Oh no I got a 1099 what do I do? I didn’t save any money!

If you’re a truck driver working as an independent contractor and receiving a 1099 instead of a W-2, tax season can feel a little overwhelming. Being informed and being prepared makes a big difference. Don’t worry you’re not alone. Unlike employees, who have taxes withheld from their paychecks, independent contractors are responsible for managing their own taxes. This means staying organized, estimating and paying taxes quarterly, and making sure you’re prepared before tax deadlines. 

If you’ve ever found yourself staring at a 1099 form and wondering what to do next, this guide is for you.

What Does It Mean to Be on a 1099 Instead of a W-2?

When you’re on a W-2, you’re considered an employee, and your employer takes care of withholding income taxes, Social Security, and Medicare payments from your paycheck. They also match a portion of your Social Security and Medicare taxes.

However, when you’re on a 1099, you are classified as an independent contractor. This means that NO TAXES ARE WITHHELD FROM YOUR PAY!

– You are responsible for paying both the employee portion and the employer portions of Social Security and Medicare taxes known as the “self-employment tax”.

– You are responsible for making “quarterly estimated tax payments” to the IRS for yourself.

Steps to Take Control of Your Taxes as a 1099 Truck Driver

1. Understand the Self-Employment Tax:

As a 1099 worker, you will owe the self-employment tax, which is currently 15.3% of your net earnings, which is what is left out of your check besides your deductions. The 12.4% for Social Security and 2.9% for Medicare and this is in addition to your regular income tax.

For example, if you earned $80,000 as a truck driver and had $20,000 in business-related expenses, your taxable income would be $60,000. You would still owe self-employment tax on that $60,000, plus income tax based on your tax bracket.

You could get with your professional income tax preparer and they should be able to tell you what tax bracket you are in and help you with any other questions you might have.

 2. Track All Your Income and Expenses

Keeping detailed records is essential for anyone on a 1099. This will help you calculate your net income and identify deductions that can reduce your taxable income. Keep everything because you never know what you’re going to need. It would be a smart thing to get yourself some type of receipt holder like a pouch with several dividers or just a shoe box will work or whatever you can do to keep these things in order. If you don’t need them at the end then throw them away but at least you have them. Stay up to date on the tax laws and the rules if you can. You can save yourself a lot of money if you do these things. 

Income:

– Save all your 1099 forms (you will receive one from each company you’ve worked with if you earned $600 or more).

– Keep a record of any additional income, even if it wasn’t reported on a 1099.(such as sales of items on social platforms or services you perform for cash money

Expenses:

As an independent contractor, you can deduct many business-related expenses. Common deductions for truck drivers include but are not limited to:

– Fuel costs

– Maintenance and repairs

– Truck lease payments

– Insurance premiums

– Lodging and meals while on the road (subject to per diem limits)

– Licensing fees

– GPS and other trucking tools

– Cell phone and internet costs (if used for work)

Make sure to keep receipts, invoices, and other documentation for all your expenses. If you plan to do your taxes yourself, do your homework so that you don’t make simple mistakes. If you are hiring a professional they will tell you what deductions you can use.

3. Estimate Your Quarterly Taxes

The IRS requires independent contractors to pay taxes quarterly. This helps them avoid penalties for underpayment at the end of the year. Quarterly taxes are due on the following dates:

– April 15 (for January–March income)

– June 15 (for April–May income)

– September 15 (for June–August income)

– January 15 of the following year (for September–December income)

Set reminders on your calendar or a sticky note on your desk. Whatever it takes to remind you so that you don’t get into trouble. I am currently going through a Tax Court case myself right now. Staying on top of these things will make sure they won’t come back to bite you in the rear later.

To estimate your quarterly taxes:

1. Calculate your expected annual income.

2. Subtract your deductible expenses to determine your taxable income.

3. Use the IRS tax brackets and self-employment tax rate to estimate how much you’ll owe for the year.

4. Divide that number by four to determine your quarterly payments.

The IRS provides Form 1040-ES to help you calculate and submit your quarterly payments.

4. Set Aside Money for Taxes

A good rule of thumb is to set aside 25-30% of your gross income, which is the amount you made before anyone took out anything, to cover federal and state taxes. You could open a separate savings account for your tax payments so you’re not caught off guard when quarterly deadlines roll around.

5. Take Advantage of Deductions and Credits:

Deductions can significantly lower your taxable income. In addition to the expenses mentioned earlier, don’t forget about:

– Depreciation: If you own your truck, you can deduct its depreciation over time.

– Health Insurance Premiums: If you pay for your own health insurance as an independent contractor, you may be able to deduct these costs.

– Retirement Contributions: Contributions to a SEP IRA, SIMPLE IRA, or solo 401(k) can reduce your taxable income.

6. Use Tax Software or Hire a Professional:

Even with the best intentions, taxes can get complicated. Consider using tax software designed for self-employed individuals, like TurboTax Self-Employed or QuickBooks. These tools can help you track deductions, calculate quarterly payments, and file your taxes.

Alternatively, hiring a tax professional who specializes in trucking or self-employment taxes can save you time and ensure you’re maximizing your deductions.

7. Don’t Forget State Taxes:

In addition to federal taxes, you may owe state income taxes. Some states also have specific rules for independent contractors, so be sure to research the requirements in your state.

What Happens If You Don’t Pay Quarterly Taxes?:

Failing to pay quarterly taxes can result in penalties and interest from the IRS. These penalties can add up quickly, so it’s essential to stay on top of deadlines. If you’ve already missed a payment, make it as soon as possible to minimize penalties.

Final Thoughts:

Handling taxes as a 1099 truck driver may seem daunting at first, but with pre-planning and organization, it is manageable. By tracking your income and expenses, setting aside money for taxes, and making quarterly payments, you can avoid surprises during tax season.

If you’re feeling unsure or overwhelmed, don’t hesitate to reach out to a tax professional. They can help you navigate the process and ensure you’re staying compliant with IRS regulations.

Remember, tax season is just around the corner—so take the time now to get your finances in order. Your future self will thank you!

I hope all my readers are enjoying the content I write for these blogs and posts on my site. If there is a topic you would like me to research, just shoot me an email because I don’t really have my website ready to leave comments or ask questions yet! I will get there. It is just me managing this site so bear with me and stay tuned for more helpful tips and current events.

Good Day,

April

realtruckersolutions@gmail.com