By Howard Abrams, PBS Tax & Bookkeeping
Q. I am an owner-operator trucking company operating as an S corporation. I do not have any assets to speak of, and I’m single. My earnings have dropped over the years, and the cost of operating my company is getting to me. Should I continue operating as a corporation?
A. We have looked over and reviewed your current profit and loss statement and past tax returns. We have come to the conclusion that the costs to maintain your S corporation are too high compared with the tax savings from the corporation.
The facts are that you have costlier bookkeeping and payroll tax filings in addition to an additional income tax return by operating as an S corporation. You also indicated you might be buying a new truck. The depreciation from the new truck will lower your tax bracket.
It’s best to table the corporation and operate as a sole-proprietor going forward. The projected profits from the corporation for the next few years are well below the threshold in realizing S corporation tax savings.
Q. I bought a home for myself, but the house and loan had to be in my parents’ name. I made the down payment, and I make all the house and property tax payments. Can I deduct the mortgage interest and property taxes on my income tax returns?
A. We believe you can for a number of reasons. Because your parents do not live in the home, they are not allowed to claim the interest or taxes on their return. The fact that you made the down payment and all the mortgage and property tax payments and you are responsible for the increase or decrease in the home’s value makes you an equitable owner.
Factors such as occupying and maintaining the home along with paying the mortgage and taxes indicate equitable ownership. You have the economic benefits and burdens of ownership. Therefore, you may claim a Schedule A deduction for the mortgage interest and the real estate taxes.
Q. I’m a company driver and have questions about retirement savings. How much money do I need to save to give us a “nest egg,” and when should we start? By the way, my wife is an owner-operator.
A. How much money you need at retirement is a lifestyle question for another day. The immediate answer as to when you should start saving is as soon as possible. For example, if you are age 25 and you save $1,000 a year for 10 years ($10,000) and earn 8 percent per year until you are age 65, you will have $100,600. That’s just from putting aside $1,000 per year for 10 years.
But if you don’t start until age 35 and invest $1,000 per year for 30 years ($30,000), you will have only $122,300 at age 65. That’s only $21,700 less from saving $10,000 compared with saving $30,000. So start saving as soon as possible.
Q. How much do you have to put away each month to accumulate $250,000?
A. Let’s say you’re going to make monthly payments to a stock, mutual fund and bond portfolio earning 8 percent annually (in today’s environment, 8 percent is tough so we suggest you have a portfolio manager). The table below will show you an example of various time spans:
Again, the sooner you start, the better. LL
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.