Factoring And Taxes: Everything Freight Brokers Need to Know for 2025-2026

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Taxes can be confusing, especially for freight brokers who don’t have large accounting teams. Adding to the complexity, most brokers use some kind of freight factoring service or invoice factoring for freight brokers, which can make tax season even more challenging by changing how payments are sent, adding fees, generating 1099s to carriers, and more.

In this article you’ll learn some of the impacts freight broker cash flow management through factoring can have on your taxes, and what your brokerage needs to know for the 2025-2026 tax year and beyond, including important regulatory changes coming in 2026.

Overview of Factored Receivables and Tax Considerations

The terms freight bill factoring, invoice factoring, transportation factoring, and factored receivables are often used interchangeably, all referring to the process where a freight broker sells unpaid invoices to a freight factoring service for an immediate cash advance at a slight discount.

Factoring gives brokers enormous flexibility and working capital for freight brokers, allowing them to pay their carriers without waiting for their customers (shippers) to pay their invoices. This carrier payment solution is essential in today’s freight market, where managing shipper payment terms and maintaining liquidity remains challenging. While factoring can provide crucial freight broker liquidity, it also raises tax questions such as:

“Are factored receivables taxable?”
“Are factoring fees tax deductible?”
“Do factoring companies send out 1099s?”
“Are there different tax considerations for recourse and nonrecourse factoring?”
“What happens to my taxes if I factor an invoice at the end of the year that isn’t due until the new year?”
“Is factored income taxed differently from regular income?”
“How does factoring affect freight broker taxes?”

These are fantastic questions because factoring can have some impact on your tax deductions and liability. We’ll do our best to address each of these questions (and more!) in this article.

Essential Bookkeeping Terms for Understanding Factoring and Taxes

Accurate freight broker bookkeeping is essential for factoring companies to maintain compliance and ensure smooth financial operations. Understanding key terms related to factoring and taxation can help brokers manage their records effectively and avoid common pitfalls.

Recourse Factoring: Recourse factoring (also known as full recourse factoring) means that your brokerage takes on any liability for unpaid invoices. Essentially: if your customers don’t pay your factor, you’re responsible for collecting on the invoice and paying back your factor.

Nonrecourse factoring: Nonrecourse factoring is the opposite agreement, the factor is responsible for collecting debt from the broker’s customers if the customers don’t pay. This often comes with additional fees, qualification requirements, and a more difficult approval process.

Rate confirmation: The documentation that confirms the terms agreed upon between the broker and carrier, including dates, rate and payment terms, shipper and carrier details, etc. When submitting an invoice for factoring, you’ll need to provide this information to the factor.

Working capital: Your working capital is the money that is currently available to use for upcoming business expenses. Effective working capital management is crucial for freight brokers navigating variable shipper payment terms.

Navigating the Tax Landscape with Factored Receivables

While the tax implications of freight factoring seem complex, most of the income you receive from factored receivables is generally considered ordinary business income. Your business is simply receiving it early compared to when it would have been paid by your customers, minus a fee. This income is reported in the same way as any other income your business receives.

One of the key tax benefits of factoring for freight brokers is that factoring fees and costs associated with factoring are considered business expenses and are generally tax-deductible.

Strategic Tax Planning with Factoring Services

It may make sense for your brokerage to structure factoring agreements to change the date when income is received by your brokerage or to maximize tax benefits through freight broker financial planning. These situations are complex and broker-specific, so consider consulting a tax strategist for personalized advice.

One common pitfall for brokers is treating factored invoices like a loan instead of a sale of assets (your invoices/accounts receivable). Income from factored invoices is treated as regular income, minus any factoring fees or interest payments. Failing to report factored income can lead to costly penalties and fees down the road.

Important 2025-2026 Tax Reporting Changes

Freight brokers need to be aware of significant changes to 1099 reporting requirements that will impact how you handle carrier payments and tax documentation:

Changes Taking Effect in 2026: Starting with the 2026 tax year, the threshold for issuing 1099-NEC forms will increase from $600 to $2,000. This means fewer 1099 forms will need to be issued to carriers, reducing administrative burden for brokers. This threshold will be indexed for inflation starting in 2027.

1099-K Threshold Update: The controversial $600 threshold for 1099-K reporting has been permanently reversed and returned to the previous requirement of $20,000 AND 200+ transactions. This change applies retroactively to 2022, providing relief for brokers and carriers who were concerned about the lower threshold.

These changes are part of broader tax reform legislation and represent significant simplification for freight broker bookkeeping and carrier payment solutions going forward.

FAQs and Best Practices

Factoring companies generally do not send out 1099 forms to brokers, as they are not making payments for services rendered but rather advancing funds based on purchased invoices. Understanding these distinctions can help brokers properly manage their tax obligations.

It’s the broker’s responsibility to send the 1099 to carriers, but it is not legally required. The Income Tax Regulations, under Section 1.6041-3(c), provide an exemption for freight payments from the requirement of 1099 information reporting. This exemption specifically pertains to the reporting of payments made for services involving truck, rail, ship, and air freight.

Important note for 2026: Starting with the 2026 tax year, the reporting threshold increases to $2,000, meaning you’ll need to issue fewer 1099-NEC forms to carriers.

Yes, factoring your receivables is income that you will need to pay tax on. This is true whether you use quick pay for carriers or traditional factoring arrangements.

Generally, yes. Factoring fees and interest payments are tax deductible as ordinary business expenses.

In most cases, no. Recourse and nonrecourse factored receivables are treated as regular income. The only difference is if a customer defaults on their debt, in which case that debt may be written off by whoever owns it.

Generally, you will owe tax on income in the year it is received. So if you received cash from your factor in 2024, you’ll owe tax on that income for the 2024 tax year, even if the original invoice wasn’t due until 2025.

Monitor your financial health with Truckstop.com

Truckstop’s factoring reporting tools make it easy to prepare for tax season. Our Integrated Ledger report utilizes batch accounting methods to consolidate transactions by category, giving you a comprehensive 360-degree view of your financials. With Truckstop.com, brokers can streamline their bookkeeping processes, track expenses efficiently, and simplify tax reporting while maintaining optimal cash flow management.

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The guidance we’ve outlined here may change based on your specific business, tax situation, and other factors. Consult your tax advisor for tax recommendations specific to your business.