Although the International Fuel Tax Agreement (IFTA) is an excellent improvement over the previous tax-paying methodologies and protocols which is now saving logistics companies all across America millions of dollars, it would not hurt to figure out ways to lower the IFTA tax balance. It would only help to serve the consumers better and get ahead in this competitive industry.
What is the International Fuel Tax Agreement (IFTA)?
Until the 1900s, logistics companies were engulfed by mountains of paperwork pertaining to taxes from each state. Since every state has its own rules and tax regulations, the companies had to maintain separate records for each and had to file taxes every quarter for all of them.
At first glance, this might seem simple. All one had to do was keep track of fuel expenses and prepare a tax report every quarter. But this required a lot of personnel and cost the companies hundreds of work hours.
To help solve this problem, a solution was proposed in the late 1900s, which later came to be known as the International Fuel Tax Agreement (IFTA) in 1996. The IFTA brought together 48 states of the USA and 10 provinces of Canada under one platform. This lets the logistics company file fuel tax reports under a single license.
The advent of industrial IoT devices and better technology made it even easier for the trucking industry to file their taxes and avoid penalties.
How to Reduce Your IFTA Tax Balance?
Employees of a logistics company are always engulfed with a lot of work. So much so that they seldom get time to think about taxes. But it is important for a company, especially a large one, to figure out ways to optimize its operations in a way that will reduce their taxes.
Here are some tips and tricks to help you and your company lower the IFTA tax balance:
1. Use IFTA Software
Using IFTA software is an excellent first step for your business. It automates a lot of the tasks which, otherwise, would have been done manually. This saves a lot of time.
An IFTA software completely transforms the way you enter data. How? Well, you do not have to enter data at all!
Manually inputting and calculating your taxes can result in a lot of errors. Often, you will end up paying more or less and may even find yourself paying penalties for such mistakes. The automatic IFTA software will automatically input all your fleet data and compute your taxes in a matter of minutes without any errors.
It important that you use dedicated IFTA software. A poor-performing program will make you manually enter all the trucking data, and all it will do is compute it. Some programs also require you, the user, to constantly feed them updates like changes in taxes.
2. Use Reliable Fleet Management System
Using reliable fleet management systems like that of Samsara will help you lower your IFTA tax balance and overall operational costs as well.
A fleet management system will help you record all the information of your commercial motor vehicles (CMVs) that are necessary to file your IFTA tax reports. These include:
• Cost and revenue per mile.
• How much you are spending per load.
• The revenue per load.
• Mileage of your trucks.
• Other diagnostic information.
The fleet management system integrates various industrial internet of things (IIoT) devices like electronic logging devices (ELDs) and embedded artificial intelligence (AI) dashboard cameras onto a single platform. Click to read more on Samsara.com.
3. Incorporate GPS Fleet Tracking
Although GPS fleet tracking is a subset of the fleet management system, it deserves a separate mention because of the benefits it provides to transportation companies.
GPS fleet tracking accurately records and stores all your trucking data securely in a cloud storage server. This data can be instantly accessed by anyone over the air.
Thus, by incorporating GPS fleet tracking in all the vehicles of your fleet, you can easily gather data that helps you calculate IFTA miles, improve efficiency by reducing manual work, and reduce overall expenditure.
4. Invest in Areas That Provide You with Tax Benefits
By incorporating greener technologies in your company, you can reap the benefits of tax deduction. Companies that make use of software and technology that have a lower carbon footprint are benefitted from lower taxes.
If you want to go big, then you can even replace your fleet’s trucks with all-electric vehicles. This will save you thousands of dollars from the very first year of usage because you are essentially using zero fuel.
The Tesla Semi, which is expected to roll out in early 2021, is a great example. Tesla claims a fuel savings of more than $200,000 on its official website.
These all-electric vehicles also guarantee greater safety measures because of the technology incorporated in them. Additionally, these safety measures and your vehicle’s range could even increase over time with over-the-air software updates.
5. Smaller Fleet
Although this is quite intuitive, most logistics companies in the United States of America seemingly go lenient on purchasing their vehicles and do not run them in full capacity.
It is highly recommended that you acquire only the number of vehicles you need and operate them under maximum capacity. At this point, it is crucial to mention that you should certainly not overload the vehicles, as it can result in humongous fines and also potentially cause road accidents.
A smaller fleet will help you maximize your overall mileage and get the most out of every gallon of fuel that ultimately leads to lower fuel taxation.
Commercial motor vehicle (CMV) companies are required to pay large amounts of taxes every quarter as per the International Fuel Tax Agreement (IFTA). By carefully analyzing the performance of their fleet and drivers, they can reduce their overall IFTA tax balance and increase the company’s profitability.
You can choose to follow the five aforementioned simple yet effective tips to reduce your IFTA tax balance and get started on saving your money for other investments.