The Tax Cuts and Jobs Act had a positive effect on owner-operators in 2018. Analysis of over 3,000 owner-operator tax returns has shown an overall positive impact on owner-operators, according to American Truck Business Services, a tax, consulting and bookkeeping firm for the transportation industry.
ATBS looked at client tax returns from 2018 and compared them to the year before to see what has changed since the Tax Cuts and Jobs Act was enacted. The average owner-operator’s taxable adjusted gross income increased from $43,093 to $52,180 in 2018 – an increase of $9,087 or 21%. The increase was attributed to the excellent year that trucking saw in 2018.
In the same period total tax liability increased from $8,242 to $9,284, a much smaller increase of 12%. The reason for it is an overall effective tax rate for owner-operators that dropped from 19.1% to 17.8%.
Other tax benefits included the 68% of surveyed owner-operators that took advantage of the qualified business income deduction which was a new addition from the Tax Cuts and Jobs Act. This gave independent truckers an average of $6,235 being deducted from their tax liability.
The average client’s Standard Deduction went from $9,439 to $18,862. The number of drivers filing the standard deduction increased from 71% to 94%. The Tax Cuts and Jobs Act essentially doubled the standard deduction for most tax filers.
The average owner-operator depreciation deduction increased from $17,072 to $20,965. The significant increase in depreciation was a result of the Tax Cuts and Jobs Act allowing faster depreciation methods than prior years, according to ATBS.
One negative consequence of 2018 taxes was the number of drivers that paid the Affordable Care Act’s individual mandate penalty. In 2018, 28% of ATBS clients paid the penalty for an average of $1,027. However, the mandate will no longer be in effect for 2019 taxes.