If you are a 1099 truck driver, then you know you'll need to file your taxes at the end of the year. The IRS considers you as a self-employed business. There's a lot more responsibility to being a freelance truck driver than a company driver. As a freelancer, you'll have to pay self-employment taxes at the end of the year, record your business receipts for deductions, file quarterly tax payments, and much more.
Not to worry. In this article, we'll cover the taxes you'll owe, the difference between a company driver and a freelancer, estimated tax payments, deductions you'll qualify for, and why Bonsai Tax is hands-down the best tax software for truck drivers. Without further ado, let's jump into the tax forms you'll receive as a self-employed worker.
Note: If you want an easy way to manage your taxes and deductions, try Bonsai Tax. Our software estimates tax liability, sends important filing reminders, scans your credit card/bank receipts, and discovers potential tax write-offs at the push of a button. Users generally save $5,600 from their tax bills. Claim your 14-day free trial today.
The IRS requires businesses who use freelancers to send their contractors a 1099 form. A 1099 tax form is simply a record of payments given by a company to freelancers for their services. In other words, it is an information return. There are many different variations of 1099 tax forms, but we'll go over the one most relevant to you, the 1099-NEC.
A 1099-NEC is the most common tax form sent out to independent contractors. The reason why is because of the low requirements to receive a tax form. The condition to receive a 1099-NEC is if you were paid at least $600 from a business in non-employee payments for the year. Prior to 2020, the 1099-MISC was used to report non-employee compensation. The IRS simply changed the reporting requirements over to the 1099-NEC. As a freelance truck driver, this is the form you'll deal with.
Businesses are required to send out 1099 forms by January 31sy. If you freelanced and didn't receive a 1099, there may be a few reasons why. Businesses are only required to send a 1099-NEC to freelancers where they paid at least $600. If you were paid less than that amount, then the company is not required to send you a form. You still need to report your earnings to the IRS.
All the money you earned for the year should be reported to the Internal Revenue Service. You do NOT need to pay self-employment taxes only if you earned less than $400. However, you'll still be responsible for paying it on your own. For example, if you were paid $500 for freelance truck driving work, then you won't receive a 1099. You will, however, need to report the earnings on your income tax return and still pay self-employment taxes.
If you earned over $600 and you did not receive a 1099, check with your client. The address they have on file may be wrong and it was mailed to the wrong place or perhaps they simply forgot. Check in with them to make sure.
As a self-employed worker, it is your responsibility to pay self-employment taxes. Social Security and Medicare total up to 15.3%. That is 12.9% for Social Security and 2.9% for Medicare.
To quickly calculate your tax liability, try Bonsai's freelancer tax calculator.
Luckily, you can lower your tax liability by claiming tax deductions for your business. We'll go over recording business receipts and what tax deductions you qualify for later in the article (you'll use a Schedule C).
Remember, the minimum income you need to earn to file self-employment taxes is $400. For example, if you earned $5000 as a freelancer but you had $4,700 of expenses. Your net is $300. As a result, you wouldn’t owe any self-employment taxes.
As a freelancer, you'll need to file quarterly tax payments four times throughout the year.
We'll go over the due dates and what quarterly taxes are in the next section.
The U.S. runs on a pay-as-you-go system for taxes. This means that you must send in estimated taxes throughout the year. These four tax payments paid every three months, are meant to cover Social Security, Medicare, and your income tax.
To calculate your quarterly tax payments, all you need to do is add up your total tax liability for the year (including self-employment tax, income tax, and any other taxes) and divide that number by four. This is the amount you'll send to the IRS every quarter. You could also figure out how much you'll pay by using a 1040-ES.
The due dates for quarterly taxes are as follows:
You'll need to send in these payments before the due date. Be sure to mark your calendars with the dates so you don't forget and be sure to send in the right amount or you can face a quarterly tax penalty.
You'll be able to send payments directly to the IRS by using Direct Pay.
Read our quick guide to filling estimated tax payments here.
Let's remove a list of tax deductions available to truck drivers.
While most companies are allowed to deduct 50% of lunch meal costs, drivers who are subject to the Department of Transportation's "hours of service" regulations can claim up to 80% of their actual meal costs. The hours of service law compels drivers who have driven a specific number of hours to come to a complete stop and rest for a set amount of time.
Truck drivers are supposed to stop and rest after a specific set of times. They can opt to take the per diem allowance rates. The per diem method is much easier. Instead of keeping track of expenses for every meal, you can deduct a set amount per day. Check Publication 1542 for the Per Diem allowance rates.
You can deduct the cost of commercial auto liability, property damage, and health insurance premiums from your tax liability. You may also deduct insurance to cover cargo or lost earnings due to a business interruption.
The cost of any equipment or tools you need for your trucking business are deductible expenses, including chains, ratchet straps, tarps, bungee cords, duct tape, tire irons, etc.
While you’re away from your "tax home" overnight are deductible. This also includes expenses you incur where you travel long enough to require rest. The cost of hotels, AirBNBs, tolls, parking, etc.
There are many tax deductions for personal products for owner-operators. These expenses are cooler or minifridge to store food and water, logbook, cleaning supplies, flashlight, GPS, sunglasses, alarm clock, bedding expenses, and gloves. Traditional office expenses could also be written off.
The IRS classifies a semi-truck to be a qualified non-personal-use vehicle. This means you can claim ALL the actual expenses of operating the vehicle, including depreciation, insurance, fuel, replacement tires, insurance, registration fees, repair/maintenance costs, truck washes.
In the trucking business, you'll need to undergo specific training to start your career. The trucking industry requirement is for applicants applying for a Class A CDL would be required to obtain 30 hours of driving experience from a training school that meets FMCSA standards. This also includes at least 10 hours of driving the truck on a practice driving range. CDL training materials and the cost of the course can be deducted.
Read here for our full list of tax deductions for truck drivers.
Note: if you want an easy way to track your trucking deductions, then try Bonsai Tax. Our app will scan your receipts from your bank/credit card statements to discover tax write-offs and maximize deductions. In fact, users save, on average, $5,600 from their tax bill. Try a 14-day free trial here.
Most trucking companies have an employment contract with their workers that outlines the specific classification of their workers. This signed classification is important in regards to tax implications with the IRS. A W-2 employee or an independent contractor is taxed differently. A lot of truck drivers are mislabeled as a freelancer instead of an employee.
As a 1099 worker and not a W-2 employee, you are not considered a fleet employee. There are many key differences between employees and freelance drivers. Here are some of the differences.
As a freelance truck driver, you won't have payments withheld by your employer to pay your Federal income tax. On the other hand, employers need to withhold payments to employees in order to cover those. A company driver uses Form W-4 to figure how much money would need to be withheld.
An employee essentially works for the company. Typically, employees work for a single company. A freelancer is independent and can take on a number of clients at a time.
A freelancer, unless contracted for a long duration, generally is used for shorter projects. An employee is used to fill a specific role and for a long duration.
An employer typically provides employees with benefits such as vacation days, health insurance, dental and vision coverage, unemployment, life insurance, and retirement planning. A freelancer does not receive any benefits from their clients.
As an employee, your employer can control the hours of service for when you work. As an independent truck driver, you determine when you work.
Clients cannot control how the work is completed if you are a freelancer. Independent truck drivers' work is governed by project contracts and there are some limits on the control, however, you have complete control over how the work is done.
independent truck drivers can leverage 1099 tax deductions to lower their tax liability. Employees are generally reimbursed for costs incurred while working.
To determine if a worker is an employee of an independent contractor, many States use the "ABC test". The ABC test is a legal litmus test to determine.
The “ABC test” is a legal test used by many states in employment-related laws, such as for workers' compensation or unemployment compensation, to determine whether a worker is an employee or independent contractor. Many companies try to save money on paying for benefits such as unemployment or medical coverage by claiming workers as freelancers. This test helps mitigate independent contractors from being taken advantage of.
According to the Internal Revenue Service, any person providing assistance is considered an employee, not an independent contractor, unless—
These guidelines will determine if you are an independent contractor or an employee. The trucking industry is notorious for trying to control its workers. Many trucking companies would not pass the ABC test as they tend to exert too much control over the truck drivers.
At the end of the year, you don't want to be stuck with a large tax bill. Take advantage of the benefits of being a self-employed worker and claim all your tax deductions. Bonsai Tax can help you estimate your tax bill, send you important tax date reminders, and track all of your expenses and lower your tax bill.
Claim your 14-day free trial here.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?