By Howard Abrams, PBS Tax & Bookkeeping
Q. I am a sole proprietor and am thinking of setting up a 401(k) plan for the 2012 tax year. I have contributed to an IRA in the past, but understand I can make bigger contributions to a Solo 401(k) plan compared with an IRA. Is that true and how much can I contribute?
A. Yes. The benefits of a solo 401(k) plan for the self-employed, such as yourself, are greater than that of the traditional IRA. Solo 401(k) plans must be opened by the end of 2012 for the 2012 tax year, enabling contributions to be made in 2013.
You can contribute to the 401(k) plan two ways: through a salary deferral up to a maximum of $17,000 ($22,500 if age 50 or older) and through a profit-sharing employer contribution of 25 percent of your net income up to a combined maximum of $50,000 ($55,000 if age 50 or older).
Q. These limits are far exceeding what I can afford to put in. Is the solo 401(k) still for me?
A. Yes, as long as you want to exceed the maximum IRA contribution of $5,000 ($6,000 if age 50 or older). You can put in any amounts you are comfortable with up to the maximum.
Q. I was thinking of a non-deductible Roth IRA contribution. Should I consider that?
A. Yes. You should always consider a Roth contribution since the withdrawals in later years are tax free. But the good news is the salary deferral portion of the solo 401(k) plan (up to $17,000 or $22,500 if age 50 or older) can be designated as a Roth contribution.
Q. My husband and I purchased a satellite TV and radio, which we use in the truck and at home for our trucking business. Is the purchase deductible along with the monthly subscription fees?
A. Any expense necessary, which is true for all business expenses, in the production of income is deductible. Ultimately, you would need to prove that the equipment is not being used for personal purposes. You may have to allocate and deduct only the business portion. The equipment can be depreciated if used more than 50 percent for business, and the subscription can be directly expensed.
Q. My husband and I are both OTR drivers contracted with the same carrier and driving our own tractor. We live in the truck full time. Our household goods are in storage in our home, and the rest of the house is rented to a long-term tenant. Can we deduct per diem for each of us for the entire year?
A. No, you cannot. You must have a tax home as your main residence. If you have no regular place of business and do not maintain a permanent residence, you may not deduct any per diem.
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 pbstax.com.
Please remember 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.