Taxpayers in transportation industry entitled to special deductions

By Dan Farmer, CPA, Miami, Fla.

Flying thousands of miles a day for an airline, driving a truck for weeks at a time cross-country, navigating a taxicab every hour to every corner of a city – all are tough jobs that can create special hardships. Drivers, pilots, flight attendants and other transportation workers don't have the option of whipping up a dinner and sleeping in their own home. The IRS recognizes the unusual demands on employees and owners in transportation and offers them some liberal deductions at tax time.

Higher claims and deductions

For example, although most business travelers are allowed to claim $31 a day for meals and hotels on a business trip, people in the transportation industry are entitled to a per diem of $41 –and $46 a day in cities with high costs of living. Because they can't avoid eating at restaurants, transportation workers can deduct 70 percent of the per-diem amount, while people in other industries can deduct only 50 percent of the cost of meals. The 70 percent figure is a recent increase over the 60 percent allowed transportation workers previously.

Although they may claim a percentage of actual expenses, people who travel consistently often lose receipts or, as with taxi drivers or individuals receiving advances, work with cash rather than credit cards. That $41 often will cover the daily meals of over-the-road truck drivers, who may sleep in their cabs or rent a room at a truck stop for $10 or $12 for six hours of shut-eye. Transportation employees such as airline workers also are allowed to deduct 75 percent of the per-diem rate on the day they leave for a trip and 75 percent for the day they return.

Deductions for trucking

Truckers, both drivers and employers, are entitled to deduct a very long list of expense items, many of which they may not have considered when organizing their deductions. Often truckers own their rigs; they are not reimbursed for fuel costs and are responsible for their own meals, supplies and lodging. These drivers can deduct fuel, meals and motels as business expenses, but also supplies and equipment such as flares, walkie-talkies, CB radios, GPS units, cellular phones, sunglasses, even an ice chest. They can deduct travel expenses such as laundry charges, locker fees, toiletries and showers. If they withdraw cash from an ATM, the ATM fee is deductible, as are fees for cash advances while traveling. In fact, unlike the rules for employees in other businesses, credit-card interest and fees are deductible if the card is used for business expenses. If a transportation worker is charged a fee for missing a credit-card payment, or if he exceeds the credit-card limit, those fees are deductible as well.

The types of deductible expenses for truckers range widely and usually include the cost of a required physical exam, maps, log books, linens and pillows for an in-cab bed (and a mattress, if it's not a depreciated item), labor hired to load or unload the truck, relief drivers, mail-forwarding services, and post-office box rental. If a trucker buys a weather-receiver radio or satellite radio – any type of entertainment system for the driver – it's deductible as well. Drivers who are not self-employed also can deduct such items as insurance, alarm services, trade publications, uniforms, union dues, occupational license renewals, education expenses, advertising, and expenses associated with seeking employment, among others.

Some potential deductions have been disputed but resolved in the trucker's favor. For example, we have claimed that if a trucker was levied a charge for an overweight vehicle, that charge should be deductible because the weight was not necessarily in the truck driver's control and required the driver to expend extra fuel. The IRS called the overweight charge a fine, but courts decided the charge indeed was deductible. Fines for speeding tickets, however, are not deductible.

Deductions for taxi drivers

Accounting professionals working with taxi drivers usually compute deductible expenses based largely on mileage. Often we find that cab drivers underestimate the amount they spend on fuel, so we run checks to ensure we are applying a reasonable guideline. We start with the mileage for the year and determine the percentage of that mileage that was productive – that earned income for the driver. From gas receipts, the miles per gallon can be determined and then the amount of revenue per mile is calculated. From these figures, the approximate outlay for fuel can be ascertained.

Deductions for airline workers

For airline workers, deductions are calculated based on the number of days they spend away from home, multiplied by the $41 per diem, multiplied by the 70 percent deductibility factor. For example, if a pilot is traveling 250 days a year, he or she would be entitled to a deduction of 250 x $41 x 70%, or $7,175. Keeping logs of trips is important in determining the number of travel days to be considered.

Deductions for all traveling workers

For all employees, the deductible amount per mile and per-diem rates have been adjusted annually in recent years – in 2005, in fact, mileage rates were adjusted twice. Per diems tend to go up about a dollar a day each year.

To be sure they are claiming all the deductions to which they are entitled, transportation owners and employees should confer with their accounting professionals early in the year so they understand which receipts to retain. Also, most professionals will have work sheets that list the full range of deductible items and that help employees remember purchases that might otherwise be overlooked – from seat cushions to screw drivers.

People in transportation live on the road and in the air. They should be certain they receive all the compensatory deductions that they are due for their difficult lifestyle.

About the author

Dan Farmer, CPA
Miami, Fla.
Dan Farmer is a Certified Public Accountant for The Accounting and Tax Company located in Miami, Florida.

Note: The following information is provided to you by third parties for informational purposes only and shall not constitute tax or legal advice. Microsoft Corp. has not checked or verified any of the information provided and makes no representations or warranties as to its accuracy. Each individual’s tax situation is unique, and you should check with your accountant or other tax professional for particular advice on your situation.