Tax Saving Tips For Owner Operators & Family-Run Trucking Businesses - Schedule C vs S-Corp Election
General rule of thumb
- Net earnings below $65,000 - Schedule C sole-proprietorship
- Net earnings in excess of $65,000 - LLC taxed as an S-Corporation
It is important to note that entity classifications like Limited Liability Company (LLC) and Limited Liability Partnership (LLP) are a function of state law and not federal. For federal purposes the entity type is a tax election.
- One owner
- No requirement to pay W-2 wages
- Lower tax compliance costs
- No quarterly employment taxes to remit
- No unemployment taxes to pay
- Simpler income tax return
- Qualifies for 20% pass-through deduction applies to net income
- Owner cannot take non-wages draws not subject to self-employment tax
- All income is subject to self-employment tax
- Higher income tax rates
- One owner
- Owner can take non-wage draws not subject to self-employment tax
- Only wages subject to self-employment tax
- Lower income tax rates
- Qualifies for 20% pass-through deduction applies to net income less wages
- Owner must receive reasonable wages
- Higher tax compliance costs
- Quarterly employment taxes to remit
- Annual unemployment taxes to pay
- Form 1120S
What qualifies as "reasonable wages" has been a matter of debate for more than 100 years. However, in trucking a safe-haven would be to pay yourself a wage equal to that which an employee truck driver would be paid for doing the same job. Hint: Paying yourself $20,000 of wages as an OTR driver clocking 110,000 miles annually and $80,000 of draw would likely be classified as unreasonable.
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Questions? Contact Mark W. Sullivan, EA
About: Per Diem Plus is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups (logbooks) to substantiate away-from-home travel.
Prior to starting a private practice in 1998, Mark was an Internal Revenue Officer with the New York, NY, Saint Louis, MO and Washington, D.C. offices of the Internal Revenue Service
Disclaimer: This article includes general tax information, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case. Please consult with a licensed tax professional.