Barry & Howard
PBS Tax& Bookkeeping Service
There is still time for truckers to take action to reduce their 2004 taxes. If need be, you can accelerate your expenses, put new equipment into service before Jan. 1, 2005, and open a Keogh Self-Employed Retirement Plan.
You can also take advantage of the newly authorized “solo” 401K. It allows 100 percent of the first $13,000 ($16,000 if you are 50 or older) of income to be sheltered for 2004 and 20 percent of all self-employment income up to a combined $41,000.
If you are 50 or older, it is $44,000. The solo 401K as well as the Keogh Plan must be opened prior to Jan. 1, 2005, but can be funded by the due date of your income tax return including extensions.
And it’s that time of year again to get your records and paperwork organized for the preparation of your 2004 income tax return. You won’t be receiving your W-2s and 1099s for a while, but you need to categorize all your expenses to make sure nothing is missing. You should pay special attention to the following:
- Total your income received from deposits made or from your settlement sheets. When your 1099s do come, you can compare the total income you figured with what appears on your 1099s. If they are different, find out why.
- Separate all your business expenses by category such as fuel, parts, repairs, tires, insurance, telephone, tolls, supplies and loading and unloading expenses.
- Your expenses should come from checks written, cash spent, credit card statements and deductions from settlements. Because we normally use nights away to compute meal expense, you don’t need to save meal receipts. Your logbook will suffice. The current per diem rate is $41 per day.
- Have all contracts on purchases and/or leases for equipment acquired during the year, including loan information if financing was used. You will need dates for any equipment sold along with the sales price, unless the equipment was traded in on a new purchase contract.
- Compute the nights you are away from home on the job.
- Compile your personal information, if it applies, such as mortgage interest, property taxes, interest and dividend income, income from sales of stock and rental property information.
- Remember, if you sold stock, you will need to know when it was originally purchased, how much you paid for it, and the date and amount of sale.
- If you sold a property, you will need to know date acquired, cost and cost of any improvements over the years.
- Company drivers need to gather their W-2s and compute the number of nights they were gone on the road.
- Also, you need to compile any business expenses incurred, such as union dues, telephone, clothing and laundry. You will need to deduct any reimbursement received.
- Determine whether you have or are going to make any contributions to an IRA, SEP, SIMPLE IRA, Keogh and/or solo 401K plans. SIMPLE means Savings Incentive Match Plan for Small Employers. Indicate any estimated taxes paid with corresponding dates paid.
Some truckers will compile the information, total it and input it into the computer. Others will make a schedule of all the expenses by category. Still others will total each pile and attach their adding machine tape to the receipts.
Then there are those who will gather everything, throw it into a box (the shoebox method) and send it to their tax preparer for them to do the bookkeeping. If you do use a tax preparer, remember that the more you do, the less cost you incur in the preparation of your return. If you can summarize all your expenses by category and get it on paper, it will cost less than if your tax preparer has to do it.
Whether you summarize or just send it off to your tax preparer, get your tax returns done early. By doing this, it gives you a chance to correct any errors and spot any omissions, but, prior to receiving your tax returns, it allows your tax preparer ample time to ask you for any missing information or to discuss different possibilities for deductions that arise during the preparation of a tax return.
Delay S corporation bankruptcies
These have been tough times. Many people, and not just those in the transportation industry, have declared bankruptcy to get out from under debt. If you have an S corporation, postpone filing bankruptcy until after year’s end so the shareholders can personally deduct the company’s losses.
An S corporation’s losses for the entire year in which it declares bankruptcy are allocated to its bankruptcy estate and are not deductible by its shareholders, so wait until after the year end and start operating under another entity at the new year.
Try to establish a net capital loss of $3,000 for 2004 if you are active in the stock market.
New tax law tip
The American Jobs Creation Act of 2004 was expected to be signed into law sometime before the presidential election. Some of the more notable changes include the repeal of the $100,000 Section 179 deduction for the purchase of SUVs.
The bill reduces the expense deduction to $25,000 effective on the date of enactment. Also included is the election for individuals to deduct sales tax on Schedule A instead of the state and local income tax. This provision is effective for the 2004 tax year.
This column has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for more than a quarter century. Contributions to this column were made by Shasta May, director of business development for PBS. For more information, visit pbstax.com on the Web, or call 1-800-697-5153.
Everyone’s financial situation is different. This column does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.