Carriers will likely be some of the larger beneficiaries of the tax reform bill in the works in Congress, as the bill sets a new 21 percent corporate tax rate, down from the current 35 percent rate.
“Trucking companies will see a huge benefit at year’s end when they file their 2018 tax returns,” says Atlanta-based CPA Dennis Bridges, head of the eTruckerTax firm. “One of the things [lawmakers] hope companies use that for is as a growth mechanism and to increase compensation to their people.”
Ultimately, though, Bridges says the bill “offers a little something for everybody.”
“Whether they’re a driver, whether they’re an owner-operator with one or two trucks — or [a fleet with] 50 trucks or 300 trucks — it’s going to affect almost everyone.”
Given that the bill lowers corporate tax rates, carriers would be wise to defer any new revenue until after January. It will be taxed at a lower rate then than if accrued in December. Carriers should also try to maximize necessary expenses before year’s end, since the deductions allotted by those expenses will cut carriers’ tax bill more this year than next. “You’re going to get much more benefit from [those expenses this year] than if you wait even until January,” says Bridges. “So if somebody needs a new transmission or a new set of tires, they’re going to be significantly better off to get those now and take the deduction for 2017.”
The Tax Cuts and Jobs Act bill, which passed the Senate late Tuesday and is expected to be voted on by the House on Wednesday, slashes income tax rates across the board for individuals and cuts the corporate tax rate from 35 percent to 21 percent. President Trump, who’s stumped for the bill’s passage, is expected the sign the bill into law shortly after Congress approves it. (Update: The bill has passed both chambers of Congress and has been sent to President Trump to sign.)
Notably for drivers, the bill is expected to be the end of the daily $63 per diem deduction allotted to truck drivers for on-road meal expenses, says ATBS president and CEO Todd Amen. However, he and his firm are still reviewing the details of the bill, he says, and expect to be able to speak more authoritatively in the new year about the changes it institutes.
Owner-operators will still be able to deduct meal expenses on their annual Schedule C tax form, due at the time of their annual filing, he says.
The axing of the per diem by the tax overhaul, as with changes in other itemized deductions, is intended to be offset by a big bump in the standard deduction granted to all filers. That will increase to $24,000 from the previous $12,000 for married couples filing jointly.
The standard deduction for single filers will jump from $6,300 to $12,000. What’s more, the child tax credit – an amount subtracted directly from parents’ tax bills, not their taxable income — will be doubled to $2,000 per child. However, the bill eliminates the $4,050 personal exemption afforded by current tax law.
Bridges said the most immediate impact will be to company drivers, who’ll see their payroll-deducted taxes lowered as early as February, after new withholding limits take effect.
The bill in Congress will, if passed by the Senate, establish a new 12 percent tax rate for single filers earning between $9,525 and $38,700 a year. Income earned between $38,700 and $82,500 for single filers will be taxed at 22 percent. Income at $9,525 and less will be taxed at a 10 percent rate. These rates replace the 10 percent, 15 percent and 25 percent brackets currently in effect.
For those filing jointly with a spouse, the new 12 percent bracket covers income between $19,050 and $77,400, with income earned below $19,050 taxed at the 10 percent rate. For joint filers, income between $77,400 and $165,000 will be taxed at a 22 percent rate.
The bill also cuts tax rates for higher earners, instituting new rates of 24 percent, 32 percent, 35 percent and 37 percent, down from the previous 28 percent, 33 percent, 35 percent and 39.6 percent rates under current law.
The GOP bill also eliminates the tax penalty instituted by the Affordable Care Act (aka Obamacare) for not carrying health insurance. This change begins for the 2019 filing year.