Dollars & Sense
Income Tax Time, Part II
We're now well into the tax filing season and if you are not ready, it's time to get motivated. For those of you who don't have a problem gathering paperwork, you should be able to follow the income tax organizer you received from your tax preparer.
If you did not receive an organizer, you can call various tax preparers, including us, to get one. A tax organizer simplifies the information gathering procedure and goes a long way in preventing the omission of important deductions. It is best to get a tax organizer from a preparer who specializes in the trucking industry.
For some of you it is an extreme hardship to gather tax information. If you are one of these people, you should box all the paperwork you have and send it to your tax preparer so they can compile the proper records to prepare a return. Instead of procrastinating, this will insure the tax return gets done on time and save you the cost of needless penalties, which can exceed the cost of the tax preparation.
We have prepared a review of what's needed for the preparation of your income tax return.
1. Make sure that you have totaled all your income and compare your figures with what is reported on your earnings statements, 1099, W-2's, and K-1's. Be sure you do not include your W-2 income in the total of your self-employed income.
2. Have a breakdown and total for all business expenses by category, such as fuel, phone, insurance, repairs, parts and tires. This should include checks written, cash, credit card purchases and deductions from settlements. Don't forget ATM and bank charges.
3. Obtain all contracts on purchases and/or leases and make copies for your tax preparer.
4. Compile your 1099's if you're an independent contractor or owner-operator, and Wage and Earning Statements (W-2's) if you're a company driver. You will receive tax statements on mortgage interest, property taxes, interest income, dividend income, stock sales.
5. Total the number of nights away from home to get the per diem meal allowance of $38 per day. For 2002, the $38 per day is 65% deductible.
Frequently Asked Questions
We have been getting many inquiries regarding the per diem allowance. Instead of using actual expenses for Meals and Incidental Expenses, per diem may be deducted. The per diem allowance for lodging may not be used by self-employed taxpayers; actual lodging receipts are required.
For 2002, the deduction for meals is 65% for drivers subject to the DOT hours of service limitations. The deduction will increase incrementally to 80% by the year 2008. The DOT federal hours of service rule applies to drivers who are limited in the number of hours they can drive each day.
Transportation workers are eligible to use a special standard meal allowance of $38 per day. To qualify, the work must directly involve moving people or goods by airplane, barge, bus, ship, train or truck.
Do I pay taxes when I sell my equipment?
If you acquire an asset for $50,000 and you have depreciated $40,000 worth, your tax basis in that property is $10,000 - the $50,000 original cost less $40,000 depreciation taken. If you were to sell that equipment for $25,000, you would have a gain of $15,000 and the gain is taxable.
Example: The original cost of equipment to be sold was $50,000 less depreciation taken of $40,000 leaves a tax basis of $10,000. The selling price of $25,000 less the tax basis of $10,000 leaves a $15,000 gain. The gain is ordinary income, not capital gain. If you traded in the old equipment instead of selling it, there would be no gain to report on your tax return, but the depreciation available on your new equipment would be $15,000 less.
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. Contributions to this article were made by Shasta May, Director Business Development for PBS. If you would like further information, please contact us at 800-697-5153. Visit our Web Site at http://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.