By Howard Abrams
PBS Tax & Bookkeeping
Q: What are the best “income tax states” for a trucker to live in?
A: That’s an interesting question because what may be good for income taxes may not be good for the homeowner and property taxes. What may be good for income taxes for single taxpayers may not be good for married taxpayers or for taxpayers with dependents. What may be good for taxpayers who do not itemize may not be good for taxpayers who do.
You get the picture. It’s simply not good enough to move to a non-income tax state without considering a multitude of other factors. The tax and income factors to consider would include:
- Social Security income
- Retirement income
- Inheritance tax
- Military pay
- Fuel tax
- License tag fees
- State excise taxes
Other factors to consider when selecting a state to live in are:
- Housing costs
- Air quality
After researching the situation, we feel we found the best tax states for truckers, but we also found too many variables to come up with a one-size-fits-all answer for professional drivers.
You would have to consider not only the factors already mentioned, but also income levels, types of income, number of dependents, married vs. single and head of household status.
There are seven non-tax states: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. There are two that tax interest and dividends only: New Hampshire and Tennessee.
In our experience the best tax states – while considering the states without income taxes – are Nevada, Washington and Florida. The worst states, in our opinion, are California, New York, Ohio, Indiana, Pennsylvania and New Jersey.
MORE TAX TIPS
Q: I received a 1099 for several thousand dollars driving as an independent contractor for an acquaintance. What tax do I need to pay?
A: You are responsible for federal income tax and self-employment taxes on your income as an independent contractor. Self-employment taxes are your contributions to Social Security and Medicare.
Your self-employment income and expenses will be reported on Form 1040, Schedule C, Profit or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ, and Net Profit from Business.
You will use Form 1040, Schedule SE, Self-Employment Tax, to compute and report your Social Security and Medicare tax. Because there is no withholding on your self-employment income, you may need to make quarterly estimated tax payments in the future to avoid penalties. This is done using a Form 1040-ES, Estimated Tax for Individuals. The same could be true for your state, except you don’t have to pay Social Security or Medicare to the state.
Q: What do I do when I cannot get the Social Security numbers or addresses of my subcontractors for the 1099 forms?
A: If they fail to provide you with their Social Security number, you are required to withhold money on the payments made to them. This is called backup withholding. The current backup withholding rate is 28 percent.
You may also be subject to a penalty of up to $50 per information return that is filed without the necessary information. That penalty generally may be waived for reasonable cause if you requested the subcontractors’ Social Security numbers, and the subcontractors failed to provide it to you.
You will have reasonable cause for not including the SSNs on your 1099 if you request the subcontractors’ Social Security numbers by sending them a Form W-9 by certified mail. Keep the mail receipt as proof of your request. LL
Everyone's financial situation is different. This article does not give and is not intended to gicve specific accounting and/or tax advice. Please consult with your own tax professional.
Written by Howard Abrams of PBS Tax & Bookkeeping Service. Contributions were made by Shasta May, ditrector of business developmnet for PBS. For more information, call 800-697-5153 or visit pbstax.com
Do your homework
We suggest that before you decide to make a move you do a bit of research. The following Web sites have information that could be helpful in determining which state would be the most “tax-friendly” to your individual situation.
taxadmin.org/fta/rate/ind_inc.html shows individual income tax rates, income brackets and personal exemption amounts for individual states.
taxfoundation.org/taxdata/show/23374.html shows local wage, income and occupational privilege taxes for towns and cities across the country. Many places impose a tax for working within their city or township in any occupation.
taxadmin.org/fta/rate/corp_inc.html shows the range of state corporate income tax rates.
retirementliving.com/RLtaxes.html offers info about state sales taxes, fuel taxes, personal income taxes and property taxes.
Seven states do not collect state income taxes:
- South Dakota
Two states - New Hampshire and Tennessee - tax only interest and dividends.
Per diem rate remains unchanged for 2009
The transportation workers’ special standard per diem rate will remain at $52 for 2009, according to the Internal Revenue Service. The 80 percent deduction rule will also remain unchanged for 2009.
To deduct travel expenses under the “overnight” rule, drivers must be away from their residences or tax homes longer than what would constitute their ordinary work day, according to Howard Abrams of PBS Tax & Bookkeeping Service.
“You must be away from your home long enough that you cannot complete the trip without sufficient sleep or rest,” Abrams said.
The rest period must require adequate lodging, such as an overnight stay at a motel or in your truck. A quick nap at a rest stop does not satisfy the rule.
An example of meeting the overnight rule would be if a driver rented a room to sleep or rest during a layover. An example of not meeting the overnight rule would be if the driver was traveling several hundred miles and needed to stop to rest for an hour.
Truckers without a regular place of business or a fixed home may not deduct any travel expenses. Truckers who live in their trucks during the entire course of the year cannot deduct per diem meals. LL
– By Land Line staff