Tax Tips
Post tax-return questions

By Howard Abrams, PBS Tax & Bookkeeping

The spring tax season may be over and summer right around the corner, but questions about 2013 tax returns are still rolling in. There’s never a bad time to ask a tax question.

Was your gross income in 2013 higher than in 2012, and what should you set aside for 2014 if your gross income goes up again?

Did you sell a piece of used equipment in 2013, and was that equipment partially or fully depreciated? Understanding the tax ramifications of these situations certainly helps.

Q. This question concerns the selling of a Great Dane Trailer. We purchased the trailer in 2012 for $11,000. Last year we sold that trailer for $8,000. Since we sold it for less than what we paid for it, wouldn’t that be a loss of some sort? And most of that money went into paying off the old loan and putting a down payment on the new trailer.

A. It’s true you purchased the trailer for $11,000 in 2012, but you took 100 percent depreciation ($11,000) in that same year. When we compute gain or loss on the sale of equipment, we take the sales price and deduct the original cost and the difference is gain or loss. However, the original cost is adjusted for any depreciation taken on that equipment to arrive at your adjusted basis (cost). Then the sales price is compared to the adjusted basis for the computation of gain or loss.

In your case, you bought the trailer in 2012 for $11,000 and took $11,000 in depreciation. That left you with an adjusted basis or adjusted cost of zero. So when you sold the trailer for $8,000 in 2013, you had an $8,000 gain which was taxable.

Sale price of
Great Dane Trailer........... $8,000
Less: Adjusted Basis
Original Cost................... $11,000
Less Accumulated Depreciation $11,000
Adjusted Basis.......................... $0
Gain on Sale..................... $8,000

Q. What if we still owed some money on the loan we used to buy the trailer in 2012? Does owing money on our initial loan change the amount we owe in taxes after we sell the equipment?

A. The fact that you had a loan payoff on the trailer and consequently received considerably less than the $8,000 has no bearing on the computation. Loans are not considered in the computation of gain or loss. Also, it’s possible the write-off on your new trailer will wipe out the gain on the old trailer for tax purposes.

Note: Check the pros and cons with your tax preparer of trading in your old equipment when acquiring a new piece of equipment.

Q. I can see that our gross income is $10,000 more than 2012, but I am trying to figure out how that equates to us paying $2,000 more federal taxes in 2013 than in 2012. If we have a more profitable year in 2014, do we need to calculate that our taxes will be 1099 income minus business expenses times 20 percent?

A. Actually it’s not such a bad idea to provide for 20 percent of gross income for taxes. However, I would not get involved in deducting your expenses before applying the 20 percent. Best to have your tax preparer calculate your potential 2014 tax liability at any given time during the year and thus avoid crucial errors. You can then adjust your estimated taxes to reflect your estimated 2014 results. 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.

This column is the opinion of the writer and does not necessarily reflect the opinions of Land Line Magazine or its publisher. Please remember that 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.