You may be a professional driver, but are you good at handling the financial side of your business?
As an independent contractor, there’s a lot you have to keep track of, and it can be incredibly overwhelming.
Not only do you have to plan out your route, secure your loads, communicate with customers and dispatch to deliver your loads on time, follow your Hours of Service (HOS), complete your electronic logs and ensure you’re getting regular maintenance done on your truck, you have to manage the financial side of things.
If you’re new to being an independent contractor, this can be a lot to handle from the start. If you’re trying to decide if you want to switch from being a company driver to an independent contractor, the financial burden may stop you from pursuing this career path altogether.
There are truck payments to worry about, truck insurance costs, maintenance costs and more. What happens when you get to the beginning of the year and tax time rolls around?
If you aren’t vigilant about keeping your receipts and paying your quarterly taxes, at the very least you could have a huge headache on your hands during tax time. At the very worst, you may owe the IRS hundreds of thousands of dollars because you either didn’t pay in when you should have or you weren’t clear on the deductions you could take.
Finances are not something you should take lightly as an independent contractor. You may be a professional driver, but chances are that you are not a professional accountant.
As an accountant myself who works with carriers and drivers across the country for an organization called ATBS, which provides tax and business solutions for truck drivers like you, I understand how confusing it can be to keep your finances in order.
When you’re done reading this article, you’ll have a clear understanding of how you can easily take control of your financial situation as an independent contractor by understanding your deductions, keeping track of all your receipts, generating a profit and loss statement and more.
And if you’re still unsure if you should be an independent contractor because you’re worried about managing your finances, this will give you a clear idea of what managing your finances looks like. It will help make your decision easier.
Step 1: Understand Your Deductions
The first step in taking control of your finances is to have a strong grasp on what you can and cannot deduct come tax time as a truck driver. As an independent contractor, you can deduct all business expenses.
That means you can deduct truck payments, truck insurance, fuel and anything that helps keep your business up and running. It can be something as simple as a pack of pens, a pair of sunglasses that blocks the sun from your eyes when you’re driving or the cost you pay for a shower at the truck stop every day.
Consider everything you need to be successful on the road. It’s likely a tax-deductible business expense. For instance, did you know your security dog is tax-deductible? Along with his food and supplies?
This is where working with an accountant that specializes in the transportation industry can come in handy. Even if you’re a driver who’s been on the road managing your finances for a decade, there are new regulations that come up every single year — if not more frequently.
The IRS changes regulations frequently — it is not on a consistent basis. Unless you have a consistent pulse on this, you could be failing to deduct expenses that could put a lot of money back in your pocket.
Step 2: Keep Your Receipts
Don’t toss your receipts in the garbage can! Keep them all, even if you don’t think you’ll need them. That means that every time you pay to wash laundry at a truck stop or facility, you should be getting a receipt.
Simply failing to keep your receipts from your weekly trip to do your laundry could result in losing as much as $500 at tax time.
Keep receipts in a binder or take a photo of them and upload them to accounting software. If you work with a business consultant, they can help you keep track of them. Either way, you should be keeping all of your receipts for expenses other than food. Without a receipt, you can’t deduct the expenses come tax time.
Step 3: Generate a Profit and Loss Statement
A profit and loss statement (P&L) is the number one thing that you should create each month to keep your finances on track. You can generate a P&L statement by comparing your revenue to your expenses.
It’s pretty difficult to run a business if you don’t know how much you’re profiting until tax time comes. When you plug in your settlement checks and your receipts each month, you can see exactly how much you’re profiting or how much you’re losing. Especially when you break it down week by week, it will show you how hard you have to run to succeed. This will guide you on which loads to choose.
Once you generate this statement, you can get a very clear picture of how much it costs you to run each day as well. For most independent contractors, on average it costs about $250 per day to run.
Knowing how much it costs to run each day will help you get yourself in a place of good financial standing. It will help you plan ahead so you can make good financial decisions.
Consider that you want to take time off. Instead of just taking time off and hoping for the best, you can plan for it by figuring out how many days you’ll be on vacation and how much money not running will cost you each day.
For instance, if you know it costs you about $250 to run each day and you want to take three days off, you just need to be sure you’re setting aside $750 ahead of your vacation to ensure you break even.
A P&L can also help you build up a good financial cushion. Rather than running really hard one week and deciding now is a good time to buy that fancy television you and your partner have been eyeing, your P&L will help you determine if it’s better to put that money in the bank or if you can afford to splurge a bit.
You’ll understand exactly what your average costs are each month without those extras and if you can swing it. A savings account on the side will help keep you afloat for the days the wheels aren’t moving.
It’s a good idea to run a P&L every month so you can track the changes month over month. For instance, if you work with a business consultant and they notice that your cost per mile has increased, they may ask you if you’ve been idling a lot more than usual or if you’ve been purchasing fuel in an expensive area. They may advise you to get into the shop because something is causing your truck to not run as efficiently as possible.
Step 4: Take Advantage of Per Diem Pay
Per diem pay is extremely easy to take advantage of if you know how to do it and you work with a business consultant and tax service. All you have to do is keep track of the days that you are operating over the road. There are several apps that can do this for you, including ATBS, Worldwide Per Diem and QuickBooks.
Simply keeping track of the days you were running can give you a $13,000 to $15,000 tax deduction at the end of the year.
You can even take advantage of partial per diem pay. Partial per diem pay is the pay you receive for the partial days you are out on the road because you are either going out on the road or coming back home.
Even missing just a few of these days can cost you hundreds of dollars out of your pocket at the end of the year! Imagine what you could do with that money!
Step 5: Pay Quarterly Taxes
As an American who works, you’re simply going to have to pay taxes. That’s just how it is.
You should be thinking about your quarterly taxes on a monthly basis or talking about them with your business accountant. A business accountant can advise you on what you should be paying in each quarter.
Paying your taxes quarterly can help you save money by avoiding a 10 percent penalty fee if you pay late during tax season.
Step 6 (Optional): Work with a Business Consultant
Ultimately, you can do all of what we’ve described above yourself, but it will be made much easier with someone in your corner guiding you along.
You can run your business how you’d like, but you should have some help. A business consultant will run things on the backside and keep you compliant with the IRS so you can take care of your job out on the road.
You fill out enough paperwork as it is, so getting that extra help can save you a lot of headaches and you’ll know that you aren’t doing anything wrong. They’ll make sure you get all the deductions you’re entitled to come tax time and if you ever have to do a tax audit, they can represent you.
Local tax preparers can help you, but they don’t necessarily specialize in the trucking industry, so they may not be aware of all the deductions you can take.
A business accountant can help you make smart financial decisions every single day. Whether you need help making a budget for yourself or you’re looking for a way to cut costs, they’ll be there to guide you — especially when you choose a business consultant that specializes in the trucking industry.
Get the Financial Help You Need
With a few good practices in place, you can get your finances in order as an independent contractor. You don’t have to suffer from financial ruin as an independent contractor.
There are a number of services out there like ATBS that you can utilize for tax help and everyday financial questions. They come with a small monthly fee that is tax-deductible.
If you’re looking for more financial help, the ATS Learning Center has information about pay and maximizing your income. Or, you can reach ATBS by calling them at 866-920-2827 or by visiting their website.
If you’re still considering if you want to be an independent contractor, and finances were just one of the things holding you back from making the switch, our article that explains the pros and cons of company drivers vs. independent contractors has helpful information that can make your decision easier.