2) Income and Expenses
FAQ for the Owner Operator
Definitions and Industry Terms
Blackrock Auxiliary Power Unit (APU)
Interactive Cost per Mile (CPM) Calculator Spreadsheet
1) Owner Operator 411 – Welcome
3) Financing and Credit
4) Operating Authority or Leasing?
6) How To Do Bookkeeping and Other Necessary Paperwork
7) What You Need to Know About Loadboards
8) Companies That Lease Beginning Owner Operators
9) What You Actually Need to Get Started - Licenses, Permits, Insurance, and Taxes
10) Truck Driving Schools
Well, let me clarify that. You can gross some big bucks, and a lot of owner operators will throw out those numbers when they are talking to you, such as “I made $150,000 last year.” They aren't lying, they did GROSS $150,000 last year, but what did they net?
After expenses, the average owner operator will not make a lot of money, but will only make about ¼ of what they gross – and most don't gross $150,000.
Why does one make so little money if ones grosses so much? Simple: Expenses. The owner-operator has to pay ALL of their own expenses. I mean everything. Want to carry a roll of toilet paper in the truck? YOU buy it. Need a $20,000.00 engine overhaul? YOU pay for it.
We are not netting any more today than we did when we bought our first truck in 1972. Why? Deregulation! Before deregulation, rates were set by the government, and there were few carriers. After deregulation, every Tom, Dick and Harry could apply for and become a carrier. Rates started going down.
Let me give you an example. I used to pull a flatbed, and I routinely hauled steel coils from Washington, PA to Houston, TX for $2,800.00. Pretty good money for 1975. Then one day, I was offered the same load for $2,500. I refused it. Within a year, the rate was down to $1,800. The rates have never really recovered.
First, for those just starting out, let me explain some terms.
GROSS: This can have two meaning for some owner-operators, depending you whether you have your own authority or are leased to a company.
ABC Company will pay $500.00 to have their load hauled. If you have your own authority, they will pay you the $500.00. This is your gross. If you are leased to XYZ Company, ABC will pay XYZ $500.00. This is the gross revenue for the load or "truck gross". XYZ will take a cut of that money and pass on to (pay) you what is left. Let's say they keep 25% (for their services). Then out of that $500.00, you will gross 75% of $500.00 or $375.00.
EXPENSES: What it costs to operate your truck. This is pretty much anything and everything. The IRS tells you what is allowable and what is not, but for the most part, just use your common sense.
Need tires? Allowed.
Got a ticket speeding (breaking the law)? Not allowed.
Need to eat? Allowed. Unless you live in your truck. There is an IRS rule about being away from home before you can take the cost of food. If you live in your truck (don't have a permanent residence), then you are not away from home.
Your dog that you take with you needs to eat? Not allowed.
Your daughter that you take with needs to eat? Maybe. Does she just go along for the scenery? Not allowed. Does she drive and/or help in other ways? Allowed.
Your truck needs to eat (fuel). Allowed.
As you can see, the expense has to be directly tied to the operation of the truck before you can claim it. Whoa! Wait up. Some of these expenses can be deducted, and some have to be depreciated, and some you may have a choice of which you want to do. More later.
NET: What is left over after all expenses are paid.
O.K. What do we have now? You worked your butt off last year and grossed that $150,000.00 that someone told you about. You bought fuel (the #1 expense), tires, oil, and grease. You paid for insurance, minor breakdowns and routine repairs, and upkeep. You paid for a cell phone, and meals on the road.
What else? Oh, yeah, you paid taxes. You probably paid taxes when you bought your truck. You paid taxes when you bought your license, you paid taxes for making money, and you paid taxes to use the roads so you could do your job - in addition to the tolls you paid to drive on the roads. Whew! That's a lot of taxes. Lucky for us, these taxes are deductible on your income tax return. You bought tools, and had your truck washed. After you paid for all of these things (and more), you have about $30,000.00 left. That is your net.
Please note: this is only an example of how you arrive at a net figure - not actual figures."Wow! I netted (cleared) $30,000.00 last year", you may think to yourself. That is more than I would make working a 9-5 job. That is true, but you weren't working 9-5 to make that money, either. Chances are you were gone from home, at the very minimum, Monday morning to Friday night. In reality, you were probably gone longer than that to make that kind of money. Many truck drivers, especially those who make the big bucks, are gone from home for weeks at a time. While they were gone, they were working 14 hour days. They may be making a lot of money, but they never get to see their family. They miss out on all the things their kids are doing in school. They miss out on their kids growing up. They miss out being with their spouse. They miss out on living.
When you do get home, you will make it up to your family, right? Well... the truck probably needs some routine maintenance done. Aren't going to do it yourself? Fine, you still have to take the truck to a shop, and probably wait while they do the work. If your kids don't have ball practice, or your spouse doesn't have a PTA meeting, take them with you. They will love sitting around a shop while you get the oil changed, but, hey! you are all together. After that, you can go home and sleep until time to go out again. If the kids really want to see Daddy, they can sit around the bed and watch you sleep. When you get up, if they aren't in bed, you can have a family get-together while they tell you how funny you were snoring.
I know I sound kind of pessimistic, but so many people think it is easy to drive a truck and make a lot of money and maybe even get rich, but it just ain't gonna happen.
If you think my figures are unrealistic, see The Real Cost of Trucking at Truckers report.
There are some good things about being an owner-operator and I will get into that in a later post.
***NOTICE - CAUTION***: I am an owner-operator, not a tax professional. I drive a truck for a living, so don't take me at my word about taxes. Have a tax professional check it out, and give you their advice. Not all accountants are created equal.
Try to find someone who knows about trucks. Some truck expenses have their own rules, like how much you can take for meals. There are special IRS rules regarding meals that only apply to someone in transportation, and rules applying to people regulated by hours-of-service. If your accountant doesn't know anything about trucks, they might miss that and not allow you to deduct enough for your meals on the road.
More on my next post. Later I will also try to get into what it was like when I first started driving way "back in the day" and will try to put some old pictures on here, too. So keep checking back.