Dollars & Sense
Retirement Planning and Tax Tips
It is a good idea to make IRA and pension-plan contributions now. Don't delay making contributions for the year. Deposit the full amounts now, and start earning tax deferred income sooner.
For 2002, you can contribute $3,000 to a deductible or Roth IRA ($3,500 if you are age 50 or older by year-end).
If you have your own business and do not have a pension plan, consider opening a Simplified Employee Pension (SEP) plan, savings incentive Match Plan for employees (Simple), or qualified retirement plan now, to get the tax deduction and start your tax deferrals.
However, don't overlook the new "one-person 401(K) plan. If you have no full-time employees with the exception of your spouse, you are eligible for an owner-only 401K regardless of whether you operate as a proprietorship, a partnership, a corporation or a limited liability company. Multiple owners also qualify.
Provisions in last year's tax cut bill made one-person 401(K) plans, also known as individual or owner-only plans, less costly and more attractive for self-employed workers. Financial companies say the plans offer several advantages over traditional retirement programs for the self-employed.
Frequently Asked Questions
Q: If I move in with a man to whom I'm not married, and contribute to the mortgage payments on his house, can I deduct the share of the mortgage interest I pay?
A: To be able to deduct mortgage interest, you must be legally obligated to pay the mortgage. Unless your name is on the mortgage, the answer is no.
Q: What about deadhead miles?
A: A common misconception concerns deadhead miles. There are many owner-operators and tax preparers who think that income lost as a result of deadhead miles is a deductible item.
That is not the case.
Only the cost to operate the truck, i.e. fuel, repairs, and maintenance covering those deadhead miles is deductible.
Additionally many truckers often ask whether doing their own maintenance is a deduction. You cannot deduct your time for working on the equipment. Even though you're not able to deduct your time the benefit is that you are saving the cost of having someone else do the work.
Some owner-operators do take a deduction for deadhead miles as well as a deduction for doing their own repairs. However, if they are audited, those deductions will be disallowed and they will be paying not only the tax owed, but penalties and interest as well.
Q: How long should you keep records?
A: There are many different opinions as to how long to keep tax records. We suggest to our clients that they keep records for the past 5 years and if they have enough space, we encourage them to keep seven years worth of tax information and returns. This is especially true of our self-employed clients.
Q: Is it a good idea to refinance my home now?
A: Because of our bad economy, interest rates have hit what we consider to be at or near rock bottom. That is a plus. You can now lower your mortgage payments considerably by refinancing. There are various programs available.
It may also be possible to take cash out of your home and keep your payments the same. You might consider going to a fifteen year mortgage while interest rates are so low in order to pay off your home quicker and save thousands of dollars in interest.
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."