The 2017 Tax Cuts and Jobs Act (TCJA) significantly limited individual itemized deductions available to taxpayers.
Our Tax Pro drafted up a summary of how the tax law changes affect truck drivers; both owner operators and company drivers. The following is a list of common trucker tax deductions that were changed by the 2017 Tax Cuts and Jobs Act (except where noted):
Miscellaneous Itemized Deductions
This includes all unreimbursed employee business expenses. The following is a non-exhaustive list:
- Per diem
- Communication devices and fees such as cell phones
- Safety & security devices such as GPS devices
- Clerical operations such as computer accessories and mailing & fax fees
- Regulatory licensing (DOT medical)
- Personal hygiene supplies
This provision does not apply to Owner Operators who claim travel-related and business expenses on Schedule C or Form 1120S.
20% Deduction for Qualified Business Income
IRC Section 199A generally provides a deduction of 20% of qualified business income (QBI) derived from a sole proprietorship, partnerships, or S corporation that is a qualified trade or business. The §199A deduction is taken from adjusted gross income (AGI) in determining taxable income and therefore does not reduce self-employment income.
The §199A deduction is complicated and will require significant guidance from the IRS.
The deduction for alimony and separate maintenance payments by the payor is repealed. The payee (recipient) will not be required to include such payments in gross income for divorce or separation instruments executed after December 31, 2018.[i]
Medical expenses continue to be deductible to the extent they exceed 7.5% of adjusted gross income (AGI) for 2017 and 2018. For years after 2018 the threshold is 10% of AGI.
The moving expense deduction is repealed except for members of the Armed Forces. The exclusion from gross income and FICA wages for employer reimbursed moving expenses is repealed other than members of the Armed Forces.
This provision does not apply to Owner Operators who claim expenses related to moving a business operation on Schedule C or Form 1120S.
State and Local Taxes (SALT)
A taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for married filing separately) for the aggregate of (1) state and local property taxes not paid or accrued in carrying on a trade or business (See IRC Sec. 212), and (2) state and local income taxes (or sales taxes in lieu of income taxes) paid or accrued in the tax year[ii].
This provision does not apply to Owner Operators who claim business-related taxes on Schedule C or Form 1120S.
Home Equity Mortgage Interest
The deduction for interest on home equity indebtedness is disallowed and applies to existing home equity loans. Home equity loans used for business or substantial improvement of a residence may still be deductible[iii]; any used for personal or investment purposes are not[iv].
The base for cash contributions is increased from 50% to 60%. No deduction is allowed for payments to colleges and universities in exchange for rights to purchase athletic seats.
All gambling expenses are now subject to the gambling winnings limitation and not just wagers. Schedule A filers can still deduct gambling losses to the extent of winnings but must have total itemized deductions exceeding the increased standard deductions.
Affordable Care Act
The individual tax for failure to maintain minimum essential coverage is reduced to zero with respect to health coverage status for months beginning after December 31, 2018.
New Standard Deduction Amounts
The standard deduction is increased to $24,000 for married filing jointly, $18,000 for head of household, and $12,000 for unmarried (single). The pre-2018 additional $1,250 standard deduction for taxpayers over age 65 or who are blind are retained.
Personal Exemption and Dependency Deduction
Personal exemptions and dependency deductions are repealed. The IRS is examining how the definition of qualifying relative should be addressed.
Head of Household Due Diligence
Section 6695(g) of the internal Revenue Code requires paid return preparers to satisfy due diligence requirements to ensure clients qualify for the American opportunity credit, lifetime learning credit, earned income credit, and child tax credit.
If you have questions or need assistance, please reach out to one of our Tax & Advisory Partners who specialize in the transportation industry.
This article was written by Mark W. Sullivan, EA, who has been providing taxpayer advocacy, consulting, and litigation services since 1998. Prior to starting a private practice, Mr. Sullivan was an Internal Revenue Officer with the New York, NY, Saint Louis, MO and Washington, D.C. offices of the Internal Revenue Service. He has over a decade of experience advising transportation industry clients with respect to per diem issues.
Please remember that everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult your own tax or accounting professional.
[i] Notice 2018-37, 2018-18, I.R.B. 521
[ii] IRC § 164(b)(6) (flush language)
[iii] Temp. Reg. § 1.163-8T
[iv] Refer to Publication 936 (2017) Home Mortgage Interest Deduction for definitions of “substantial improvement”