Are you considering opening a trucking business? How about finding ways to grow your existing company? The market size of general freight trucking grew nearly 10% in 2022 alone, with industry experts predicting continued expansion. This makes now the perfect time to explore opportunities in the trucking realm.
Fully leveraging the opportunities that the trucking industry has to offer relies on safeguarding your bottom line, also known as net income. The average tax rate business owners can expect to pay is nearly 20%, directly eating into your take home pay. This means that for every $100 you earn, you’ll see only $80 in your account at the end of the year, excluding other business expenses.
The good news is that there are ways you can minimize your tax liability, one of which is choosing an advantageous business structure. In this article, we’ll explore the three most common trucking business structures, common tax reduction strategies, and hidden tax benefits you should be taking advantage of.
Comparing Sole Proprietorships, Limited Liability Companies, and S Corporations
Although there are a handful of business structures to choose from, we’ve narrowed down the list to three that fit truckers the best. These three structures include sole proprietorships, limited liability companies, and s corporations. Let’s break down each of these in more detail.

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Sole Proprietorship
Sole proprietorships are the simplest business structure to establish. You don’t need a separate Employee Identification Number (EIN), and you aren’t required to file a business return. Instead, all income or loss is reported directly on your individual tax return on Schedule C. This can make the maintenance of your trucking business easier, but it does expose you to two different levels of taxation.
The first type of tax you will pay is self-employment tax on your net income. Net income is your gross business income minus your qualifying business deductions. The tax rate is assessed at 15.30% and covers employer and employee Social Security and Medicare taxes. However, you can take a credit for the employer’s share of these taxes, which equates to 7.65% of the taxes. The second type of tax you will pay is ordinary income tax. This tax is based on your income bracket and can range from 0% to 37%.
Furthermore, a sole proprietorship structure can limit your capital-raising activities and business continuity. You are the business. If you were to pass away, the business would essentially pass with you. Moreover, no partners or additional owners can be brought into the business. Another reason that some trucking businesses stray away from a sole proprietorship is personal liability. The IRS and many courts view you and your business as one entity. If the business were facing a lawsuit, the courts could come after your personal assets to satisfy a judgment. Nevertheless, sole proprietorships can be great for small businesses just starting out.

Limited Liability Company (LLC)
Moving up the complexity scale is a limited liability company, known as an LLC. There are two main types of LLCs: single-member and multi-member. Single-member LLCs are taxed in a similar manner to sole proprietorships. However, there is a slight separation between you and the business. Single-member LLCs are required to register with the state they are operating in but don’t need to obtain an EIN or file a separate business return.
On the contrary, multi-member LLCs do require a separate EIN and business tax return filing. One of the advantages of multi-member LLCs is the opportunity to bring on additional members. Let’s say that you and your friend are tired of working for another trucking company. Instead of trying to go into business by yourself, you can form a multi-member LLC, with each of you receiving half of the profit.
Limited liability companies require more work to maintain. Each year, you will need to file a business tax return. However, LLC income is pass-through. This means that any income you earn will be taxed at ordinary income tax rates on your individual return through Schedule K-1. There are no self-employment taxes paid on profits.
There are a few disadvantages of LLCs. For one, all distributions and decisions need to be agreed on by all members. This can limit your decision-making ability. Furthermore, there needs to be detailed provisions in place that handle the disbursement of income and loss and the circumstances surrounding continuity. These factors can increase your upfront legal fees.

S Corporation
S corporations are a combination of LLCs and c corporations. Like an LLC, s corporations pass down all income to the shareholders through Schedule K-1. This gives you the ability to limit self-employment taxes and retain flexibility when it comes to ownership changes. S corporations require the filing of a business return but don’t allow shareholders to pay taxes at the corporate level like c corporations. 
S corporations offer full separation between business and personal assets, which is beneficial if your company is ever sued. However, the main disadvantage is the maintenance requirements. In addition to a business tax return, you will be required to follow stringent procedures. For example, you have to closely monitor your shareholders, as an s corporation cannot have any shareholders that are set up as a trust. 
Choosing the Right One
So, which one should you choose? First, you need to evaluate how you want to be taxed. Is the convenience of filing a Schedule C on your individual income tax return worth paying both ordinary income taxes and self-employment taxes? Do you plan on bringing on partners or additional shareholders? If you have no plans on needing capital from additional shareholders and want a quick, easy setup, a sole proprietorship might be right for you.
Nevertheless, if you are looking for more separation between business and personal assets, self-employment tax savings, business continuity options, and expanded capital-raising activities, an LLC or an s corporation might be a better fit. Keep in mind that a multi-member LLC needs two members to form the business, while an s corporation only requires one owner. If you don’t have another individual you want to go into business with, an s corporation business entity will be the most favorable option.
Tax Reduction Strategies
A common misconception that business owners have is that taxes are assessed on your gross income. This is untrue. Taxes are calculated based on your net income. To minimize your tax liability, you need to be taking all available business deductions.

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The IRS does limit what constitutes a qualifying business deduction. In order to be deductible, the expense must be ordinary and necessary. This means that sunscreen for a Florida vacation wouldn’t qualify as a deduction in your trucking business. Additionally, the expense should be reasonable. Is it reasonable to pay someone $5,000 to wash your truck? Probably not. Here are some common deductions to watch out for:

• Fuel – This is the most common type of expense in a trucking business. Each time you fill up your tank, keep a receipt to deduct the expense on your tax return. Only business fuel is deductible. A joy ride down the East Coast for personal reasons isn’t deductible.
• Repairs and Maintenance – Any expense that corresponds to the maintenance of your truck qualifies, such as an oil change, new tires, or fixing an axle.
• Supplies – Ratchet straps, motor oil, or any other item that is used primarily for trucking purposes is deductible.
• Depreciation – In most cases, your truck and any trailers will be depreciated over the useful life, which is generally five years. For a $100,000 truck, you can take a $20,000 deduction in each of the next five years.
• Meals – Meals on the road are a qualifying deduction. However, the IRS limits the deductibility to 50%. Entertainment, such as stopping at a movie on the road, is non-deductible.
• Insurance – Insurance on your truck is fully deductible.
• Truck Loans – Purchasing a truck can be expensive. If you finance your truck loan, the interest paid will be a qualifying business deduction.
• Bank Charges – Since you are running a legal business, you should have a separate business bank account. Bank charges in this account are deductible on your tax return.
• Professional Fees – The costs associated with preparing your business tax return, forming your business, or completing general accounting can be used to reduce your taxable income.
• Travel – If you take a long route, travel costs, like a hotel, are a business deduction.
• Continuing Education – Training on trucking best practices or any other course related to trucking constitutes a business deduction.
• Clothing – Trucking companies that have uniforms can deduct the cost of the clothing.
• Dues and Subscriptions – Amounts paid for maintaining a professional credential or subscription are a qualifying business expense if they relate to the trucking industry.

Have you missed claiming any of these deductions in the past? Catching all qualifying business deductions can be difficult, especially if you don’t have a separate business bank account. Running all transactions through a business credit card or business bank account will be the best way to ensure you are properly minimizing your taxable income.
Moreover, don’t leave your books to collect dust until year-end. Frequently revisit your income and expenses, such as on a monthly basis, to reduce your risk of missing qualifying expenses. Investing in bookkeeping software can help you automate your transactions. Otherwise, reach out to an accounting expert.

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Tax Hacks
Now that we’re familiar with business structures and common tax deductions, let’s cover some less-common tax hacks. First, let’s differentiate between a deduction and a credit. A business tax deduction reduces your taxable income, while a tax credit reduces your tax liability dollar-for-dollar. This makes credits more beneficial for your tax situation.
For example, let’s say that you are taxed at 20%. You have gross income of $1,000, qualifying deductions of $250, and a credit of $125. Your taxable income would be $750 ($1,000 - $250). This creates a tax liability of $150 ($750 * 20%). Your credit would result in taxes due of only $25 ($150 - $125). Can you see the power of credits? Let’s go through some credits and uncommon tax hacks that you can implement into your trucking business.

• Energy Efficient Credits – As a part of the Inflation Reduction Act of 2022, there were numerous tax incentives placed in service for vehicles. If your truck meets some of the energy efficiency requirements, you might qualify for a credit.
• Qualified Business Income Deduction – This is an immediate 20% reduction of your taxable income. Sole proprietorships, LLCs, and s corporations all qualify for this deduction.
• Home Office Deduction – This deduction is only applicable to sole proprietorships. If you have a room in your house that acts as an office, you can deduct a portion of mortgage interest, property taxes, utilities, and insurance.
• Retirement Deductions – Although you are your own boss, it doesn’t hurt to start saving for retirement. Most retirement plans have an employer match. This match is fully deductible.
• Cell Phone – Conducting business from your cell phone or other personal devices leads to the deductibility of expenses.
• Employing Your Children – A tax hack that many trucking business owners overlook is paying their children. Employing your kids to wash your truck results in a tax deduction for wages paid. In addition, you aren’t required to pay FICA taxes on the wages if your kids are under 18.

Can you take advantage of any of these tax hacks? To find the tax planning strategies that work best for your business, reach out to a qualified tax expert today.
Conclusion
We’ve covered a lot in this article, from the tax advantages of different business structures and common deductions to hidden tax hacks. Deciphering this information and properly applying it to your trucking business can seem overwhelming, which is why countless trucking business owners reach out to our team at BUSINESS.
We have extensive trucking industry experience, giving us the ability to put together personalized tax planning strategies that help you save money year after year. Reach out to schedule your consultation with one of our CPAs today.

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