Insurance Coverage & Tax Deductions for Truckers

"The big rigs keep the economy rolling"

This information is for truckers and their financiers only. Read this information if you own a big rig, a trucking company, a shipping company, a leasing company, or a finance company.

My name is Clemson (Clem) Barry. I am an insurance broker and a tax resolution specialist. I advise clients in the transportation industry — inland and ocean marine. This includes truckers, shippers, bus owners, and anything that runs on wheels. I am a member on the National Accounting and Finance Council of the American Trucking Association (ATA).

My company provides consultation and timely services to truckers in the following areas: incorporation, quarterly operating report and tax filing for self-employed drivers, driver log audit dispute and tax refunds recovery, IFTA or single state fuel/highway tax reports, A/R, A/P, and driver's settlement, invoice factoring plus 24/7 fuel card set up, insurance coverage, and end of year Individual and Corporation Federal & State tax returns preparation and filing.

People in various industries would refer to the trucking industry by different names, such as inland freight, interstate commerce, or inland marine. A lot of the items that we purchase at the supermarkets and neighborhood shops were transported there by trucks. This includes lumber, hardware materials and pipes used in the transportation of petroleum, water, and natural gas. Trucking is a growing niche. The industry continues to dominate freight movement and the national economy. There were over 1.87 million registered tractor trailers on the road in 2005, an increase of 6.9% from the year 2000, according to the statistics I received from the Federal Highway Administration (FHA).

Types of Haulers
Haulers are classified as Local (short haulers), Intermediate, Long (freighters/double tankers), Hazard Material (haz-mat), Ice Road Truckers (delivery over frozen lakes), and Automobile Transporters which can include short, intermediate, or long haulers.

Truckers' Concerns
Truckers are busy people on tight schedules. They cannot waste time when they arrive at consignee's warehouses. To do so means burning fuel and profits because their engines are running. New truckers are paid 95 cents/mile by the leaser and upwards of 65% of the freight when they own their trucks. Truck owners are not only driving their trucks, they are also responsible for driving their bottom lines/profits upwards to meet future increases in operating costs. To accomplish their goal, they have to adhere to continuous adjustments in their operations budget in anticipation of an economic downturn or changes in market trends. Managing successfully through economic cycles is a challenging, but necessary part of every business operation. They must also manage risks, proposed vehicle user fees based on weight when entering Santa Fe, NM, and other borders, costs, schedules, California new emissions proposals for trucks built before 1994 and retrofitting for trucks built before 2007, compete with a pilot program that authorizes Mexican carriers to operate beyond the border zone, effective use of electronic manifests to quickly cross the borders, and effective use of the electronic transaction system (ACE) to submit electronic versions of mandated paperwork in advance of crossing the border. Compliance with federal, interstate, and cross-border laws, zero-tolerance/immediate termination of contract for traffic infractions on the ice, filing and paying fuel and highway taxes, filing employment taxes and their personal and corporation tax returns. Truck loan repayment in 3-5 years. High fuel costs and tax to fix infrastructure — fuel consumption can cost $25,000 - $50,000 per truck. Front tires must be brand new (no recaps), quarterly preventive maintenance and downtime can cost about $1,500 for a new truck and upwards of $7,000 for older trucks and rebuilt engines can cost $12,000 and up. Truckers are responsible for the cargo they haul, but shippers can contribute to problems by overloading and by packaging loads in improper fashion — dangerously assembled loads. Truckers must be careful not to accept the shippers' liability in addition to their liability by paying close attention to unfair indemnification clauses that shippers may have inserted in their contracts to protect them in liability lawsuits. IRS officials are expressing their concern that some trucking companies are not following the rules for capping reimbursement to drivers for meals and other expenses at $52 per day when they are away from home. According to IRS officials, most of the confusion stems from the fact that truck-load carriers pay their drivers by the mile, but the per diem ceiling must be expressed in dollars per day, not dollars per mile.

Insurance Coverage

When my clients ask me how much insurance coverage I would consider adequate to cover their exposure, I often tell them to look at their net worth on their business or personal financial statements because that is what is at risk in the event they incur a catastrophic loss, including the verdict from possible lawsuits. The coverages I recommend are auto liability, physical damage, motor truck cargo, trailer interchange/drop lot, general liability, excess auto liability/umbrella, worker's compensation, occupational accident & health (OA&H), and pollution coverage.

Auto Liability Coverage
Auto liability coverage is an important coverage. The number of trucks a client has, the radius of operation of those trucks, the type of cargo the trucks haul, the clients' loss history (loss experience) and the client's safety and control inspection must be revealed to the insurance broker and the underwriter. They would pull the client's record(s) from the Safety and Fitness Electronic Records system (SAFER). The records are maintained by the Federal Motor Carrier Safety Administration (FMCSA). The information there contains the results of inspections performed on the client's vehicles at the weigh stations by law enforcement, including the U.S. Department of Transportation (USDOT). These out-of-service reports disclose how often a client's truck has been taken off the road and the reason for the client's action. If a broker discovers a large claim during the search, s/he will get the specifics from the client and write a narrative explaining to the underwriters what has happened. If the underwriter feels the explanation has merit and the claim can be settled for less than the amount reserved for losses, then that will have an influence on his/her decision and the client will pay a lower premium.

Physical Damage Coverage
Physical damage coverage is written on an actual-cash-value basis. A list of the value of the client's equipment and trucks are added together. Also, the MVRs of drivers are pulled from the DMV and driver safety procedures and past claims are reviewed. A company should hire the best drivers. Drivers can become a trucking or shipping company's most valuable asset or its worst nightmare/enemy. Drivers complicity can include providing information to hijackers even when they are aware that the trucks are tracked by a GPS system, diversion of cargo to other truckers while it sits overnight in the terminal or parked trailer, parking their loaded trucks at unsecured locations, and neglecting to lock the tractor at truck stops. Dispatchers should keep track of drivers. One company has managed to reduce driver retention rate and increase operations efficiency by hiring more experienced drivers with a history of job stability. They went from hiring 128 drivers down to 117 drivers, and they are hauling the same amount of freight. Another company claimed it saved $169,000 in administrative costs while increasing its business over 25%.

Motor Truck Cargo Coverage
A broker and an underwriter will be concerned about the type of freight a client hauls and whether the cargo will be escorted by a security service. Security services are familiar with the neighborhoods through which the trucks must pass enroute to their destinations. They can map out safety routes for the drivers and evaluate the height of the clearance under the overpasses. The freight on board is valued at the invoice amount. It is valued at cash or market price on the date and at the place of shipment if it is not shipped under invoice. Cargo is covered when it is in-transit. The coverage ends when it arrives at the destination and it is transferred to the consignee or its authorized agent. A trucker who hauls refrigerated cargo needs coverage for losses/spoilage during the breakdown or malfunction of the refrigeration equipment. Cargo may be damaged by water, lost, or damaged during handling, it may suffer elements of contamination, theft, pilferage, and other perils. The most commonly stolen goods are food products, clothing, electronics, pharmaceuticals, liquors, baby formulae, and scrap metals because of the high prices those metals attract on the world markets. This information is also cited in the reports published by the Inland Marine Underwriters Association (IMUA) and the International Cargo Security Council (ICSC).

Trailer Interchange/Drop Lots
Drop lots are essentially transfer points. A long-hauler may leave a trailer on a drop lot where it will be picked up by a short-hauler, who takes it to the final destination. Drop lots are breeding grounds for thieves and drivers complicity.

Pollution Insurance
Truckers are encouraged to buy pollution insurance whether or not they haul hazardous freight (haz-mat). Pollution is an exclusion under the auto liability policy. This coverage is relatively inexpensive for haulers who are not involved with haz-mat.

Tax Deductions

Truckers may deduct depot-weighing scale tickets, tolls and bridge fees (per axle), lumpers fees, insurance, preventive maintenance, leases and depreciation, fuel and IFTA motor fuel tax, highway/heavy vehicle duty tax (based on the mileage covered in truck log), security and escort services, subcontractors (short-hauler/drop lot), payroll deductions, safety equipment, meals and showers (at truck stops), drug test consortium, MVT registration, HUT stickers, IFTA stickers, truck registration carb card IRP, software (tracking inventory and deliveries), NY transport and transmission corp franchise tax, NY maintenance fee for a foreign corporation, credit and collection costs, agency fee, Internet service, and many more deductions.

Tip: You can lease trucks, deduct the full lease payment, and own them at the end of the lease term without paying an additional penny to the leaser. It is perfectly legal. You will know the secret when you become my client.

E-mail Received

"I have been driving for companies for ten years. I am starting my company and the dealer offered me a well-maintained 18-wheeler, 2005 Kenworth T-2000 with 400,000 miles. The truck cost $62,500, 9.5%, five years. Trailer $25,500, 6%, three years. I plan to be on the road for nine months a year. Diesel 5.8 mls/gal., annual maintenance $18,000, tolls, registration, etc., $3,500. How much load do I have to haul to be able to break even?" — E. McAllister, Walnut, CA

Answer
Owner-operator wants to know the value of the freight that the truck must carry to cover its annual expenses.

** To break even, you will have to haul freight for 71,415 miles annually for the next three years when you will finally pay off for the trailer. The truck will have used 12,313 gallons of fuel and it will have to be taken off the road for mandatory inspection at least seven times per year. Therefore, you should increase your annual estimates for preventive maintenance, new tires, and increases in fuel price.

Testimony

"The information you have given us is invaluable. We have leased a fleet of trucks and the leasing company has encouraged us to retain your services."
           - Allan & Tom, Shippers & Movers, Randall Ave., Bronx, New York