Tax question from new driver

It depends. If your company offers you per diem (I recommend NOT taking this) they are usually saving THEMSELVES money from social security and medicare taxes. What the per diem does is increase the drivers take home pay by giving the driver part of his pay as "tax free."

The federal government states that transportation workers are allowed to deduct meal expenses while on the road provided they are "duplicating expenses" (this means you must have a physical address where you pay rent or mortgage and buy your own groceries) and you are away from your tax home for a required "rest period" (I read this as a 10 hour break away from your tax home). The "duplicating expenses" part means that you would have been able to eat the groceries in your home (which you already bought and paid for) except your job requires you to be away from your home and consequently you do not have access to that food. Therefore they recognize you will have to purchase additional food while you are on the road.

For this year you are permitted 80% of $52.00 per day for your meals without having to justify the deduction with receipts. There are other formulaes based on the specific location you are in each day but for most of us we use the standard daily deduction. The calculation of days worked also has a couple of different interpretations. Some will divide the day into quarters and in this way, will get credit for partial days, others will declare 3/4 of a day for every partial day, and still others will declare a whole day for each partial day. Regardless of which method you choose to use (they are all currently acceptable) you must apply the method consistently through the entire years log sheets. This also goes for using the standard deduction. You CANNOT switch from the standard daily deduction to using receipts on another day. It must be CONSISTENT.

Your company per diem program must have a monthly "test" to verify that they are not over paying drivers on the per diem plan. If they do not comply then the IRS may dis-allow the plan and all the money you received tax free would then be considered taxable. Can be a real head ache.

The sticky part comes when you are over paid on the per diem pay during the year. When you file your taxes in the Spring you will have to calculate how many days you were on the road for the previous year and how much per diem pay you would have been entitled to receive based on the number of days you were away from your tax home. If the per diem pay you received from your employer is greater than what you were entitled to then you will have to declare the overage as additional taxable earnings.

In the event that your employers' per diem plan paid you LESS than you were entitled to then you can deduct the DIFFERENCE on your tax return.

Here is an illustration to help you understand; John is an otr truck driver who does not get a company paid per diem program. He spends 5 days per week on the road away from home. John worked 50 weeks out of the year.
50x5 days=250 (days)x $52.00=$13,000.00 x 80%= $10,400.00 deduction off of John's gross earnings when he files his tax return in the Spring.

Tom is a company driver that has a company paid per diem plan. Tom also is an otr truck driver who worked 50 weeks out of the year 5 days per week. Toms company pays .08 cpm per diem pay. Lets assume Tom drives 2500 miles per week each week for a total of 125,000 miles. 125,000 miles x .08 cpm= $10,000.00 for the year. Under this scenario Tom will actually be underpaid $400.00 on the perdiem pay and would be allowed to "write off" an additional $400.00 from his gross earnings come tax time.

Now lets try another example where "Tom" actually drives more than 2500 miles per week. Lets say Tom is a hustler and is able to average 3000 miles per week. Now we have 3000x50 weeks=150,000 miles for the year. Now we multiply 150,000 miles times .08 cpm for a total of $12,000.00 paid out during the year untaxed. Based on the federal guidlines Tom has been "over paid" to the tune of $1600.00. This $1600.00 would have to be declared as additional earnings and taxed accordingly.

I have shown you 3 different scenarios. As you can see in the case of "Toms" scenarios there will be additional work and calculations required to perform before the tax return will be accurate.

Lets look at what an actual paycheck would be based on the 2 different systems.

John is earning .40 cpm x 2500 miles per week=$1,000.00 gross. In a 25% tax bracket John would take home $750.00 per week.

Tom is also earning .40 cpm but in his case .08 cpm is untaxed per diem pay. .32cpm x 2500=$800.00 x 25% (tax)= $600.00 + 2500 miles x .08 cpm=$200.00 + $600.00= take home pay of $800.00. In this case Tom actually takes home an additional $50.00 per week as compared to John.

Now remember when it is time to file taxes Tom will have already used up all his per diem (save $400.00 from our first ex.) during the year. Chances are Tom will not get as large a refund from the government as John will.

The benefit of the per diem plan is Tom got his money all year (a little bit at a time) and did not let the government have his money (an interest free loan to uncle Sam in essence) to play with.

I kept these very simplistic to convey the concepts at work. In alot of cases when a company offers a "per diem" plan they will actually reduce the ppm (pay per mile) to the driver. So in some cases the company will offer .40 cpm without the per diem but only .30 cpm with the .08 cpm per diem. A forfeit of .02 cpm to get a little extra money in your pay check each week while the company saves on the tax liabilty on the end and gets to short the driver an additional .02 cpm as well.

Lets not forget that in the event of disability or retirement the drivers benefit will be based on his "taxable earnings."

Other ways a per diem plan can bite a driver in the butt is in the event he is applying for a loan (for a car or home) his gross earnings will appear LESS than what he actually takes home each week. Also do not forget the social security and medicare money that your employer SHOULD have been paying on your behalf they kept.

As for the second part of your question it is rather simple. Anything that is "usual and or customary" to the drivers performance of his job that he is NOT re-imbursed for by his employer. In essence this means anything that a driver buys to do his job is a legitimate deduction. This includes everything from work clothes and work boots to gps systems and computers. The key to these deductions though is you can only take them if your employer will not re-imburse you for them. Examples would be lumpers, scales, tolls, postage, load locks, etc. These are routinely re-imbursed while items such as cb radios, laptops, gps systems, coolers, tool boxes, satellite radios (subscriptions for internet as well as radio), and cell phones are usually not re-imbursed by the company.

In the case of work unifroms they must be 1. required 2. be appropriate to the job 3. Have some kind of logo on the shirt representing the company you are working for. Tee shirts and jeans do not qualify nor do tennis sneakers or flip flops.

Another popular misperception is using "Fido" as a tax write off along with the dog food, vet bills, etc. The ONLY exception to this is if the dog had graduated from a guard dog school AND you have PROOF. Then the dog will be considered as a legitimate deduction rather than just a companion.

Both of these topics do have threads with more detailed information offered. You may want to do a search to access the wealth of information regarding more specific deductions.

 

The 52.00 amount being used is set in the Pub for transportation workers. The reason was to avoid the need to find where they were every day.

The first year depreciation is under section 179. There is a caution on this. If the asset is not kept for the 5 year period, there is a recapture amount that is subject to tax.

 

I have never been able to keep a laptop for more than a couple of years at most
Then I buy a new one
How would I handle this

 

Thank you for your detailed explanation to my questions! This helped so much. It sounds like you are better off not to take per diem and to keep those receipts with those log books for back up.
So you mentioned some deductions to include would those items for cooking your food aka lunch box cooker, crockpot, cooler you plug in also count for a deduction? I am assuming it does but want to make sure. Thanks again.

 

In my opinion the per diem is nothing but a scam. It is designed to reduce the social security and medicare tax burdens on employers. This is a major reason why you see so many companies offering lease purchase programs as well. To get out from under the burden of taxes, workers comp, and the operational costs of the truck itself. Some of these companies even reduce the amount of pay offered per mile in the event you opt into a per diem plan. Talk about crazy.

As for actual appliances on the truck this will fall under the "usual and customary" category. Now a days many drivers do indeed have inverters, microwaves, dorm size refrigerators/coolers, crock pots, toaster ovens, coffe makers, etc. So I would have to say yes to these deductions. In the event of an audit you simply explain that in many cases you are stuck at a customer and the customer does not permit you to use their facilities.

Remember though the key is you may only deduct work items that your employer does NOT re-imburse you for.

Common deductible items missed by many drivers are their cell phone bills, their air cards and isp charges, laptops, etc.

 

I think you might be getting confused info here. There are two ways to consider per diem.

The per diem that is not good is when the trucking company records it in your pay. That is not good.

The per diem you can take on your income taxes is based on the IRS amount of 52.00 per day for food. I cannot see the need for keeping the receipts unless you eat more than amount.

 

Ok tbis is something I'm not familar with what are air cards?

 

wireless internet cards for laptop

 

Exactly Right!

They work like a cell phone (and actually have a number attached to them). They plug into the usb port on your laptop. They dial out and connect to a cell tower. This enables you to get online pretty much from any where you have a signal from a cell tower.

At least with an air card you do not need to find a "hot spot" (found in many places such as truck stops, hospitals, coffee shops, etc.)

Many hot spot locations will actually charge a fee to get on line.

Air cards cost around 60.00 a month but imo they are well worth it. Especially if you spend as much time on line as I do while traveling. Running team affords me plenty of time rest and "entertain myself online" while my partner drives her shift.

 

The simple answer here is this: Go to some laptop company, say Dell for example, and LEASE a laptop under a business lease program. You pay in we'll say $50 a month just for some arbitrary amount for the laptop, and because you've leased it, the entire amount is 100% tax deductible and proveable. $50 x 12 months = $600.00 in allowable expense. When the lease runs out in two years or what other term, you re-sign and get an new one. Again, 100% tax deductible for each month of the lease. If you can find a leasing company like GE Capital that also leases laptops, you can get a Capital Lease meaning not only is it tax deductible, but with a Capital Lease, it goes on your schedule of assets in your Balance Sheet and it becomes Depreciable as well. Just my .02 cents. Hope it helps.