Dollars & Sense
Smart choices for smart truckers
Sometimes all it takes is a few smart choices to make a very big difference.
Hire your Children
If you are self-employed and your children are under age 18, hire them. You can pay them up to $4,700, deduct it from your business, and the children will not pay income tax as long as the child has no other income. You must maintain payment records and file a W-2 for them, but there are no Social Security or Medicare taxes on them.
If they make a deductible IRA contribution, they can earn up to $7,700 without paying income taxes. Be sure payments are reasonable in relation to the work performed and age of the child.
Make Estimated Tax Payments
Many self-employed truckers do not pay their estimated income taxes on a quarterly basis and instead wait until the end of the year. Often they are surprised to find out that they have been charged penalties by the IRS. The point here is that the IRS wants to get their money on a timely basis throughout the year and so they have set up a method of paying estimated taxes four times a year.
If you do not adhere to this schedule, then you are subject to penalties for underpayment of your taxes. If you are unable to pay the full amount set up by your tax preparer, pay as much as you can instead of not paying at all. It is much easier to make payment throughout the year than trying to come up with a lump sum at the end of the year.
Keep Separate Bank Account for Business
If you don't already use a separate bank account for business income and expenses it's time to start. Keeping business and personal finances separated is not a requirement if you're operating as a sole proprietor but it is the smart thing to do. Maintaining a separate account for business is not complicated.
Simply deposit all business income into your business account and pay all business expenses out of the same account. When you need money for personal expenses simply write yourself a check from the business account and deposit to the personal account.
Having a separate business account makes things much easier from a bookkeeping standpoint as well as making review and analysis of expenses much easier. Tip: Request a month end closing date on your business bank statements.
Plan for Retirement
Put away something for retirement even if it's a small amount. You'll get a tax write off as well as investing in your future. You can make IRA contribution or a nondeductible nontaxable ROTH IRA contribution up to $3,000 annually (more if your age 50 or older). For the self-employed there are various other options that may give you even greater deductions.
Resolve IRS Problems
Ignoring your IRS problems is only going to make matters worst. The best thing to do is handle the problem head on. If you haven't filed your taxes in years the first thing to do is get the returns prepared, then get them filed and then payment arrangements can be negotiated for reasonable monthly payments.
The key to getting out of debt with the IRS is to get on a monthly payment program for back taxes while making estimated tax payments on the current years taxes.
Review of what's new in 2003
The percentage deduction for meals is still 65% but the dollar amount increased to $40.00 per day for drivers subject to the DOT hours of service limitations. The percentage of deduction increases 5% every other year on even years until it reaches 80% in 2008.
The percentage of self-employed health insurance that is deductible as an adjustment to income is 100% for 2003.
Standard mileage rate for business use of automobile is .36 cents per mile. Tip: Be sure to keep a written record of all business miles.
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 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.
Please remember 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."