Properly Handling Paperwork: A Key to Minimizing Heartburn & Enjoying Success in Your Trucking Business

For owner-operators in the trucking industry, your daily responsibilities go beyond being behind the wheel and keeping the American economy moving. When we think about it, the responsibilities involved in a career as an owner-operator merely begin with driving. One of the first lessons that owner-operators quickly learn is that you are operating a business, and there are different aspects to running that business that require your attention for you to achieve success as a business owner.

One of the most important things owner-operators need to do, which is certainly one of the more tedious and less fun parts of their trucking business, is learn how to manage and keep track of all the paperwork that comes from running that business.

Owner-operators need to understand that every piece of paper that results from running that business involves money going in or out of your pocket needs to be maintained as part of your records. The majority of this type of paperwork for owner-operators and independent contractors comes in the form of receipts. If owner-operators do not have a good system for keeping and managing those expense receipts as well as managing that paperwork of your business, you can ultimately end up seeing money coming out of your pocket in the form of an increased tax liability. 

Keeping Personal & Business Finances Separated

There are a number of responsibilities related to properly handling the paperwork within your trucking business. One of the first items that comes up quite often for new entrepreneurs learning to run a business is that they are also working with their personal finances as well. The reality here is that, if you don't separate business finances from personal finances, you can run the risk of creating some significant issues and serious headaches.

Unfortunately, in 2020, many owner-operators and independent contractors learned the hard way that, by not separating their business and personal expenditures by not having that business bank account, it can come back to bite them. In 2020, this was certainly true as owner-operators and small trucking business owners tried to get PPP loans and participate in other programs that were available to them through the CARES Act.

It’s highly important that owner-operators are always working to run your business like a business, and one of the first steps is to have separate bank accounts for your business operation and your personal activities. It’s important to remember that, from a tax and accounting perspective, the way we treat business expenses and the way we treat personal expenses are very different.

Importance of Maintaining & Reviewing Prior Tax Returns

One of the very first things that we are going to need for new clients, as they sign up for our Trucker CFO services and as we get ready to prepare that first tax return for them, is we are going to want a copy of a prior year tax return. That's very important for our team at the Trucker CFO. Through our review of your previous year’s return, we can make sure that we have all of the information necessary on any carry-over items, such as depreciation or prior year losses, if that's something that applies.

The review of the prior year’s return, in fact, has become a best practice for our Trucker CFO team. Whether you're a long-time client of the Trucker CFO or coming to us for the first time, we recommend that you download and keep an electronic copy of all prior year tax returns and any supporting documents that are part of your filings – whether that be a 1099, W-2, mortgage interest, etc. Those kinds of documents are items that you should keep with your records, which are also helpful to our team as we work with you.

From time to time, when we are looking to do a review of a prior year’s return, we encounter situations where a new client might not have access to their previous return for whatever reason. In those situations, there are things that we can do such as pull a transcript from the IRS.

While we can get copies of anything that has been submitted to the IRS, it's important to understand that that's not always a silver bullet, and not all information is provided to the IRS. If you drive for a motor carrier that doesn't report a 1099 or other items pertaining to your tax situation, there are many things that may not be on that IRS transcript – creating information gaps that could prevent us from getting a full and complete picture. But there are some steps that we can take to help out in that situation.

Best Practices for Filing & Preserving Receipts

The care you take in filing away and preserving your receipts is a critical aspect of properly handling paperwork for your trucking business. One point to keep in mind is that fuel receipts are quite heat sensitive and they will fade over time. The easy path is to take the receipts you receive at the pump and throw them up on the dash or throw them into a bag. As with many things, the easiest path is not always the best path. With receipts, you need to keep in mind that – during the majority of the year (depending on the location of your truck) – a closed cab that is not idling or running A/C will heat up quickly and your fuel receipts will begin to fade.

The best practice is to digitize your receipts, or least get them into temperature controlled storage until you can get them scanned. Unfortunately, we’ve encountered situations where we have been unable to read receipts because they have faded. Getting your receipts properly stored and then digitized can save you a lot of heartburn and money. The Trucker CFO has set up a system for digitizing receipts for our clients who need those services to create a permanent record of your transactions.

Important Notes On 1099 Filings

One of the biggest reasons that we place an emphasis on the collection of receipts and overall good recordkeeping is the impact that it places on the bottom line of your business. While our main focus has been on paperwork related to expenses, it’s equally important to have a strong recordkeeping process with the income of your business.  Oftentimes, owner-operators or independent contractors will rely on that 1099 that you receive at the end of the year to validate the income that you have received for tax purposes.

In recent years, we are seeing motor carriers that have made changes to their operational set-up in which they are no longer required to send a 1099 to the owner-operator or independent contractor. In that particular circumstance, those business owners need to have records of the income that they have received. If you are with a carrier that is not required to provide you with a 1099, you are going to need an alternative method to account for your annual income. 

Your settlement statements provide an ongoing record of your income, and a summary statement of your settlements for the year could provide the record for your annual income. For some owner-operators and independent contractors who utilize factoring, your annual records could include factoring reports and your load reports from your load boards. Also, if you are sourcing your freight on your own, you’ll need to have some process in place for tracking that revenue and the receipts that you have received.

When it comes to 1099s, one of the important processes we go through as we get into tax season is taking a client’s 1099 and reconciling that record with the source documents. Whether that be settlements or factoring reports, we take those source documents and balance it to the 1099s, to make sure that we are reporting all income. And in the situation where those source documents do not balance to the 1099, we are making sure that all income is reported, so that we can process the most accurate tax return possible.

Our process in working with your paperwork is very thorough. As we get into a relationship with new clients, we are asking if they have any back bookkeeping that needs to be done, so that we can get ahead of this situation before tax season. We want to ensure a timely filing of the various tax returns that they may need to file, and also to ensure that we are able to minimize their tax liability.

At the Trucker CFO, we have seen over the years how accurate recordkeeping can be a significant tool in the effort toward minimizing your tax liability. If you are looking for more information on what types of expenses are deducted, we have recorded an entire podcast on that subject, and that podcast is available here on our website.

Notes On Recordkeeping

There are many items that you need to be keeping track of through your recordkeeping. One example is a cell phone bill. The statements of paying cell phone bills are often tracked on the cell phone provider's website. To be even more specific, you need to log in to those services and download a PDF copy of that cell phone bill for your records.

Some operational costs can be a little more complex when it comes to being a deductible expense. Truck maintenance is one of those examples. Oftentimes, the repairs for those trucks can be of a certain dollar amount or type of repair that will require us to treat it differently for tax purposes. So, throughout the year, you need to highlight those repair-related bills in a manner that you can come back to them. In addition to repairs, one fact of life in the trucking industry is that equipment depreciates over time. At the Trucker CFO, we have the expertise and experience that is needed for properly tracking truck depreciation and repair expenses.

Beware of Tax Services That Promote Mileage Deductions

If you are using a tax preparer or if you talk to a tax preparer who is trying to make you, as a truck driver, take a mileage deduction on your tax return, you need to turn and run the other direction. While, as we have detailed here, there are many deductions available to you as an owner-operator or fleet owner, you cannot deduct the number of miles you drive your truck. It is NOT allowed. When you work with the Trucker CFO, we will review your business operation to make sure you're taking actual, allowable expenses when it comes to the costs related to operating your truck and your business. 

Addressing Per Diem & Food Expenses

Owner-operators and independent contractors are eligible for per diem – a daily expense covering meals for the days you are out on the road. When it comes to per diem, you don’t necessarily need to keep your food receipts. In fact, we tell our Trucker CFO clients that we don’t want them submitting food receipts to us.

When it comes to per diem, there are a number of tools out there that drivers can use to help you track how many days you are out on the road, away from home. One of the best ways we found is for drivers to download the information from your ELD. If you can download the info from your ELD, it can serve as a very good record of where you have been and how long they were away from home. If you are called to go through an audit, the EDL downloads stand as very good support because those records justify your per diem claim – demonstrating that you were away from home on business, which will then qualify you for the per diem.

A Quick Word On Paperwork & Audit Situations 

As you saw, we just mentioned the word audit, which can be quite alarming for any business owner, or any taxpayer for that matter. While we would encourage you to listen to our podcast devoted to audits, we would like to take a moment here to address recordkeeping and audits – noting the amount of time that you're going to hold on to all of this information. As we discuss in the audit podcast, there are some red flags that can increase the likelihood of an audit and some audits are completely random in nature. The best practices that we have noted in the podcast can help you minimize your audit risk and, at the same time, they should serve as a great resource if you need to prepare for an audit.

When it comes to recordkeeping and holding receipts, we recommend that our clients keep these records for five years from the date they filed their tax return, and that should protect them in the event that they are audited in the future. If you are called into an audit situation, these records can be very easily handed over to the IRS so that they can do what they need to do. Accurate recordkeeping, which includes a commitment to good bookkeeping, will end up minimizing any future changes or restatements to those tax returns.

Lastly…

At the end of the day, we want our clients to be as profitable as possible, and we don't want them to pay a dime more than they need to in taxes. By following the recommendations that we have shared with you here, we know through our experience that you will be better positioned to accomplish your business goals and enjoy success in running your business.

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