IN THE BEGINNING. Have you been trucking since 1912 or earlier? If so, you are a true pioneer with an amazing fitness regimen, and you once earned an income without having to pay the Internal Revenue Service a dime! That’s right. It wasn’t until 1913 that income tax was made a permanent hassle by the Sixteenth Amendment to the United States Constitution. That means that 2013 marks the 100th anniversary of the IRS. This reminds me that I have an actual Form 1040 U.S. Individual Income Tax Return from 1938 showing the person (not me) paying a total of $4.74 on a total income of $1,266.12 to the IRS. Boy, those were the days! That person paid way less than 1%. Not any more!!
TAXES TODAY. John Murrill, an NTA-endorsed CPA, states that this year, thanks to the recent “fiscal cliff” legislation, “A new top rate of 39.6% (up from 35%) will be imposed on the individuals reporting taxable income of more than $400,000, or $425,000 for head of household and $450,000 for married filing joint returns.” While this is not the time you will celebrate with cake and gifts, it is a good idea to devote some time and effort to your relationship with this federal monster, because forgetting an anniversary with your significant other may seem like a cakewalk compared to the tax man! To keep your trucking business running smoothly and the tax man away, it is critical to prepare for tax season. Let’s take a look at a few tips to get your trucking business ready for this tedious but necessary part of running a business.
KEEP GOOD RECORDS. Whether you are planning to file your taxes yourself or hire a professional, the most important first step you can take is to get yourself organized and know what you need to keep and what you can throw away. It is important to maintain the right records to keep the tax man off your back. These include receipts, invoices and bank statements. One good way to stay organized is to simply get a box of envelopes at the local truck stop and start putting every receipt for that month into one envelope that you label January (or whichever month you are in). Another way is to buy file folders at any local office supply store such as Staples or Office Depot. These file folders will let any trucker put receipts for each category, such as fuel or food, into one folder for each month. This way, you or your hired tax preparer can quickly understand what expenses were incurred in which week or month.
TAX RATES. CPA John Murrill wants to remind everyone that the 2% Social Security reduction has been eliminated. Also, the maximum capital gains tax will rise from 15% to 20% for individuals who are in the 39.6% tax bracket, depending on your filing status and taxable income levels.
TRACKING PAYMENTS. If you paid anyone for any work last year, that person was most likely a subcontractor, and if you’ve given work to a subcontractor you must keep track of those payments. For payments to a subcontractor that were more than $600, he or she must complete a W-9 and return it to you. It is simple enough to be filled out at a long stoplight, but you may wish to advise your subcontractor not to fill it out until they are safely pulled over! Have a subcontractor complete this form if you suspect he or she will be paid at least $600 during the year. For example, if you typically subcontract several thousand dollars worth of work every August to cover for a vacation, have each worker fill out this form on the front-end, just in case you lose touch with them later on.
DEDUCTIONS. There are countless tax deductions that small business owners such as you can take advantage of. A tax deduction is an expense, something you paid for during the year to run your business. This expense gets subtracted from your taxable income and is called a tax deduction. The less taxable income you have, the less tax you pay. Neglecting to take advantage of all your legal tax deductions means you are paying too much in taxes, so be sure to use all of the available deductions you have. Your tax professional should be able to find all available items to deduct and keep more money in your wallet. John Murrill added that the following Business Tax Provisions should not be missed, such as the 15-year depreciation and Section 179 expensing allowed on qualified real property through 2013, both the Work Opportunity Credit and bonus depreciation (which have both been extended through 2013), and especially the Section 179 deduction limitation, that is now up to $500,000 for 2012 and 2013. Truckers should pay special attention to Section 179 as this is very important to small businesses such as owner operators. On the personal side, the enhanced Earned Income Tax Credit, the $1,000 Child Tax Credit, and the enhanced American Opportunity Tax Credit have all been extended through 2017.
HIRE A PROFESSIONAL. If this all sounds Greek to you, then maybe you should consider hiring a tax professional. As an owner operator, you are used to doing almost everything yourself, but unless you are very adept at tax preparation, Uncle Sam may become an uninvited guest in your life! So, it pays to hire a professional. “There are well over 72,000 pages in the IRS tax code,” says John Murrill. “While nobody has memorized every tax law, a professional can help make sense of your taxes and get them right the first time.” The NTA has two CPAs and a Bookkeeper with IRS experience to help you with your taxes. Call today (800-805-0040) or visit their website (www.ntassoc.com).
IN CONCLUSION. Taxes are perhaps the most complicated part of your life (if they aren’t, it would be interesting to know what kind of life you live). Given the complexity of this issue, it will be worthwhile to start thinking about your taxes early (for next year, too) and begin considering what you need to focus on in order to have your trucking business ready for this tax season, and beyond. Keeping thorough records, educating yourself about possible deductions, and reaching out for professional advice, if needed, can help you avoid being the next IRS punching bag. By doing so, you’ll be prepared for tax season and make it go as smoothly as possible.