By Howard Abrams
PBS Tax & Bookkeeping
Q: In your August/September Tax Tips, you said we should set enough money aside to meet our tax obligation come next April. How do we know what that amount is?
A: You would need to have an income tax projection done. You have nine months of operations for the year, which is more than enough to project your profit for the entire year.
Based on that profit projection, you or your tax preparer can project your income, which indicates your tax obligation. As a self-employed trucker, this information will enable you to make financial decisions. You may ask: Have I overpaid my income taxes? Is there anything I can do now to reduce my tax liability? Will it help to buy some tires or make a contribution to my retirement account before the end of the year?
Being able to answer those questions will enable you to plan for the remainder of the year. You may be planning to purchase a new truck, take some time off, do a major truck overhaul, fix up your home, or add to your retirement savings.
Though your records should be looked at by your tax preparer throughout the year so that he or she can spot potential problems or adjust your estimated taxes, the tax projection will best indicate your tax situation. Doing it now will give you time to do some planning and make changes. In addition, you can minimize potential penalties arising from underpayment of your taxes.
Q: I heard that some of Bush’s tax cuts are set to expire at the end of 2010. Is that correct?
A: Yes, that is a definite possibility, unless Congress votes to extend some or all of them. However, the huge deficit will most likely result in higher income taxes.
Even if tax rates don’t increase, the elimination of some tax breaks currently in force will definitely raise your taxes.
It’s nice to believe that taxes for the rich will be raised while for the lower income levels they may be reduced. However, for the independent trucker, some of the huge tax breaks now in force, such as accelerated and bonus depreciation, can change. While there are no guarantees, take steps to stay on top of potential changes.
If you are contemplating acquiring new equipment, you may want to complete the purchase in 2010. You must put the equipment in service to get your Section 179 depreciation deduction. If you are holding stocks or other assets that have substantial gains and are contemplating selling them in the next year or two, consider taking profits this year.
Q: While we are on the subject of planning, because I do all my work from home except when I am driving, can I qualify for a home office deduction?
A: Yes, but the IRS is strict. If your home office is your principal place of business, you can qualify for the home office deduction if you meet the criteria. For example, if your do your work from the kitchen table, that won’t wash with the IRS. You must use the home office regularly and exclusively for the administration and management of your business. And you may not have any other fixed location where you regularly administer and manage activities of the business. LL
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 professional.
This article is written by PBS Tax & Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for more than a quarter-century. If you would like further information, please contact PBS at 800-697-5153 or visit their Web site at www.pbstax.com.