Tax Considerations for the Transportation Industry

The transportation industry works on thin margins, so every little tax break that owners and operators can get will help. For owners, consider making your drivers aware of the tax deductions they can receive just by driving. Helping your team make the most of their pay will be appreciated and will help you retain the best drivers. 

There are also decisions you can make as the owner of a transportation company to help your business get through tax time with strong cash flow. That is, if you are an independent business and not a PSB. Discover our tax tips for the 2021 tax year below.

Tax Deductions for Drivers

Those who are employees driving a truck for a company, or those who work in the transportation industry and do the transportation (like a crewmate on a ship or a stewardess on a plane) can deduct a large portion of their work expenses from their taxes. Those expenses may include:

• Up to 50% of meal expenses
• Up to 50% of hotel or lodging expenses
• Up to 50% of showering services (even if you're sleeping in your cab)
• Some of the tools or supplies that you purchase
• A portion of a business phone bill.

Part of your pandemic tax advice to employees could be a list of the relevant expenses they should be deducting.

Are you a PSB?

Drivers who are incorporated may not necessarily need to file as an incorporated business. According to the Canada Revenue Agency, those drivers who have incorporated, but who actually act as an employee of one business, must file as a Personal Services Business (PSB).

You may be a PSB/employee and not an independent business if you:

• Work for only one "client" company
• Do not own your truck or other tools
• Do not choose your own hauls or hours.

It is very important to get tax advice about whether you are a PSB or not as there are many tax implications to this nuance.

Tips for Owner-Operators

For owner-operators, tax season may be very stressful as a large bill comes due. Especially during the volatility of a pandemic year, you may not have been able to set aside the funds you need to cover your tax burden.

Factoring is a great solution for those who find their business struggles to afford tax time. With invoice factoring, you receive the money for your invoices as soon as you send them, from your factoring company, which handles getting the payments from your clients.

Some factoring companies may even set aside some of that money on your behalf, for taxes. J D Factors can assist you in this regard and if you would like us to start holding funds in trust to make sure you can a monthly tax payment, we are happy to do this in order to keep you on track.

Invoice factoring is a huge benefit at tax time because it allows you to have a much stronger cash flow, so you can afford to invest where you need and put aside funds too. It can be challenging for your cash flow to absorb quarterly estimated payments that you have to remit in advance. You can change that with factoring for SMEs. Reach out to J D Factors today to discuss if your transportation business is right for invoice factoring.

Invoice Factoring for Fleets: How to Grow in the Transportation Industry

The transportation industry can be tough, even in times of great demand. There are so many variables, a large financial commitment for growth, and changing economic conditions to throw a wrench in the best laid growth plans. One of the top things you can do to make your fleet more successful is to use factoring for at least some of your invoices. If this comes as a surprise to you, you’ll be interested in the data from RigDig Business Intelligence, which shows that since 2017, and especially during the Covid-19 pandemic, fleets that use at least some factoring have been outpacing those that don’t. 

Here’s the data, and why we think invoice factoring plays such a pivotal role in supporting the transportation industry specifically.

Fleet Growth Over Time

From 2016 to 2020, the size of fleets that use some form of invoice factoring has grown by 90%. In the same time period, the size of fleets that do not use any factoring has only grown by 30%. This is on average, so individual companies will have grown more or less depending on their circumstances. Still, the overall impact of factoring is clear. Transport companies that use at least some invoice factoring can better leverage opportunities to grow.

Why Is Invoice Factoring Successful?

Transportation is one of the industries that can benefit from invoice factoring the most. You have small margins and very long lead times. Potentially, your clients may take 30 or even 90 days to pay you, and that is after the delivery is completed.

When you’re trying to complete a new order, you may need to make investments and then wait for the cash to reach your pocket for even six months from the time you first wrote an estimate. In the meantime, you need fuel, payroll, and the cash to cover your other operating expenses. Putting business from more reliable customers on hold to handle large new accounts can jeopardize the stability of your business overall.

With all of these challenges to growth, and even day-to-day stability, invoice factoring is an excellent solution. After the delivery is complete, you send out your invoice to a factoring company like J D Factors. We pay you within 24 hours, meaning that you immediately have the cash to cover expenses incurred in the delivery, and keep investing for the next ones. That cuts you down from 90 days to one and keeps your business running smoothly.

Invoice factoring gives you better cash flow, which means that you can take advantage of opportunities that pop up, whether it’s a new fuel card, an order from a new client, or making new investments in quality trucks.

Cash flow isn’t the only benefit. Your factoring company will deal with invoicing your client and receiving payment. That means you spend no time chasing accounts receivables, reminding people about payments, or sending out ignored emails and calls. In fact, with non-recourse factoring, you are protected further against clients who don't pay because of credit issues, stop answering your calls, continuously break promises, or even file formal bankruptcy or bankruptcy protection. You reduce your burden of bad debt and have a significantly more stable business. Looking for an advantage this year? Discuss invoice factoring options for your transportation company with the team at J D Factors.