Truckers who declare a per diem deduction on their annual income tax filings could find themselves in hot water with the IRS if they rely exclusively on electronic logs retained by the motor carriers.
Truckers who are into gadgets and motor carriers that require the use of electronic logging equipment for employees or leased owner-operators need to be aware of the valuable documentation those logs can provide at tax time, Jim O’Donnell, president of Trucker Tax Service says.
Any over-the-road trucker who spends nights away from home qualifies for the daily per diem deduction.
In 2013, the daily per diem is $59, and all over-the-road drivers qualify for an 80 percent deduction of that amount. A driver who spends 300 days on the road should receive a yearly deduction of more than $14,000, according to O’Donnell. In 2014 the per diem remains the same.
That’s all well and good, but either the Internal Revenue Service or your home state – if they allow a per diem deduction – could come back seeking proof of those nights away from home.
He had a recent experience with the state of Pennsylvania.
O’Donnell was working with some team drivers from Pennsylvania. He prepared their taxes and “got a whopping return declaring itemized deductions.” The problem was six or so months later when the state sent a letter asking for verification on the per diem deduction.
“All they had to do was produce their logbooks and it’s a done deal,” O’Donnell said.
In the team drivers’ situation, the motor carrier they worked for maintained electronic logs. The couple went back to their company to get the logs. But, as is the case with most companies, their motor carrier stored electronic logs for only six months.
The team had documentation in the form of trip records, but they did not have logbooks to back up their declared deduction.
Pennsylvania wanted the refund repaid.
O’Donnell said that financially strapped states are trying to get back or hang on to ask much money as they can. One of the big industries that they are pointing at is the trucking industry.
Over-the-road drivers qualify for much larger, percentage wise, deductions than the typical tax payer, he explained.
As if losing the per diem deduction for lack of documentation isn’t enough, O’Donnell said that if the IRS throws out the per diem, it has the right to throw out every other expense. So that could mean expenses such as fuel, truck payments and insurance.
“So, now they owe thousands of dollars that they don’t legitimately owe,” O’Donnell said.
That then puts truckers in a situation where they wind up spending a lot of money to resolve something that never should have been an issue in the first place.
O’Donnell said that the easy solution is a system of retaining logs, either paper or electronic. Paper logs can easily be stored in boxes, stashed in the corner of a basement. Electronic logs should be stored digitally.
He recommends that truckers who use electronic logs should set a routine to back those up from the motor carrier on a regular basis. Additionally, before leaving a motor carrier, drivers would be wise to back up their logs as well. Motor carriers might not be as willing to help a former employee or leased operator find missing logs.
As added protection, he suggests keeping a copy for yourself and providing your tax preparer with a copy in case of a computer failure.
Unfortunately, you need to keep more than just the current tax year’s logs, too, O’Donnell advises.
“The problem is most drivers don’t understand that they need to hang on to their logs – for up to 10 years in case of an audit,” he said.
O’Donnell admits that is overly cautious. But better safe than sorry.
Copyright © OOIDA