Owner Operators - Tax Tips
Preparing for Taxes
You're nervous about taxes and your records are not together. What should you do? In addition to various 1099’s, W–2's and year–end mortgage statements, etc., you need to gather your business records. You can either prepare a summary report showing your business income and expenses, or you can hire a bookkeeper or a tax preparer to do it for you.
What to include:
- Settlement sheets showing income and charge backs
- Actual amounts received if no settlement sheets
- Check stubs
- Paid bills
- Cash receipts
- Charge slips or monthly credit card statements
- Comdata checks
Get it done soon or have someone do it for you. The amount of money people pay in penalties and interest would more than pay for a tax advisor or preparer who also could save you thousands of dollars in taxes each year.
In order to compile the information needed for your tax preparer or yourself (if you are preparing your own return), you need to gather the following:
- Make sure that you have totaled all your income and compare your figures with what is reported on your earnings statements, 1099's, W–2's and K–1's.
- Have a breakdown for all business expenses by category with totals such as fuel, phone, insurance, repairs, parts and tires. This should include checks written, cash, credit card purchases and deductions from settlements.
- Gather all contracts on purchases and/or leases and make copies.
- Compile your personal information and statements reported on W–2's if you're a company driver and 1099's such as mortgage interest, property taxes, interest income, dividend income, stock sales and rental property information.
Tax tips for this tax season:
- In order to deduct a cell phone for business, there are special deduction rules that apply. Since only a percentage of business use is deductible, you must keep records proving the amount of business use even if you use it exclusively for business.
- Don't overlook the accelerated depreciation from Section 179. If you acquired a tractor or trailer during 2001, you get an immediate $24,000 write off. In addition, faster depreciation means more cash in your pocket by having to pay less income tax.
- If you happen to have a net operating loss, you may carry it back two years and forward 20. You file Form 1139 to get a refund. You may qualify if your business shows a loss.
- To qualify for the childcare credit, if married, both spouses must be working or own the business equally and file separate Schedule C's. Watch out for the social security tax penalty.
- The business–use–of–home deduction. If you operate your business from your home using a room or other space as an office, you may be able to deduct expenses such as depreciation, insurance, utilities and repairs. To get the deductions, you must use the home area exclusively and on a regular basis either as:
- A place of business to deal with customers in the normal course of business or
- Your principal place of business that you use regularly and exclusively for administrative activities of your business.
WARNING: If you do depreciate your home office and deduct it, upon sale of your home, you will have to recapture the past depreciation and pay taxes on it. The deduction of the business use of home is considered by some as a red flag for the IRS to look at your tax return. You need to discuss this with your tax preparer.
Frequently Asked Questions
One of the most commonly asked questions we get is, "How much of my income should I set aside for taxes?" Keeping in mind that everyone's tax situation is different, we recommend at least 20–30% of your net income.
Another common question: "Is it important that I make my quarterly estimated tax payments? I hear a lot of guys say they wait until the end of the year until they pay the taxes." It is very important to make your estimated tax payments. If you don't make your estimated payments you pay an underpayment penalty in addition to your taxes at the end of the year. It's better business to make payments on time.
Company Drivers Only
If you file an itemized tax return, you can deduct employee business expenses you incur, but are not reimbursed for. You can deduct any expenses that are necessary or required in the performance of your job and/or operation of the truck, but are not reimbursed by your employer; such as uniforms, gloves, logbooks, maps, cell phone, CB, tools, etc. These deductions are only available if you itemize and are not available if you take the standard deduction. Remember, you are also entitled to the per diem allowance for overnights to cover the cost of meals and incidentals while on the road. Again, this deduction is only available if you are not reimbursed for meals and you itemize.
To determine if you will benefit from itemizing, the total of all your individual deductions must be greater than the standard deduction.
|Standard Deduction - Tax Year 2001|
|Married Filing Jointly & Qualifying Widow(er)||$7,600|
|Head of Household||$6,650|
|Married Filing Separately||$3,800|
Example: If you are a single company driver and your only deduction is your per diem for overnights, your deduction for overnights must total more than the standard deduction.
- Let's say your overnights for the year total 250
- 250 overnights multiplied by the $38.00 per diem rate = $9,500
- The allowable per diem deduction is 60% of the total, therefore 60% of $9,500 = $5,700
- The standard deduction for a single company driver is $4,550––with 250 overnights you qualify to itemize with $5,700 in deductions.
- By itemizing you will have $1,150 more in deductions than if you had used the standard deduction.