By Howard Abrams, PBS Tax & Bookkeeping
To succeed, you need to take advantage of every tool at your disposal. Choosing the right advisers will help you avoid a large number of problems and costly mistakes as you build and maintain the financial foundation of your successful trucking business. A qualified attorney and accountant will be of great help.
Your responsibility for income taxes increases significantly when you are in business for yourself. You are responsible for paying not only your income tax, but your self-employment tax as well. These payments must be made four times a year before filing your tax return. If you don't pay enough tax in during the year, the IRS can penalize you substantially.
The real complications come in knowing how much to pay. When you are a company driver, you have your withholding tax as well as your Social Security taken out for you. As an independent, it is your responsibility to compute your estimated income and self-employment tax so you can pay the proper amount during the year. Be aware your taxes can fluctuate greatly depending on the variables involved with your business such as acquiring new or selling old equipment.
Flee or lease?
Lease-purchase agreements require careful consideration and contract review – regardless of whether it is through a motor carrier or a leasing company. Many motor carriers with notorious lease-purchase programs are now partnering with leasing companies. While that creates the appearance of being "safer," the only guarantee is to have your adviser team or OOIDA Business Services Department review the lease before you sign.
You need to decide on the type of equipment you are going to operate. Your choices may be dictated by the commodity you are going to haul and the area that you are going to cover.
Once you have decided on the type of equipment, is it going to be new or used? Are you going to purchase, lease-purchase, or lease? Are you signing on with a carrier that will lease or sell you equipment?
If you decide to purchase the equipment, you need to find out if the dealer is going to finance the truck for you, or if you have to get your own loan. A projection should be done so that you will know if you will be making the proper amount of money needed to make the monthly payments.
You must have enough working capital to start your trucking business. We suggest that you have three months of gross income on hand in the form of cash so that you can continue to operate in the event of a late payment from a customer, an equipment breakdown, larger-than-expected bills or illness. Regarding illness, you need to have the proper insurance coverage in case of accidental injury or disability to protect you and your family.
You are now ready to begin operations. Decide what type of business entity you are going to operate as. Are you going to operate as a sole proprietor, partnership, corporation, or LLC? The choice of your business entity has many tax implications. Most new owner-operators start as a sole proprietor, which is the simplest and most common form of operation. We suggest you start out as a sole-proprietor LLC (a Single Member LLC).
The transition from company driver to owner-operator is not an easy decision to make. Planning and research will make the difference between a successful and an unsuccessful transition from company driver to owner-operator. 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 website at www.pbstax.com.