Tow Truck Business: LLC vs. S-Corp Tax Structure

By Yarik Yarosh, CPA ·September 5, 2026 ·5 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

Tow truck operation is a trade business that isn’t classified as a specified service trade or business (SSTB) under IRC 199A. Towing, recovery, and roadside assistance is physical, equipment-intensive work. The full 20% QBI deduction is available at all income levels. The towing business has a distinctive tax profile because the primary asset, the tow truck itself, is a heavy vehicle (typically 10,000-33,000 lbs GVWR), well above the 6,000 lb threshold that eliminates the IRC 280F luxury auto limitations. A single tow truck costing $60,000-$150,000 qualifies for full bonus depreciation in Year 1, creating a massive deduction that often generates an NOL.

✓Key takeaway

Tow truck business entity structure:

SSTB classification: NOT an SSTB. Towing and vehicle recovery is a physical trade involving heavy equipment. Not consulting, financial services, or other enumerated SSTB categories.

Revenue model (three revenue streams):

Police/law enforcement rotation list: impound tows ($150-$350 per tow + daily storage fees $25-$75/day). High volume, guaranteed payment.
Motor club contracts (AAA, Allstate, etc.): roadside assistance tows ($50-$100 per call, lower per-tow but high volume). Steady revenue but thin margins.
Private/commercial towing: accident towing ($200-$500+), private property towing ($150-$250), commercial/heavy duty ($500-$2,000+). Highest margin.

Revenue range:

Single light-duty truck: $80,000-$200,000/year
Single medium/heavy-duty truck: $150,000-$400,000/year
Fleet (3-5 trucks): $500,000-$1,500,000/year
Storage yard revenue: $1,000-$10,000+/month additional

Margins:

Fuel: 10-20% of revenue (highest operating cost)
Insurance: 8-15% of revenue (towing insurance is expensive)
Maintenance and repair: 5-10% of revenue (heavy equipment wears fast)
Net margin (owner-operator, single truck): 30-50%

Equipment costs (all bonus-depreciation eligible):

Light-duty wrecker: $40,000-$80,000
Flatbed/rollback: $50,000-$100,000
Medium-duty wrecker: $80,000-$150,000
Heavy-duty rotator: $300,000-$800,000
All well over 6,000 lbs GVWR: no Section 280F limitations, no SUV cap
Full bonus depreciation available

S-Corp break-even: $55,000-$65,000 in net profit

Owner-operators with a single light-duty truck often pass this threshold
But Year 1 truck depreciation frequently creates a loss (defer S-Corp until Year 2)
Payroll + return costs: $1,700-$3,500/year

24/7 operations:

Towing is one of few businesses that operates around the clock
Night and weekend calls often command premium rates (20-50% higher)
Police rotation calls can come at any hour
Revenue is relatively consistent throughout the year (no strong seasonality)

When does S-Corp save a towing operator money?

Hypothetical example

Round numbers. An owner-operator with a single flatbed tow truck. Single filer. 24/7 availability, averaging 4 calls/day.

Revenue: $175,000

Source	Amount
Police rotation tows (150 x $250 avg)	$37,500
Motor club calls (200 x $75)	$15,000
Private/accident tows (250 x $350)	$87,500
Storage fees	$15,000
Roadside assistance (jump, tire, lockout)	$20,000
Total	$175,000

Year 2 expenses (no new truck):

Category	Amount
Fuel ($800/week)	$41,600
Insurance (GL + auto + towing liability)	$15,000
Maintenance and repair	$12,000
Phone (dispatch, 24/7)	$1,800
Storage yard lease	$12,000
Dispatch/management software	$1,200
Licensing and permits	$1,500
Marketing	$2,000
Total	$87,100

Net profit: $175,000 - $87,100 = $87,900

Option A: Sole Proprietor

SE tax: $87,900 x 92.35% x 15.3% = $12,417
Income tax: approximately $8,300
Total: $20,717

Option B: S-Corp ($50,000 salary)

FICA: $50,000 x 15.3% = $7,650
K-1: $37,900
QBI: $37,900 x 20% = ($7,580)
Income tax: approximately $10,700
S-Corp costs: $2,200
Total: $20,550

S-Corp saves $167/year at $87,900 profit. Barely worth it because of the QBI deduction reduction.

At $120,000 profit (adding a second truck with driver):

S-Corp ($55,000 salary) saves approximately $2,800/year. Now worth it.

Year 1 truck depreciation (the defining tax event):

A new flatbed rollback: $85,000. GVWR: 19,500 lbs.

Full bonus depreciation: $85,000 in Year 1
If revenue is $120,000 and expenses are $70,000: operating profit = $50,000
After depreciation: $50,000 - $85,000 = ($35,000) loss
If the operator also has W-2 income: the loss offsets W-2 income (if materially participating)
Tax refund from W-2 withholding: significant

Year 1 to Year 2 swing:

	Year 1	Year 2
Operating profit	$50,000	$87,900
Truck depreciation	($85,000)	$0
Net profit	($35,000)	$87,900
Tax	$0 (loss)	$20,700

This $20,700 swing in one year is common in towing. The operator should save aggressively in Year 2 to cover the tax bill.

Storage yard income: If the operator owns the storage yard (land + fencing + lighting):

Land improvements (fencing, paving): 15-year MACRS, bonus depreciation eligible
The storage revenue ($15,000/year) is almost pure profit (minimal additional cost)
Storage creates recurring revenue from existing tow operations (every impound generates storage fees)
At $50/day and average 5-day hold: $250 per impound, with 10 cars in storage at any time = $1,250/week = $65,000/year

Heavy-duty expansion: A heavy-duty rotator ($400,000) doing commercial recovery:

Revenue per call: $1,000-$5,000+
Bonus depreciation: $400,000 in Year 1
At $250,000 in revenue and $100,000 in operating costs: $150,000 operating profit
After $400,000 depreciation: ($250,000) loss
This loss can offset ALL other income (if materially participating)
Tax savings at 35% rate: $87,500

Illustrative numbers only, not a real client and not advice for your facts.

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Cite this page

Yarik Yarosh, CPA. "Tow Truck Business: LLC vs. S-Corp Tax Structure." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/tow-truck-entity-structure-scorp

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.