ANALYSIS: Tax Cuts Helped O/Os Take Home More Of What They Earned In 2018
Lakewood, Colorado – The Tax Cuts and Jobs Act has had an overall positive impact for owner-operators in 2018, according to trucking tax expert and business assistance provider, ATBS.
Preliminary data based on over 3,000 tax returns of ATBS clients indicated that President Trump’s signature piece of legislation is helping to increase the incomes of small business truckers.
First, the average owner-operator’s taxable Adjusted Gross Income (AGI) went from $43,093 in 2017 to $52,180 in 2018, ATBS data revealed.
This was an increase of $9,087 or 21%.
ATBS noted the increase was predominantly related to a booming year in the transportation industry.
During the same time, the average owner-operator Total Tax Liability went from $8,242 (2017) to $9,284 (2018).
This was a much smaller increase of $1,042 or 12.6%.
The overall effective tax rate for owner-operators went from 19.1% (2017) to 17.8% (2018) or a reduction of 1.3%.
The net result is that owner-operator taxable income increased 21% while actual tax liability increased only 12.6%.
Following are some of the specific reasons for the reduction in owner-operator tax liability, according to ATBS.
– 68% of ATBS owner-operator clients took advantage of the Qualified Business Income deduction with an average of $6,235 being deducted from their tax liability. This was a new deduction for 2018 as a result of the Tax Cuts and Jobs Act.
– 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 (2017) to $20,965 (2018). 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, the only 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 with an average penalty amount of $1,027.
However, this mandate will no longer be in effect for 2019 taxes as it was eliminated in the Tax Cuts and Jobs Act.