Deduction Quick List for Owner Operators

Transcription

1 Deduction Quick List for Owner Operators Any expense that is related to operating your business is tax deductible The IRS requires you to provide written proof of an expense. That may include a receipt, cancelled check, settlement statement, bill, log, notebook, etc. You must provide the date, place, type of expense and the amount. Administrative Fees - Business Costs - Office Supplies Accounting Services ATM Fees, Bank Fees Broker Fees Calculator Comdata, Comcheck Fees Co-Driver, Lumpers Clipboard Computer Supplies Credit Card Fees Envelopes Fuel Card Fees Ledger Book Legal Costs Paper Pens, Ruler Photocopies & Faxes Postage, FedEx, TripPak Receipt Book Software (business only) Stapler & Staples Transaction Fees Communications CB Radio, Repairs, Antennas, Cables Cell Phone & Accessories Wi-Fi Phone Cards, Home Phone (BIZ use) Qualcomm, Satellite, Internet Radios (Sirius) Insurance Bobtail/Liability Cargo Insurance/Cargo Claims Disability Health, Dental, Vision Occ./Acc. - Work Comp Physical Damage Miscellaneous Education Magazines Memberships Permits, Licenses, Fees Door Signs, Decals, Lettering Fuel Taxes & Road Taxes FHUT/2290 IRP, Licenses & Permits Parking, Scales Tolls, Pre-Pass Personal CDL Fees Caps-Coats-Shirts with company logo Drug Test Eye Exams, Glasses, Sunglasses Gloves, Coveralls Laundry (new in 2004) Mileage on Personal Vehicle Motels Raingear Safety Shoes/Boots Uniforms Tractor Expenses Exterior & Under the Hood Chains, Tarps, Pallets, Bungee Cords Chrome Coolant, Anti-Freeze Fuel & Fuel Additives - Filters Headache Rack Kingpin lock, Padlocks Load-Locks Oil, Lube Power Washer Repairs, Parts, Labor Shop Equipment Power Cords Trailer Wash, Tractor Wash. Wax Vacuum Tires & Repairs Tractor Expenses - Interior Accessories Air Fresheners Alarm Clock Appliances Atlas & Maps Bedding, Sheets Electric Blanket, Bunk Heater Camera CD Player Cleaning Supplies, Windex Coffee Pot Coolers & Ice Crock pot DVD Player Flashlight & Batteries Flyswatter Hangers Hoses & Cables Ice Scraper Luggage Microwave Rugs, Floor Mats Paper Towels Refrigerator Thermos Seat Covers & Cushions Storage TV - VCR Tools-Hand & Power Trash Bags

2 Other Self-Employed Business Expense Deductions Casualty (Business) Financial Loss from damage such as hail, wind, theft, accidents. Depreciable Property - The kinds of property that can be depreciated include machinery, equipment, buildings, vehicles, computers, fax machine, copy machine and furniture used in a trade or business or to produce income. Section 179 Deduction. For 2013 you can elect to deduct up to $250,000 of the cost of depreciable real property in the year you place it in service. Entertainment (for Business Purposes not personal entertainment such as movies or games.) Fines and Citations for Illegal activity (overweight, speeding) - are not tax deductible. Gifts - Business gifts are limited to $25 to any person. Health Insurance (Self-Employed) 100% of Premiums in some cases. Home Business Use (Self-Employed) - To qualify for the home office deduction, the home office must be your principle place of business. You must use the home office regularly and exclusively for administration and management of your business. And, you may not have any other fixed location where you regularly conduct administration and management activities of the business. (This is tricky and may not be worthwhile) Business Loans & Mortgage Interest paid during calendar year. Per-Diem (Meals & Incidentals) no need to save receipts SIMPLE Retirement Plans Simplified Employee Pension (SEP) Start-Up Costs Trips to visit: truck dealers, bankers, carriers, & etc. Supplies paper towels, wax, armor-all, camera, film & etc. Tax Deduction - You can deduct half of your self-employment tax. Taxes & Licenses Theft (Self-Employed) financial losses to your business through theft Travel (Self-Employed) - Airline tickets, rental cars, lodging. For business purposes only. Truck Purchase Depreciation - An owner/operator s truck will be depreciated at year-end on your tax return. Note: Trailers are treated under the same scenarios as listed above based on whether they are a leased or purchased asset. Truck Lease Payment Under a lease-purchase 100% of your truck payments are deductible. Note: Security deposits are not deductible.

3 Choosing a Tax Preparer More than 80% of American taxpayers seek help with their returns from a tax preparer or use tax-preparation software. The IRS estimates that about one million people prepare tax returns for a fee. Many of these financial advisers had no requirements for certification, and many had never been tested. Due to the thousands of cases of tax fraud and abuse the IRS finally decided to take action. Beginning in 2011 for the 2010 filing season, the IRS began to regulate ALL untrained preparers that do not hold a professional designation. Untrained preparers are required to complete the following: Register with the IRS Pass a Competency Exam Complete Continuing Education on an ongoing basis Comply with IRS Ethical Standards In addition, the IRS increased their use of investigative tools to determine if tax return preparers are compliant with the new regulations. If fraud or error is detected, all returns prepared by that tax preparer can be subject to audit. If this turns out to be your preparer, the best you can hope to experience is the hassle of an audit. The worst could be interest, penalties and additional taxes owed because your return was prepared incorrectly. And if you knowingly submitted a fraudulent return, then you could also face criminal prosecution. In January of 2013, the United States District Court for the District of Columbia prohibited the IRS from enforcing the regulatory requirements for these tax return preparers. In accordance with this order, tax return preparers covered by this program are no longer required to complete competency testing or secure continuing education. This ruling does not affect the regulatory practice for CPAs or Enrolled Agents. While the IRS remains confident in its legal authority, at the time of this writing the IRS' appeal to this ruling is pending. Additional note: ATBS believes in the importance of having well trained and educated tax preparers. ATBS will continue to voluntarily follow the IRS for competency testing and continuing education for any employee that prepares returns but has not attained CPA or Enrolled Agent designations. The IRS offers these tips to keep in mind when picking your tax return preparer: Be wary of tax preparers who claim they can obtain larger refunds than others. Avoid tax preparers who base their fees on a percentage of the refund. Use a reputable tax professional who signs the tax return and provides a copy. Consider whether the individual or firm will be around months or years after the return has been filed to answer questions about the preparation of the tax return. Question any tax preparer that encourages you to take deductions that are not supported by documentation. Check the person's credentials. Only attorneys, CPAs and Enrolled Agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Find out if the return preparer is affiliated with a professional organization that provides its members with continuing education and other resources and holds them to a code of ethics. In addition, your tax preparer should have extensive experience in the trucking industry, ensuring that you receive the maximum business deductions while staying tax compliant. In the event of an audit, a Certified Public Accountant (CPA) or Enrolled Agent (EA) can represent you before the IRS, which is one of the advantages of working with ATBS.

4 ATBS has been providing tax preparation services for 15 years, demonstrating professionalism and expertise on each one of the tens of thousands of returns we have prepared over the years. Remember, you are legally responsible for what is on your tax return, even if those returns are prepared by someone else. Make sure your tax preparer is acting in your best interests.

5 Tax Consequence of Lease vs. Purchase You can either lease or purchase your truck and these two options have very different tax consequences. With a lease, you deduct 100% of your payments each year for the duration of the lease. When you purchase, you deduct the depreciation on the total cost and the interest charges in your payment. The truck is depreciated through accelerated depreciation over a period of three years. The following example shows the difference between the two options. Lease Truck is leased for four years starting on January 1. Payments are $1, a month. Purchase Truck is purchased on January 1 for $75,000. Payment is $2,000 a month for four years. Assume the interest rate is 12% and the tax rate is 20%. The truck is depreciated through accelerated depreciation over a period of three years with a small amount left to depreciate in the fourth year. Lease Deduction Tax Savings Purchase Deduction Tax Savings Depreciation + Interest Year 1 $23, $ 4, $25,000 + $ 8,000 = $33,000 $ 6,600 Year 2 $23, $ 4, $33,300 + $ 6,020 = $39,320 $ 7,864 Year 3 $23, $ 4, $11,100 + $ 3,775 = $14,875 $ 2,975 Year 4 $23, , $ 5,600 + $ 1,250 = $ 6,850 $ 1,370 Total Tax Impact $18,809 $18,809 (Total deduction for the year multiplied by the tax rate of 20%) The lease deduction is consistent every year. ($1, X 12 months). The purchase deduction is a combination of the depreciation that is allowable each year plus the interest paid. (There is a small amount of depreciation left in the fourth year.) As you can see, the purchase decision allows greater deductions in the first and second year. But in the third and fourth years, as the driver has less depreciation to take and is paying less interest, the lease plan allows for greater deductions. The net effect is a tax delay for the owner-operator who purchases a truck. It is important to note however, that the tax will be paid in later years and is not eliminated by depreciation.

6 Which Business Structure is Right for You? The following table indicates the income tax, Social Security/Medicare taxes and self-employment tax that would be due under the various forms of business organization. These examples assume that the taxpayer is single with no dependents, does not itemize deductions, and lives in a state that has no state income tax or entity franchise tax. Sole S Corp C Corp Proprietor Gross Earnings $70,000 $70,000 $70,000 Salary -- 35,000 35,000 Personal Income Tax 9,986 11,225 11,225* Self-Employment Tax 9, Social Security/Medicare** Taxes -- 5,355 5,355 Corporate Income Tax ,250 Total Taxes Due $19,877 $16,580 $21,830 *For purposes of this illustration, it is assumed that the profit remaining in the corporation after salary was distributed as a dividend. **This amount includes both employer and employee portions of these taxes. A partnership and sole proprietor ship are treated similarly. LLCs and LLPs are treated as sole proprietorships, partnerships or corporations depending on the filing status of the entity. As you can see, an S Corp provides the lowest tax liability. However, consideration must be given to the costs both in time and money to set up and run a corporation. There are initial formation fees, filing fees and annual state fees which can run $2,000 - $3,000 per year. There are also additional costs for filing corporate tax returns and monthly costs for payroll. A corporation must also have regular meetings, record minutes and keep the records of the corporation and this can be time-consuming. Failure to follow the requirements of the corporation could result in losing corporate status and the limited liability protection the corporation provides. An S Corporation can provide tax savings above certain income levels. However, as a general rule, if your gross earnings are not at least $60,000-$70,000, your tax savings will not be enough to offset the costs to set up and run the S Corporation.