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You can avoid any big surprises in April by using good planning and record keeping throughout the year. Use this owner-operator’s quick guide to taxes to help.
As an owner-operator, you are responsible for paying taxes yourself. For anyone that was a company employee before, this represents a major change. While your taxes were once automatically withdrawn from your paycheck, now you must calculate and pay them to State and Federal agencies yourself.
Types of Taxes
Self-Employment Taxes: These taxes are similar to the Social Security and Medicare taxes you paid as a company employee. According to IRS website, the self-employment tax rate is 15.3% (12.4% for social security and 2.9% for Medicare). View full details about self-employment taxes at IRS website.
Federal Income Tax and State Income Tax:
This is calculated on your tax return. As a company employee, income taxes were estimated and withheld from your check. As an owner-operator, you are responsible for its estimation and payment. You can see tax brackets across states at Tax-brackets.org.
Estimated Tax Payments
Those who expect to owe at least $1,000 in taxes after subtracting withholding and credits are required to make quarterly payments of self-employment and income taxes. Though the IRS allows estimates based on the prior year’s data, financial services providers such as ATBS use current data to compute your estimated taxes due. For payment vouchers, addresses for where to send the IRS estimated payments, as well as other federal tax information, visit IRS website. Each state that imposes income taxes has a website to obtain their payment vouchers and addresses.
Deductions and Recordkeeping
Owner-operators have to estimate the profit of their business so that they can make estimated tax payments. The profit is also used to calculate the taxes due at the end of the year when you file Form 1040.
IFTA - International Fuel Tax Agreement
The International Fuel Tax Agreement (IFTA) was formulated to efficiently record fuel taxes for motor carriers. This agreement spans forty US states and Canadian provinces, making it simpler to track carriers that operate in more than one jurisdiction.
Under the IFTA, each company will be issued one IFTA license and IFTA decals for each of their trucks, allowing them to operate in other jurisdictions without having to buy additional decals. Prior to this agreement, each state had their own taxing system where drivers would need to obtain individual permits for every state that it operated in.
To apply for a license, applicants must establish a place of business where their motor carrier operations are performed. Trucking mileage must be accrued in their state and operating records for the fleet should be maintained and made available to the state when necessary.
In addition, the trucks must operate in at least two IFTA
✔ Registration and Quarterly Tax
Truck fleet owners can either complete the IFTA application package or have a Truckers Accounting and Permitting Service do the job for them. Once you have registered, a quarterly tax form should be filed, even if the license holder does not purchase fuel or operate during the quarter. The IFTA tax return is mailed on a quarterly basis to all licensed carriers.
Regardless of where or when the IFTA license is obtained, all decals will expire on December 31st every year. Although licensees are recommended to renew the decals immediately after expiration, it is not required. There is a 2 month grace period from December to February until the next fuel tax.
IFTA tax is required for any motor vehicle that has three or more axles, regardless of its weight. If the vehicle exceeds 26,000 pounds, tax will be required even if it only has two axles. All commercial trucking companies are required to obtain an International Fuel Tax Agreement license, although exceptions can be made for government vehicles and farm vehicles.
New Mexico Permits
All motor carriers operating vehicles in New Mexico with a gross vehicle weight over 26,000 pounds are required to have a New Mexico weight distance tax account. When the account is opened, quarterly reports must be filed. This trucking permit is required in addition to your IFTA license.
New York Highway Use Tax (HUT) is a weight distance tax imposed on all carriers operating in motor vehicles in excess of 18,000 pounds on New York highways. Motor carriers are required to open a HUT account and register each vehicle that travels in New York. This permit is required in addition to your IFTA license.
Oregon Highway Use Tax is a mileage tax which is assessed against all carriers with a gross vehicle weight over 26,000 pounds. Motor carriers planning to travel through Oregon need an Oregon Weight Receipt and Tax Identifier receipt. Once you post a $2,000 bond per truck, you can open an account and then file required monthly reports. Oregon does not charge a fuel tax fee in addition to its mile tax.