increased tax.)
The items discussed above directly affect truckers. There are also significant changes to other tax law such as the Child Tax Credit, Alimony and Child Support, The Affordable Care Act Penalty, and the new Tax Brackets and Rates that might also affect truckers. We cannot overstate the importance of getting expert tax assistance from someone who understands trucking.
What does all this mean? It’s a mixed bag and every person’s tax situation is different depending on their personal circumstances. If you aren’t using ATBS for your taxes, make sure your tax preparer is well informed of this information prior to starting your 2018 tax return. If you have any questions or would like ATBS to complete your taxes this year, give ATBS a call at 866-920-2827 or visit our website at www.atbs.com.
Taxes for truckers is what we do.