Tax Tips
Decisions, decisions

By Howard Abrams, PBS Tax & Bookkeeping

I own a small trucking company, and I am treating my workers as independent contractors. I'm nervous as I hear that if I mistakenly classify an employee as an independent contractor it can result in significant fines and penalties. What can I do?

A We get a lot of questions about hiring drivers and whether to pay them as employees or independent contractors.

Worker classification has always been an audit target of the IRS. Many of you are concerned as to whether your workers are employees or independent contractors. It is important to have them properly classified, and that classification can determine whether you need to pay employment taxes or provide health insurance and retirement plans.

If the IRS reclassifies your independent contractors as employees, there can be some serious repercussions. You would be liable not only for back taxes, but also for interest and penalties that could be steep enough to put you out of business.

20 factors to show you are an independent contractor

Many businesses would rather pay independent contractors than employees to avoid paying payroll taxes and fringe benefits. In fact, many people would rather be independent contractors in order to take advantage of some additional tax deductions. It can be a win-win situation.

But be careful since the IRS looks closely at who is and who is not an independent contractor. There are 20 factors that must be considered to determine independent contractor status. No special weight is given to any one of the factors.

  1. You invest in the facilities you use for doing the work.
  2. You can realize a profit or suffer a loss as a result of your services.
  3. You work for many different companies at the same time.
  4. Your services are available to the general public on a regular basis.
  5. Few instructions are given about how, when and where the work is accomplished.
  6. Little training is provided.
  7. Services are not integrated with the company’s operations.
  8. You are not required to perform the services personally.
  9. You hire, supervise, and pay assistants.
  10. Your relationship with the company is not continuing.
  11. You set your own working hours.
  12. You do not work full-time for the company.
  13. You do not work at the company’s location.
  14. You set the steps in which the work will be done.
  15. You are not required to submit written or oral reports.
  16. You are paid by the job rather than by the week or month.
  17. You are not reimbursed for business or traveling expenses.
  18. You provide your own equipment and supplies.
  19. You cannot be fired as long as you produce the requested work.
  20. You cannot terminate your relationship with the company until your work is complete.

Now is the time to review these important issues and give your business the tax checkup it needs.

Is it best to lease or purchase my trucking equipment?

There are no clear-cut answers or rules of thumb. Each determination needs to be made based on your own circumstances. Here are advantages for each to consider.

For leasing
  1. The preservation of capital, no large down payment required.
  2. The expected obsolescence of the equipment. Easier to dispose of; just turn in.
  3. Resale value: don't have to sell or trade-in.
  4. May be able to return equipment before lease is up without penalty. Negotiate up front.
  5. You can expense your monthly lease payments.
For buying
  1. You can fully depreciate your truck the first year of operations or you can use alternative method to depreciate the asset over the remaining life.
  2. It's your own equipment, so you make the decision of how long to keep it, unlike a lease which is usually for a predetermined length. Once paid off, you can own and operate the purchased equipment for years without monthly payments.

Some feel it's best to buy since you would be making an investment in an asset where you control whether to sell, trade or hold. Those who lease say why buy into an asset that loses value each day.

Analyze what's best for you and DO consider the tax implications. Everyone's situation is different. LL

This article has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. If you would like further information, please contact us at 800-697-5153. Visit our website at www.pbstax.com.

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.