tax deductions for truck drivers

Tax Deductions for Truck Drivers

EMPOWERED TAX SERVICES, LLChttp://www.irstaxtrouble.com

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We represent clients in the administrative process, from audit through appeal, and in court. We strive to resolve disputes without litigation in a manner favorable to our clients.

We are experienced tax advisors, with an in-depth understanding of tax matters arising in the planning stage through to tax controversies affecting particular industries and tax issues.

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The Problem● The IRS frequently audits truck

drivers.● These IRS audits typically result

in the disallowance of tax deductions.

● This is evidenced by the ever-increasing number of court cases.


The Cause● Our tax laws are written broadly so that they can be applied to all taxpayers.● These broad laws are difficult to apply to taxpayers who work in some specific

industries.● The trucking industry provides a prime example.● This makes it difficult to answer even simple tax questions, such as whether a

particular expense is deductible.


The Answer● This tutorial provides an ten step process for determining whether an

expense is likely to be tax deductible. ● It addresses this topic from the vantage point of a truck driver who is thinking,

“I have this particular expense, can I deduct it on my taxes?”● This can tutorial may be helpful in pulling information together for your tax

preparer or for evaluating expenses before or during an IRS audit.


Step 1: Ordinary & Necessary Expense● The first step is to determine whether the expense is ordinary and necessary

for a truck driver. ● The shorthand way to answer this is to ask yourself whether a third party

would agree that a truck driver would need to incur this particular expense.● Another way to think about it is whether you would feel comfortable

describing the expense to the IRS if it audited your tax return.


Step 2: Unreimbursed Expense ● The second step is to consider whether the expense was reimbursed by an

employer or other party (such as an insurance company).● Generally, expenses that are reimbursed by a third party are not deductible.● Also, expenses are not deductible if they could have been reimbursed by an

employer or third party, but are not reimbursed merely because you did not seek reimbursement.


Step 3: Not a Personal Expense ● The third step is to determine whether the expense is a personal expense.● Generally, personal expenses are those that you would incur even if you were

not working as a truck driver.


Step 3: Not a Personal Expense ● Examples of personal expenses:

laundry bag, containers of laundry detergent, Visine eye wash, air fresheners, bunk heater, down pillows, sets of sheets, sleeping bag, storage container, coffee pot, cooler motor, personal hygiene items, travel bag, refrigerator, sauce pan/tin foil pans, showers, thermos bottle, lunch box ovens, toiletries, cleaning supplies, disinfectant, hand cleaner, bags of epsom salt, and identity theft insurance.


Step 3: Not a Personal Expense ● Examples of business expenses:

professional supplies (briefcase, calculator, camera, faxes, film developing, dry erase markers, and pens/pencils); misc. expenses (union or trade association dues, state or local government licenses and regulatory fees, liability insurance premiums, trade publication subscriptions, ATM fees, check re-order fees, interest on loan, Medical exams (DOT physical, drug tests, sleep apnea study), cargo straps and chains, dry cleaning for uniforms, logbooks).


Step 4: Not for Personal Clothing ● The fourth step is to consider whether the expense is for personal clothing.● Expenses for personal clothing are not deductible.● Clothing is not personal if it is (1) required or essential for the job, (2) suitable

for general or personal wear, and (3) is not worn outside of business.


Step 4: Not for Personal Clothing ● Examples of personal clothing:

sunglasses, thermal underwear, tennis shoes, and sweatshirts.

● Examples of business clothing:

insulated coveralls, hard hat liner, rain gear, safety glasses, steel-toed boots, winter work boots, and work gloves.


Step 5: Not a Fine or Penalty ● The fifth step is to determine whether the expense is for a fine or penalty.● Fines and penalties are not tax deductible. ● Traffic tickets and tax penalties are examples.


Step 6: Travel Expenses● The sixth step is to determine whether the expense is a travel expense for

traveling away from home. ● This includes meals and lodging while away from home.● It can be difficult to determine whether a truck driver is “away from home.”● A tax home is generally where your place of business is located.● Travel expenses generally are not deductible for over-the-road truck drivers

who do not have a tax home.


Step 6: Travel Expenses ● If the expenses are deductible, the truck driver has to decide whether to use

the actual expenses or the per diem rates for meals and lodging provided by the IRS.

● These rates can be used in lieu of actual expenses, which makes it easier to document the amount of these expenses.

● If the per diem rates are not used (and for non-meal and lodging travel expenses), the truck driver must keep records showing:○ The amount of the expense.

○ The departure and return date for each trip, the number of days spent on business, and the destination/area.

○ The business purpose for the expense.


Step 7: For Entertainment, etc.● The seventh step is to determine whether the expense is for property used

for entertainment, amusement, or recreation activities.● Examples: TV/VCR, Books/Novels, DVD movies, DVD player,

Books/Magazines, and VCR tapes rented.


Step 7: For Entertainment, etc.● Expenses for entertainment, amusement, or recreation activities may be

deductible if they meet the directed related or associated test.● Directly related test requires that the:

○ Entertainment took place in a clear business setting, or○ Main purpose of entertainment was the active conduct of business, and

■ You did engage in business with the person during the entertainment period, and

■ You had more than a general expectation of getting income or some other specific business benefit.


Step 7: For Entertainment, etc.● The associated test requires that the:

○ Entertainment is associated with being a truck driver, and○ Entertainment is directly before or after a substantial business discussion.

● These expenses also cannot be deducted if they are lavish under the circumstances.

● Even then, the deduction is limited to 50% of the expense.● Also, you have to have proof to show:

○ The amount of the expense.○ The date, name and address/location of place of entertainment.○ The business purpose for the expense.


Step 8: Not a Gift ● The eighth test is to determine if the expense was a gift.● Gifts to non-employee individuals are limited to $25 per person per year.● You have to have proof to show:

○ The amount of the expense.○ The date and description of the gift.○ The business purpose.

● Examples: gratuities paid to truck loaders/unloaders.


Step 9: Related to Your Truck● The ninth test is to determine whether the expense is related to your truck.● Truck drivers cannot use the standard mileage rate.● There is a special provision for truck drivers, which say.s that you do not need

a contemporaneous mileage log showing the amount of the expense, the time and place of travel, and the business purpose of the expense.

● This exception applies if substantially all of the use of your truck is in a trade or business of providing to unrelated persons services consisting of the transportation of persons or property for compensation or hire.


Step 9: Related to Your Truck● Examples: truck depreciation (or lease payments), fuel, oil, truck maintenance,

truck repairs, tires, truck insurance, truck registration fees, truck oil changes, truck storage fees, truck licenses plates, trick washing, heavy highway use taxes, parking, and truck stop electrification.


Step 10: Related to Computer ● The tenth step is to determine whether the expense is related to a computer

and related peripheral equipment.● These expenses may be deductible if you have proof of:

1. The amount of the expense.2. The time and place of use of the property.3. The business purpose of the use.


Deductible! ● Expenses that survive this gauntlet of rules are generally deductible.


Contact Us ● Contact us if you have questions about a specific expense. ● We help truck drivers with IRS audits and other tax problems. ● We can be reached at http://www.irstaxtrouble.com



Disclaimer

These slides are provided for educational purposes only. The laws change frequently and every situation is unique. There is no substitute for hiring a tax advisor to address your particular situation. By accessing these slides, you agree that you have done your own research and reached your own conclusions. Also, be advised that these slides are not and do not provide tax advice. They are not intended to and cannot be used by any taxpayer for (i) the avoidance of penalties that may be imposed by any relevant tax authority, or (ii) for promoting, marketing or recommending the matters discussed herein.

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