Tax time is an important time of year for truck drivers. Every year, things that can impact your filing process are likely to change. Here, we’ll share the 10 most important tax updates for 2023 that would be beneficial for you to know.
Taxpayer Certainty and Disaster Relief Act Continues for 2022
Truck drivers can now deduct 100% of their Per Diem expenses for 2021 and 2022, regardless of if the food was purchased from a restaurant or not. This applies to both self-employed CDL drivers and riders with a business purpose. Starting on January 1st, 2023 the Per Diem allowance will return to the normal 80% rate.
The Inflation Reduction Act
You can also benefit from the Inflation Reduction Act, which was signed into law on August 16, 2022. This provides new opportunities for tax savings and could have a positive effect on your business over the next 10 years.
IRS Tax Enforcement
There has been a big investment in the IRS that is part of the Inflation Reduction Act. This $80B investment over the next 10 years will fund 87,000 new IRS agents, and taxpayers may receive better customer service as a result. However, this also means it is more important than ever for truck drivers to file and pay their taxes correctly and on time, as more than half of the funding from this investment will go towards enforcement activities such as collections, IRS legal support, and criminal investigations.
Climate-Related Tax Credits
The Inflation Reduction Act provides around $369 billion in incentives for energy and climate-related programs in the form of tax credits. Truck drivers can take advantage of these tax credits, particularly if they have been contemplating buying an electric vehicle. However, they should make sure to get all the facts before deciding – don’t purchase an electric tractor solely because of the tax credit.
Health Insurance and Care
The Inflation Reduction Act will extend the subsidies for health insurance premiums under the Affordable Care Act until 2025, giving owner-operators more time to search the Federal Marketplace and see if they qualify. Be aware of your income levels when applying for a subsidy, as this can affect your eligibility. In addition, the Act is expected to lower out-of-pocket drug expenses by capping them at $4,000 in 2024 and $2,000 in 2025.
The American Rescue Plan Act
The 2022 Child Tax Credit has reverted to its original amount of $2,000 per child and the optional monthly advance of the Child Tax Credit no longer exists. This may result in unexpected tax liabilities or smaller-than-expected refunds during your 2022 tax filing.
The act further increased the Child and Dependent Care Credit for children under 13 and those who are disabled – allowing a 50% credit on expenses paid with a maximum of $4,000/dependent and 2 dependents – which is now a refundable credit. If you don’t owe any taxes, they will add this credit amount to your refund check.
Beginning in 2018, the IRS allowed businesses to take a first-year deduction on any asset purchased during the tax year. This is thanks to a provision stating that any qualified property bought and placed in service between September 27, 2017 and December 31, 2022 can be depreciated by 100% of its cost.
However, unless the tax law changes, the bonus depreciation rate will decrease 20% each year following 2022. In 2023 the rate will be 80%, 2024 will be 60%, 2025 will be 40%, 2026 will be 20%, and in 2027 there will be no bonus depreciation. The cost of the depreciated asset can then be recognized as an expense and reduce your taxable income.
Retirement Distribution Repayment Option
In 2020, the IRS allowed taxpayers to distribute from their retirement accounts without penalty if it was related to COVID. Taxpayers also had the option of repaying those distributions over a three-year period (2020, 2021, and 2022). If you decide to repay any part or all of your distributions, you must amend your tax return in order to avoid paying taxes on those COVID-related distributions. 2022 marks the last year for you to choose to repay any of your distributions.
The charity deduction was expanded for the 2021 Tax Year to $300 per person. This meant Married Filing Jointly taxpayers can deduct up to $600 of charitable donations in addition to claiming the standard deduction. This deduction has gone away. Only taxpayers who itemize their deductions in 2022 are entitled to a charity deduction.
Truck drivers need to pay close attention to their 2020 tax situation now more than ever, as the potential savings could be significant. Take advantage of these temporary changes, before they slip away for good!