Barry and Howard
PBS Tax and Bookeeping Service
Here's a quick review of what's needed for the preparation of your income tax return:
Do I pay taxes when I sell my equipment?
If you acquire an asset for $50,000 and you have depreciated $40,000 worth, your tax basis on that property is $10,000 - the $50,000 cost less $40,000 depreciation taken. If you were to sell that equipment for $25,000, you would have a gain of $15,000. (Example: Cost of equipment to be sold was $50,000 less depreciation taken of $40,000 leaves a tax basis of $10,000. The selling price of $25,000 less the tax basis of $10,000 leaves a $15,000 gain.) The gain is ordinary income, not capital gain. If you traded in the old equipment instead of selling it, there would be no gain to report on your tax return, but the depreciation available on your new equipment would be $15,000 less.
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 information:
Make sure that you have totaled all your income and compare your figures with what is reported on your earnings statements, 1099, W-2s and K-1s.
Have a breakdown for all business expenses by category and 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 for your tax preparer.
Compile your personal information and statements reported on W-2s if you're a company driver and 1099s such as mortgage interest, property taxes, interest income, dividend income, stock sales, and rental property information.
If you use a tax preparer, you can summarize all the information by category for them or you can let them summarize it for you usually for a reasonable fee. Remember the more you do, the less cost you incur.
Leaving children off your payroll can be a mistake. If they have a specific job to do, it is legal to pay them up to $4,300. You will not owe social security. Medicare or self-employment taxes on wages paid to your children younger than 18. However, if your business is run as a corporation, this does not apply. They will have no income tax to pay and you will have a tax deduction. Additionally, they can then take $2,000 of the $4,300 and start an IRA plan at this very early age so they can build a nice retirement package.
Don't overlook the accelerated depreciation form Section 179. If you acquired a tractor, trailer or both during 1999, you get an immediate $19,000 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 Cs. Watch out for the social security tax penalty.
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 as either: A place of business to deal with customers in the normal course of business; or your principle place of business that you use regularly and exclusively for administrative activities of your business.
New for 1999
A trucker will qualify even if he drives the truck. Prior to 1999, driving the truck eliminated the business use of home deduction.
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 that with your tax preparer.
This article has been presented by PBS Tax & Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for more than 25 years. Contributions to this article were made by Shasta May, Director of Business Development. If you would like further information, please contact Barry or Howard at 800-697-5153.