By Howard Abrams
PBS Tax & Bookeeping
Q: I’ve always done my own taxes, but I’ve heard it’s better to have an accountant do them. Why is that?
A: A professional tax preparer can maximize your tax savings. An accountant can also act as a “buffer” between you and the Internal Revenue Service
As a matter of experience, the IRS tends to be much harder on taxpayers than they are on taxpayer representatives. This brings up the question of the dreaded – and much to be avoided – IRS audit.
Just like other taxpayers, truckers can claim every legitimate deduction, but at the same time they need to be aware of deductions that will “red flag” their tax return. Even if it is legitimate, some deductions may not be worth taking because of the attention they may draw to the return.
Q: Can I take a home office deduction?
A: To qualify for the home office deduction, the home office must be your principal 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.
By the way, this is one of the legitimate deductions that can draw the attention of the IRS. Make sure it’s worth the benefits.
Q: Can I deduct deadhead miles?
A: No, you cannot. There is a big misconception concerning deadhead miles. Many truckers think that the income lost as a result of deadhead miles is a deductible item. That is not the case. Only the costs to operate the truck, i.e. fuel, insurance, repairs and maintenance covering those deadhead miles are deductible.
Q: How can I justify my cash payments to my lumpers?
A: You need to maintain a book such as an organizer, entering name, address and Social Security numbers of the people you have made the payments to.
If any person earns $600 or more from you, then you have to issue a 1099 at the end of the year.
If you are working for a household mover who has agencies for lumpers nationwide, then you should be able to get receipts when you pay those people.
Q: I am a company driver. What is deductible when I’m on the road?
A: Self-employed individuals can generally deduct any expenses incurred in the process of earning their income, but company drivers are limited to non-reimbursed expenses required by their employer.
You are entitled to per diem for overnights and motel expenses. A good rule to follow for deductions would be any expenses incurred that are necessary or required in the performance of your job and/or operation of the truck but are not reimbursed by your company, such as uniforms, gloves, logbooks, maps, cell phone, CB, tools, Windex, paper towels, showers, etc.
Remember, as a company driver, these deductions are available only if you itemize.
Q: I sold my truck last year for $35,000. It cost me $60,000. Do I have a loss of $25,000?
A: No, you do not have a loss of $25,000. When you sell an asset such as a truck, you must compute its adjusted basis. You then compare its adjusted basis to the sale price and that will determine your gain or loss.
Let’s say you bought the truck for $60,000 but over a few years you took $40,000 in depreciation. You then take $60,000 minus $40,000 taken in depreciation, which leaves $20,000 as your adjusted basis.
Now, assume you sold the truck for $30,000. You take the sale price of $30,000 and subtract the $20,000 adjusted basis and that leaves a $10,000 gain. If you traded the truck in on a new one instead of selling it, you must reduce the basis of the truck by the gain. The gain on a trade-in is not reported on your tax return. There are advantages and disadvantages relative to sales versus trade-ins.
Also, keep in mind that loans do not affect gain or loss. So in the above example, if you bought the truck with a $10,000 down payment and borrowed $50,000 and you still owed $35,000 when you sold the truck, you would be out $5,000 after paying the truck off. You would have received $30,000 from the sale, but you have to pay off the loan of $35,000. However, you would still have a gain of $10,000. LL