Tax Advantages and Implications for FedEx Ground Routes

Note: We offer this information from experience: Our team is composed of many former and current contractors. We have decades of combined experience in logistics operations and e-commerce investments. Our real-world contracting team can help you learn how to run your operations. However, we are not certified public accountants (CPAs) or experts in the tax laws of every state. Please consult your CPA for more specific tax information.

Tax Benefits of Owning FedEx Ground Routes

The Internal Revenue Service (IRS) looks at both profit and loss to calculate your business’s tax burden. The more income/revenue for the business, the higher the tax liability.

However, the business can also demonstrate financial losses. Losses reduce the overall business income and corresponding tax liability.

The more you reduce your overall income via losses, the less your business pays in taxes. One significant way to accomplish this is by strategically accounting for asset depreciation and accelerated depreciation.

Vehicle Depreciation Reduces Tax Burden

The biggest asset these businesses have is their fleet of vehicles. Most operations will have hundreds of thousands of dollars of asset value in the vehicles alone. If you own these vehicles, you can depreciate their value over time. The vehicle depreciation in FedEx Ground route businesses allows you to lower the estimated value of your vehicles each year to offset your revenue stream and lower your tax burden.

IRS depreciation tables depreciate automobiles/vehicles over five years. This means that the value of each vehicle in your fleet reduces by 20% each year. If a truck costs $70,000 to purchase new, then you can record a loss of $14,000 each year for five years after its purchase. This recorded loss will help offset the taxes your business has to pay each year.

“The vehicle depreciation in FedEx route businesses allows you to lower the estimated value of your vehicles each year to offset your revenue stream and lower your tax burden.”

You should know that you can also elect to use an accelerated depreciation schedule. For example, you can choose to depreciate your truck by 50% for two years rather than 20% for five years. Accelerated depreciation allows you to claim higher losses in a year where you had higher-than-expected revenue, keeping your tax burden low.

Once you choose an accelerated depreciation schedule, you must stick with the new schedule. Adjusting the tax schedule for an asset more than once puts your business at risk for an audit.

We advise working closely with a CPA to plan your depreciation schedule and vehicle purchase strategy. If you time your purchases well, you can refresh your pool of assets to depreciate just as your old assets become fully depreciated.

Other Tax Benefits of FedEx Ground Route Businesses

Rolling Stock Exemption

One unique benefit for FedEx Ground businesses is something called the rolling stock exemption. The availability and rules of this exemption vary by state.

In general, the exemption says that if you purchase a business vehicle with the intention of leasing it (to FedEx Ground in our case), you do not have to pay sales tax on that purchase. Likewise, repairs and repair parts for leased vehicles are also not subject to sales tax.

The rolling stock exemption may save your business from incurring large expenses. If you’d like to learn more about this potential tax benefit, it’s important to speak to a tax attorney in your state to determine if the rolling stock exemption is available and what the requirements are.

1099 Contractor Benefits

FedEx Ground route businesses operate as 1099 contractors to FedEx Ground. There are plentiful tax write-offs available to 1099 contractors that you should discuss with your CPA. These write-offs include mortgages, leases, cell phones, computers, travel, fuel, and more. All or a portion of these expenses can flow through the business as expenses.

Be careful here, though, your write-off claims need to hold up under an audit.

These are just some of the most common tax benefits we have experienced in the FedEx Ground space. As we’ve stated already, we highly encourage you to speak to a CPA and tax attorney familiar with your state laws to explore all of your options for saving or deferring taxes and getting the most value out of your operation.

Tax Implications of Selling Your Business

The primary tax implication of selling your FedEx Ground business is something called a “Capital Gains Tax.” A capital gains tax is something that every business owner has to deal with during the sale of a business. A capital gains tax applies to the appreciated value of the business. The appreciated value is simply the difference between what you paid for the business and what you sold it for.

Capital gains can either be short-term or long-term, depending on how long you’ve held the business.

Long-Term Capital Gains vs. Short-Term Capital Gains

Long-term capital gains apply to any business that is held for greater than 1 year. As of 2022, the long-term capital gains tax brackets are 0%, 15%, or 20%, depending on your filing status and taxable income. The value of the long-term capital gains tax is that these rates are generally lower than the short-term capital gains rate.

If you hold a business for 1 year or less, your profit is classified as a short-term capital gain. This short-term capital gain is taxed as ordinary income at standard graduated tax rates. By holding your business for more than 1 year, you can save on taxes by benefiting from the rate cap of long-term capital gains.

Calculating Your Capital Gains Tax

At a high level, you can estimate your capital gains tax by calculating the difference between what you paid for the business and what you intend to sell the business for. You can then apply that profit value to the correct tax rate based on your filing status and how much the profit is. 

For example: If you purchase a business for $400,000 and then sell it over a year later for $800,000, your long-term capital gain will be $400,000. Depending on your filing status, you would then be subject to pay 15% or 20% of that capital gain value in taxes.

The tax rates for capital gains can change over time as federal and local tax laws evolve. As a business owner, it is up to you to determine when it’s most favorable for you to sell your business. Understanding the implications of a capital gains tax will help you strategize the sale of your business and get the most value out of the sale.

Want to Learn More?

Dive into the world of logistics and delivery routes with our complimentary FedEx Ground Routes 101 E-Course. This course will teach you the fundamentals of delivery routes so that you can decide if this is an industry worth pursuing further. Whether you’re interested in FedEx Ground routes, Amazon routes, Bread routes, or other logistics operations, we are here to help. Enroll now for free and take the first step towards entrepreneurship in the e-commerce space.