Many fleet drivers are leaving hundreds, perhaps thousands of dollars in tax deductions on the table because they've been given wrong information by their companies.
While owner-operators are usually savvy about taking deductions – and lowering their tax bill – most fleet drivers believe they're not entitled to similar tax-cutting deductions. "That's a costly mistake," says Jim O'Donnell, CEO and Founder of Trucker Tax Service. "Most fleet drivers do not realize that they’re entitled to pretty much everything that an owner operator is entitled to. The only difference is that the owner-operator is going to have some major expenses," he says.
One of the main problems is confusion over per diem payments. "Many drivers have been told by their companies that it’s not worthwhile for them to get an itemized tax return done, because they don’t qualify for enough deductions. If they get paid per diem, they’re told to do a standard deduction and they'll be fine. It’s absolutely wrong."
O'Donnell explains: "There’s two different classifications of per diem. There’s a per diem that a driver receives as a portion of his or her income, and there’s a per diem that they’re entitled to as a daily deduction for every night that they spend on the road. Let's say a driver is paid 35 cents a mile. Ten cents of that can be paid in what’s called per diem. It flows through to their paycheck. If a driver covers 450 miles a day, that comes out to $45 a day. Let's say a driver is out 300 nights a year, that per diem is $13,500 in annual income that never gets reported. The company just writes it off as an expense. Well, that $13,500 never gets reported and the driver is told don’t do it; just do a standard return."
He continues: "With 300 nights on the road – and I realize that's an aggressive number - a driver would qualify for $14,000 in per diem deductions. So now, he’s already offset the $13,500. He already has an additional $500 in standard deductions that’s he’s entitled to and he hasn’t started to account for everything else that he’s entitled to deduct."
O'Donnell admits that this can be confusing for drivers, which is why he encourages them to seek professional tax preparation from a company that understands trucking. He says, however, that many drivers are reluctant to pay a preparer several hundred dollars for their services because they don't believe it will be cost effective. He counters: "First of all, if a fleet driver just has a W-2, our rate is only $270 to start with. If you’re an owner-operator, it does jump up to $465, but it’s a much more complicated tax return. Drivers can easily make back that $270 with the deductions that we’re going to find for them. Their cell phone deduction alone – their phone bill could easily be $1,000 a year – would more than cover the cost."
O'Donnell stresses the importance of never throwing out a receipt. "The big items like satellite radio, a GPS or CB radio were probably paid for by a credit card, so you'll have a record, but keep a receipt for all cash payments like laundry, small batteries and showers. The only receipt you can ever throw away is if it’s 100 percent for food, because we’re going to capture that with the per diem [See List of Deductions]."
The general rule is if you’ve purchased something to go on the road with you or if you purchased it while on the road, most likely, it’s a deduction that you’re entitled to.
He concludes: "Drivers have never been educated on the fact that they are at the same level, in the eyes of the IRS, as an owner-operator or lease operator, in what they get to deduct while on the road. Anything they buy, like linens for the sleeper, pillow, whatever… I don’t care if they’ve purchased an air freshener. It's deductible."