Tax Deductible Business Expenses for NEMT Businesses

If you own a Non-Emergency Medical Transportation (NEMT) business, navigating the complexities of tax laws can be daunting, especially when determining which expenses are tax-deductible for NEMT businesses.   

This article outlines the tax implications of your legal business structure, the tax credit you receive if you’re using a clean commercial vehicle, and the tax exemptions available to NEMT businesses.   

Consulting a qualified tax professional can ensure compliance with pertinent tax laws and regulations and help you save money. Use this article as a reference to increase your knowledge, not as professional tax advice.   

Also, this article covers federal tax laws. Individual states may have overlapping or conflicting tax regulations you must also comply with, making hiring a knowledgeable tax professional even more critical.  

Tax Implications of Your Legal Business Structure  

The legal business structure determines your tax burden at the federal level and the state level.   

Here are the common types of business structures with their distinct liabilities.  

Sole Proprietorship  

The owner pays self-employment tax and income tax on business profits, which are reported on personal income tax returns.   

Partnership  

The owners are called partners. The profits and losses from the business pass through to the partners’ personal tax returns, and the partners are subject to self-employment taxes, as in a Sole Proprietorship business.   

However, general partners have unlimited liability for the business’s debts and obligations, while limited partners typically have liability only up to their investment amount.  

Limited Liability Corporation (LLC)  

An LLC provides its owners (known as members) with limited liability, meaning they are typically not personally liable for the debts and obligations of the business.   

In terms of taxation, an LLC is typically a pass-through entity. “Pass-through” means that profits and losses pass through to the members’ personal tax returns. However, an LLC also can choose to be taxed as a corporation.  

Commercial Clean Vehicle Tax Credit and What It Means for NEMT Businesses  

The Commercial Clean Vehicle Tax Credit is a federal tax credit available to businesses that purchase new clean commercial vehicles, including plug-in electric vehicles and alternative fuel vehicles.  

So, if you’re considering buying a new electric vehicle (EV) or other clean vehicles, you can claim a tax credit of up to $40,000 against this purchase. 

The clean vehicle tax credit businesses qualify for is the lesser of 15% of the vehicle’s initial cost (30% for fuel-cell or electric vehicles); or the incremental cost, i.e., the difference in price between the clean van and a comparable conventional vehicle.  

There are two tiers of tax credit available for eligible vehicles:   

• Tier 1: Vehicles with a gross vehicle weight rating (GVWR) below 14,000 pounds can get a maximum credit of $7,500.   
• Tier 2: Vehicles with a GVWR of 14,000 lbs and above can get a tax credit of up to $40,000.  

Here is a clear breakdown of vehicles based on their Gross Vehicle Weight Rating (GVWR) and examples of vehicles that fall into each class. 

Vehicle Class	GVWR	Examples
Class 1	0-6,000 lbs	Cars, SUVs, and small pickup trucks
Class 2	6,001-10,000 lbs	Larger pickup trucks, cargo vans, and utility vans
Class 3	10,001-14,000 lbs	Larger cargo vans, smaller commercial trucks, and walk-in and city delivery trucks

Note: Most NEMT ambulettes or liveries have a GVWR well under the threshold of 14,000 lbs. You can find the specific GVWR of a vehicle on its Vehicle Identification Number (VIN) plate.  

Capital Expenses vs. Deductible Expenses  

Understanding the difference between Capital Expenses and Deductible Expenses is essential when discussing taxation. You can only claim tax deductions against your “Deductible Expenses.”  

Capital Expenses  

These are financial investments to upgrade, acquire, and maintain physical assets such as plants, properties, buildings, equipment, and technology. These expenses expand the scope of your operations or result in future economic advantages.   

Capital expenses are not immediately deductible, and their tax benefit is spread over several years through depreciation or amortization and can include the purchase of vehicles or significant vehicle modifications. 

Deductible Expenses 

As the name implies, these are fully tax-deductible expenses in the year they are incurred.  

They are also called business or operational expenses and include things like fuel costs, salaries of employees, insurance premiums, office supplies, computer toner, and paper. 

Tax Deductible Expenses for NEMT Businesses  

Understanding how to categorize and deduct business expenses properly is crucial for effectively managing your taxes. Typically, you can fully deduct an expense from your business income if it’s:   

• Not classified as a capital expense, and   

• it’s both ordinary and necessary.  

However, considerations can apply to specific situations. For instance, if you have to recover a portion of a business expense or replay an earlier amount you initially included in your income, this affects your tax deductions.  

Also, if your deductions exceed your annual income, you may have a net operating loss or NOL, which you may sometimes use to lower your taxes in other years.  

Here is a quick reference list for the deductible business expenses for your NEMT business.  

Employees’ Pay  

Your NEMT business can deduct salaries and wages paid to employees as long as they are not excessive or unreasonable.   

You can also deduct other compensation paid or benefits like awards, bonuses, education expenses, other fringe benefits, loans or advances, reimbursements for business expenses, and sick and vacation pay.  

Note: If you operate your NEMT business as a sole proprietorship, you can’t claim a business expense tax deduction for the amount you pay yourself as a salary from the business.   

Your net profit earned is taxable whether you take the money from the business or leave it. Also, you’ll have to pay self-employment tax on the entire amount.   

Rent Expenses  

If you rent or lease office or storage space for conducting business, the amount you pay is tax deductible.  

Additionally, if you rent your house and run a home business, you may also be able to deduct tax for business use of your home. Typically, the rent you pay for using the property is deductible in the year you paid the rent.   

Note: The rent you pay is not deductible if you or your company has gained or will gain equity or title in the property you have claimed deduction against.  

Interest Paid  

A business interest expense applies to a business loan you take to maintain your NEMT business operations. For example, if your NEMT company uses a loan to purchase assets such as ambulettes, NEMT software, etc., for the business, you could claim a portion of the regular repayment amount of this loan.   

You can claim a tax deduction for repaying the interest on business loans if:   

• You are held legally liable for the debt.  
• You intend to repay the debt, and the lender knows this.  
• You have a genuine debtor-creditor relationship with the lender.  

Taxes Paid  

You can treat the amount you pay as taxes as business expenses. But your business can only deduct the tax in the year you paid them, regardless of whether you use the cash or accrual accounting method.   

Refunds of Taxes: If you receive a refund for the taxes you deducted in an earlier year, you must include it in your income.   

Insurance Premiums  

Insurance premiums you pay may come under deductible business expenses. Your NEMT business can deduct insurance premiums as ordinary and necessary expenses, subject to certain limitations.  

Some types of insurance premiums that are covered are liability insurance, NEMT vehicle insurance, fire, theft, and damage insurance, etc. You can also deduct health, dental, and qualified long-term care insurance premiums you pay for yourself, your spouse, and your children.  

However, you cannot deduct insurance premiums related to tax-exempt income, such as premiums paid for life insurance policies.   

Despite its limitations, insurance expense deduction can be a significant tax benefit for your business.   

Bad Debts  

Your businesses can claim a deduction for bad debts on the applicable business income tax return or schedule C – form 1040 if you run your business as a sole proprietorship.   

A bad debt in your business usually refers to a loss incurred due to a debt being written down or acquired in connection with a trade or business. The primary reason for incurring the debt must be business-related.   

Here are a few instances of bad debts:  

• Credit sales to customers that are not honored.  
• Loans to clients, suppliers, distributors, and employees that you write off.  
• Business loan guarantees where you are the guarantor.  

Other Expenses   

Here is a list of other deductions that might be relevant to your NEMT business.   

Advertising expenses: Reasonable advertising expenses directly related to business activities, institutional or goodwill advertising costs can be tax deductible.   

Internet-related expenses: Your operational business expenses related to the Internet, such as registration fees for a domain or webmaster consulting costs, are typically tax-deductible.   

Legal and professional fees: The fees you pay accountants and attorneys for business operations are tax-deductible expenses.   

Legal fees to defend against criminal charges arising from your business may be deductible. However, legal expenses for acquiring business assets are not deductible.   

Tax preparation fees: The amount you pay for hiring a tax professional, such as a certified public accountant (CPA), to prepare a sole proprietor’s business-related tax return is deductible on Schedule C (Form 1040).   

If you run your business as a sole proprietorship, you can also claim a deduction for business expenses for amounts paid to resolve tax deficiencies.  

Licenses and regulatory fees: Your expenses for regulatory and license fees for your business paid annually to state or local governments are usually tax-deductible. However, you may need to amortize specific permits and fees.  

Supplies and materials: The cost of materials and supplies you consume in a year, like printer toner, paper, and other stationery, is deductible as a business expense.   

Utilities: Your business’s expenses for light, water, power, heat, telephone service, and sewerage are deductible. However, any payment for your personal use is not deductible.   

Telephone: You can’t deduct the cost of the first telephone line in a home, even if you operate an office there. But the price of a second line for business or long-distance phone calls is tax deductible as business expenses.  

Conclusion  

The IRS has specified several deductible expenses your NEMT business can use. You can claim tax deductions for costs related to fuel, insurance, licenses, and fees.   

However, there are specific limitations on each of these expenses. A tax professional can guide you on deductions and help you take advantage of tax-saving opportunities.