Dollars & Sense
By: PBS Tax
Question: The cost of fuel is killing me, my equipment is older and my repairs are more each year. Would I be better off with new equipment to maximize fuel efficiency?
Answer: Itâ€™s true you can get more mileage per gallon with a newer more fuel efficient aerodynamic truck. You would also be able to save on repairs and downtime. Therefore, I will ask you a question. Does the savings in fuel cost, repairs and downtime more than offset the increase payments of a new rig? In other words, are you in a better financial situation? Before a decision is made to buy the new equipment you need to project your tax and financial situation to see if in fact you will be better off economically. You need to do projections to compare your options. Project your cash flow both short and long term paying particular attention to your fuel savings and your anticipated repair and downtime savings. Factor in your income tax savings as a result of buying a new rig. An income tax projection will allow the tax preparer to evaluate your situation so that you will have the knowledge and tools necessary to make a sound decision. The result of the projection will then tell you your potential tax savings over the next three years if you buy the rig. That combined with your savings from fewer repairs, parts, downtime and fuel efficiency should give you a pretty good idea if you can afford an increase in payments on the new rig, and whether you should move forward or not. You may find that financially you did yourself a huge favor. The projection is also used as a tool in other business and personal decisions.
Question: Iâ€™m always nervous about getting audited from the IRS. I have a self employed trucking business. What are my chances of being audited?
Answer: The chances of being audited vary by your gross income. If your gross income falls between $25,000 to $100,000 there is a 2% chance of being audited. If your gross income is between $100,000 to $200,000 there is a 6.2% chance of being audited. Compare that with the 1.9% audit rate for gross incomes in excess of $200,000. Ironically, the chance of your Partnership or S-Corporation tax return being audited is only Â½% per year.
Question: I inherited cash and property when my father passed away. Is this taxable to me?
Answer: When a person inherits cash or property, it is generally considered to be tax free. The estate, depending on the amount of money involved, may have to pay taxes. Additionally, if your inheritance comes from a retirement plan, it may be subject to taxes. But if you receive cash and or property from an inheritance not from a retirement plan, it is not taxable to you. If you receive property such as a residence of the deceased person, that property gets assigned a value on the date of death. If you later go and sell that property your basis is the value of that property on the date of death. So using the value at the date of death is extremely beneficial to the recipient since the seller might have bought the property 20-30-40 years ago at a much reduced cost.
Question: Iâ€™m an owner operator and Iâ€™m concerned about losing my assets if Iâ€™m in a terrible accident. My buddies tell me to incorporate or operate under a Limited Liability Company (LLC) to protect my assets. Is this the proper thing to do?
Answer: Yes and no. The proper thing you just did was ask a professional about what to do. Some people just go ahead and act based on what their buddies say. We are not attorneys and therefore, we cannot recommend a type of entity to operate as to liability protection. What we can recommend and do recommend is talk to an attorney as they are the only ones who can judge whether a particular operating entity will provide you with the liability protection you seek.
What we can alert you to is insurance coverage. Your liability limits on your homeowners and truck policies are probably too low in light of many personal injury awards. So in addition to talking to an attorney talk to your insurance person about adding â€œumbrella coverageâ€ to your homeownerâ€™s policy. For example, a $5,000,000 umbrella liability policy will cost about $1200 per year or lesser premiums for lesser coverage. This may satisfy your needs and could be cheaper than changing your operating entity.
This article has been presented by PBS Tax & Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. Contributions to this article were made by Shasta May, Director of Business Development for PBS. If you would like further information, please contact us at 800-697-5153. See our Web Site at www.pbstax.com.
â€œEveryoneâ€™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.â€