Barry & Howard
PBS TAX & BOOKKEEPING SERVICE
With virtually every new year come new tax laws, and this year is no exception to that rule.
Here are some of the changes that are likely to have an impact on owner-operators as they file their returns for 2004.
Election to deduct state and local general sales taxes in lieu of state and local income taxes – For tax years beginning after 2003 and before 2006, individual taxpayers may now elect to deduct either state and local income taxes or state and local general sales taxes as an itemized deduction on their federal income tax returns.
The amount to be deducted is either:
- The total of actual general sales taxes paid as substantiated by accumulated receipts; or
- An amount from the IRS- generated tables plus, if any, the amount of general sales taxes paid in the purchase of a motor vehicle, boat or other items as prescribed by the secretary.
Donating your vehicle – There are new stringent rules if you donate a vehicle and claim more than $500 in contributions. Your tax preparer can help you with the substantiation requirements.
Definition of a child – Starting in 2005, the Tax Code contains a uniform definition of a child and dependent for purposes of the dependency exemption, child tax credit, dependent care credit, earned income tax credit and head of household status. More specifically, the support test has been eliminated. Now only a relationship test, a residence test and a test for determining the child’s age (which can vary with the tax break in question – age 13 for the dependent care credit and age 17 for the child tax credit) are required.
Section 179 – The new law, which applies to tangible business property such as machinery and equipment, extends for two more years the increased 179 deduction. Thus, for tax years beginning 2004, 2005, 2006 and 2007, the dollar limitation is $100,000 and the investment limitation is $400,000. Both of these amounts are indexed for inflation in years after 2003. In 2004, the 179 limit is $102,000 and the investment limit is $410,000. For tax years beginning in 2008, these limits return to the $25,000 and $200,000 levels, respectively.
We’re now well into the tax filing season, and if you are not ready, it’s time to get moving. For those of you who don’t have a problem gathering paperwork, you should be able to follow the income tax organizer you received from your tax preparer.
If you did not receive an organizer, you can call various tax preparers, including us, to get one. You can also download one from our Web site at pbstax.com.
A tax organizer simplifies the information-gathering procedure and goes a long way in preventing the omission of important deductions. It is best to get a tax organizer from a preparer who specializes in the trucking industry.
For some of you, it is an extreme hardship to gather tax information. If you are one of these people, you should box all the paperwork you have and send it to your tax preparers so they can compile the proper records to prepare a return. Instead of procrastinating, this will ensure the tax return gets done on time and saves you the cost of needless penalties, which are not tax deductible and can exceed the cost of the tax preparation.
We have prepared a review of what’s needed for the preparation of your income tax return:
- Make sure that you have totaled all your income and compare your figures with what is reported on your earning statements, 1099s, W-2s and K-1s. Be sure you do not include any W-2 income in the total of your self-employed income.
- Have a breakdown and total for all business expenses by category, such as fuel, phone, insurance, repairs, parts and tires. This should include checks written, cash, credit card purchases and deductions from settlements. Don’t forget ATM and bank charges.
- Obtain all contracts on purchases and/or leases and make copies for your tax preparer.
- Compile your 1099s if you’re an independent contractor or owner-operator and W-2s if you’re a company driver. You will receive tax statements on mortgage interest, property taxes, interest income, dividend income and stock sales.
- Total the number of nights away from home to get the per diem meal allowance of $41 per day. For 2004, the $41 per day is 70 percent deductible.
Common forgotten deductions
Many truckers forget the small stuff, either because they are not aware of the deduction or because they don’t think the deduction is big enough to matter. Every little bit helps, and you’d be surprised how fast the little things add up. Don’t forget to include the following:
- Account charges, ATM fees, check reorder fees;
- Annual fees and interest on business credit cards;
- Association dues;
- ComData/ComCheck fees;
- Computer software/software support;
- Cleaning supplies: polish, paper towels, etc.;
- Fax charges;
- Internet access fees;
- Office supplies;
- Postage and delivery fees;
- Security fees; and
- Trucking- and business-related subscriptions.
How much should I set aside for taxes?
Keeping in mind that everyone’s tax situation is different, we recommend at least 20 percent to 30 percent of your net income be set aside for taxes.
If the 1099 you received shows the wrong amount of income, report the incorrect 1099 information as it appears on the form. Then add or subtract the amount of the error when computing your total. Be sure to include a letter of explanation with your return.
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 over a quarter century. Contributions to this article were made by Shasta May, director of business development for PBS. If you would like further information, visit pbstax.com on the Internet or call 1-800-697-5153.
Everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.