By Howard Abrams, PBS Tax & Bookkeeping
Q. I am a team driver with my wife. We were hired by a company that classified us as independent drivers when we should have been classified as employees. We drove their equipment. Our employment was terminated after two months, and we were turned down by our state for unemployment benefits since we were not treated as employees. What should we do?
A. This has become a big problem in the trucking industry. Being treated as an independent contractor versus as an employee can lead to larger taxes and, as you found out, being denied unemployment benefits.
Your first step is to determine whether your worker classification was wrong. On the surface it sure appears to be wrong. Try to get clarification from the company. You may then need to contact a labor attorney. You should also appeal the denial to your state.
Q. My trucking business is doing much better than last year, and I don’t want to shell out a huge check on April 15 the way I did last year to pay taxes and penalties.
How much should I set aside for taxes and should I buy a new truck?
A. In order to properly plan for your taxes and for tax savings, have an income tax projection prepared.
With nine months of operations under your belt, it would be best to project your net income to reflect a full 12 months of operations and project your taxes as if we were doing your actual return. This would include year-end adjustments for depreciation, business interest, per diem, etc. The adjusted net income would then be incorporated into an income tax projection, which will show your expected tax situation at April 15, 2014.
However, since it is only October, you would have plenty of time to plan for tax savings. You may purchase the new rig you have been thinking about or prepare for a 401k or IRA tax deductible contribution to your retirement plan.
No matter what you decide, it’s extremely important to give yourself enough time to huddle with your financial expert so that your tax planning options can be put into place by Dec. 31. If anything, eliminate or decrease any underpayment of tax penalties by paying your adjusted estimated taxes on time (Jan. 15, 2014) and possibly avoid having any balance due at tax time.
The projection can also be used to show the amount of tax savings you could realize if you did buy the new truck, make a retirement plan contribution, or apply any other tax saving ideas. You can then decide if the tax savings warrants acquiring the new truck or other savings ideas.
Remember: If you buy a truck or trailer, it is not enough to enter into a contract before year end to get the depreciation deduction. You must put that truck or trailer into service before the year end. Do not buy a truck or trailer just to save on taxes. Make sure it’s a money-making proposition without factoring in the tax benefits.
Q. I’m a company driver and recently incurred expenses while I was inquiring and checking out starting my own trucking business. My expenses included travel, transportation, meals and consulting. Can I deduct my job search expenses?
A. Yes. You can deduct the expenses incurred before opening your own business as long as you actually start the business. If you go back to this same company, you would not have a deduction.
However, if you also incurred expenses for possibly making a move to a different company as a company driver, then the expenses incurred in searching to change companies are deductible as an itemized deduction even though you do not make the change. This is because you looked for a new job in the same profession. 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.