Trucking industry expects boost to bottom line with tax changes, bringing good news to companies and drivers alike
When President Donald Trump signed landmark tax reform legislation just before Christmas, it was welcome news for the nation’s trucking industry.
Congress passed a major tax overhaul on December 20, and the president signed it into law two days later. It is the first major tax overhaul in the United States in more than 30 years.
Trucking industry officials are still conducting a deep dive into the numbers, but the initial assessment from the American Trucking Association in Washington D.C. is that it looks to be positive news for the majority of the trucking industry.
Not only will trucking companies save money directly from reduced tax rates, they’ll benefit from a general lift to the nation’s economy, according to Bob Costello, senior vice president and chief economist of the ATA.
“It’s a two-fold story for our industry,” Costello said. “Are trucking companies going to save more money? We think that most of them will.”
For trucking companies that are organized as C corporations, the new tax bill will lower their federal income tax rate from as high as 35 percent to 21 percent. C corporations are traditionally-structured companies that are taxed separately from their owners.
For S corporations, where income is passed through to the partners of the company, it’s more complicated. These “pass-throughs” are often used in family-owned businesses, LLCs and LLPs. Accountants will calculate 50 percent of W-2 wages, 20 percent of taxable income and 25 percent of W-2 wages plus 2.5 percent of all qualified property, and apply the lowest of those three totals.
The tax on C corporations is generally lower, but when the company issues a dividend the owners pay a separate tax. Distributions in an S corporation are not normally taxable. As a result, some trucking company owners are asking their accountants to investigate the possibility of restructuring in light of the new tax laws, according to Transport Topics magazine. It’s a complicated issue, and each situation is different, so companies are advised to consult their accountants to see which route is better.
Meanwhile, Costello said an ATA survey of more than 200 trucking companies shows that three-quarters of those companies expect the new tax structure will boost their bottom line. The survey also showed that 77 percent believe they will see at least some tax savings as the result of the president’s tax reform package.
And those trucking executives say they plan to either pay their workers more or invest more capital in their own companies – both of which are good news, Costello said.
“Certainly, there are upbeat folks in our industry,” he said.
The second benefit to the tax overhaul comes, Costello said, because when the U.S. economy as a whole benefits, the trucking industry should see ancillary growth as a result. The ATA projects a 0.3 percent increase in GDP because of the president’s tax reform package, he said.
“If people have more money in their pockets they can spend more money,” he said.
Costello said the tax package is expected to benefit companies large and small. “We know that C-corps are really going to benefit.”
Trucking is an industry with many small businesses, which are particularly affected by tax rates. According to the ATA, 97 percent of trucking companies in the United States have 20 or fewer trucks.
The same is true in Louisiana.
“With the average trucking company in Louisiana only having 10 trucks or less, the tax reform package positions our state’s industry to meet the needs of a growing economy,” said Louisiana Motor Transport Association Executive Director Chance McNeely. “Whether it’s investing in new equipment or hiring new drivers, this reform package helps our industry safely deliver for the people of Louisiana.”
Another provision in the tax reform bill that will help small businesses involves the estate tax, also known as the “death tax.” Many family-owned trucking companies will benefit from the new tax law because it dramatically reduces the estate tax.
The new law doesn’t do away with the “death tax,” but more companies will become exempt from it. The amount of inheritance exempt was $5.49 million for individuals and $10.98 million for married couples. Those amounts were doubled under the new law.
Motor carriers will also have to consider some new rules when purchasing new and used trucks. The “bonus” depreciation expense on trucks has been raised from 50 percent to 100 percent until 2022. Carriers can write off the full value of a truck immediately rather than over a 3-year period.
Finally, like the companies they work for, drivers need to look at how the new tax laws impact them. One important change to the law is that drivers will no longer be able to deduct miscellaneous expenses on Schedule A tax forms. Drivers may place a greater emphasis on per-diem to offset that, according to Transport Topics. With the per-diem currently $63 per day, a driver working 300 days would get $18,900 in tax-free per diem pay.