Loads of tax savings are available to trucking and transportation companies and their owners—you just have to know where to find them and how to claim them. It’s nearly impossible to run a business and keep up with the relentless barrage of complex regulations, so get help from tax professionals who know the trucking and transportation industry and all the exemptions, credits and deductions you can possibly take.
Fuel tax credits
There’s a lucrative federal tax credit for just about any fuel that is not used in the propulsion motor of a registered highway vehicle (defined as “off-highway”). If your company uses non-propulsion motors such as refrigeration units in everyday business, this credit can really add up. For every gallon used, you can get back 18.3 cents on gasoline, 24.3 cents on diesel, and 50 cents on propane. Just be sure you understand the qualifying circumstance and exceptions.
Fuel for non-propulsion motors qualifies, with exceptions
Trucking and transportation companies mainly use propulsion motors in their businesses—those that make things go forward and drive, obviously. But look around your business and identify all the special equipment you use, such as auxiliary power units, pumps, augers and refrigeration units. These are generally run by non-propulsion motors, and their fuel qualifies for the credit, which can take a big chunk out of your tax bill. (If you use a propulsion motor in these types of special equipment by means of power take-off or transfer, you’re out of luck. The credit only applies to non-propulsion motors.)
Caution: If your company uses fuel from the same tank for both propulsion and non-propulsion motors, you must be able to distinguish between the two. If you can’t legitimately quantify the amount of fuel used in all separate non-propulsion motors, you won’t be able to claim the credit.
In addition, be aware that to claim any credits for propane use, you must be registered with the IRS as a user of alternative fuels.
Fuel credits are retroactive and refundable
If fuel tax credits are news to you and you’ve been missing out until now, you can still claim the credit for previous years. And they are fully refundable, so eligibility shouldn’t be affected even if your company reports taxable losses.
Forms and documentation
Fuel tax credits can be claimed on Form 4136 with your company’s year-end corporate tax return, independent from the corporate tax return, or filed on a quarterly basis with Form 720.
Your records for this credit should support the number of gallons used, the dates the fuel was purchased, the number of gallons used for each purpose, and the names and addresses of suppliers. Keep in mind that in most cases this credit is only beneficial at the federal level. Some states charge sales tax on the gross amount of fuel (based on average price per gallon at the pump), which may offset any benefit from claiming the credit at the state level. Check the regulations in your state.
Work Opportunity Tax Credit
Finding good drivers, dispatchers and safety directors is a constant challenge. What you may not realize is that when your company hires people from targeted categories and employs them for at least 120 hours, you may be able to claim a valuable Work Opportunity Tax Credit. WOTC reduces your federal tax liability by up to $9,600 per person hired—and lets you use the credit to offset the alternative minimum tax.
Qualifying veterans and other hires
The trucking and transportation industry in general has had great success with hiring returning veterans, who in many cases already know how to operate vehicles and heavy equipment. These men and women know a thing or two about hard work and doing their job well, and WOTC gives you even more incentive to hire them. In addition to veterans, other types of hired individuals qualify for WOTC, including:
- Qualified (discharged from active duty within one year of hire date), unemployed or disabled veterans;
- Long-term unemployment recipients (at least 27 consecutive weeks);
- Vocational rehabilitation referrals;
- Food stamp recipients;
- Long-term family assistance recipients;
- Qualified felons;
- Qualified summer youth; and
- Supplemental security income recipients.
- Hiring qualifications include:
- Temporary, seasonal, part-time and full-time workers who work a minimum of 120 hours in the first 12 months of employment;
- New employees who have not worked for the hiring employer at any other time; and
- Any job type is acceptable (drivers, mechanics, safety, administrative, dispatch, etc.)
Streamline hiring practices to take advantage of WOTC
WOTC offers significant tax savings, but taking full advantage of the credit can be a large task. Your company must identify eligible employees, collect supporting information, submit the required tax forms, and compute the dollar amount of the credit.
Generally, employers have 28 days after an individual begins work to submit the proper paperwork with the designated local agency in order to qualify for the credit. Special relief is available through December 31, 2019. We suggest your HR department consult with your tax advisor to streamline the hiring process. In most cases, your tax professional should be able to help you by integrating technology solutions into your HR workflow to maximize efficiency.
Trucking and transportation are challenging businesses, and taxes are complicated and cumbersome. Trucking industry practitioners and tax professionals can help you manage your business and personal exposure to taxes and claim all the credits and deductions available to you. iBi
Derek Floyd is the local contact for CliftonLarsonAllen. He can be reached at [email protected] or (309) 671-4500. For more information, visit CLAconnect.com.
