Dollars & Sense

Tax Time Questions

Tax time is not only for gathering all your information for your 2007 tax return; it is also time to be planning for 2008. Tax time reminds people to be aware of their tax situation. With that in mind, the following are common questions that we get pertaining to taxes.

Question:  How much first year write off (depreciation section 179) can I take on the purchasing of new equipment?

Answer:  For equipment acquired in 2007 and put into service in that year you can choose to write off up to $125,000, no matter when it was put it into service during the year. But once your acquisitions reach $500,000, the first year write off will start phasing out. It is eliminated once the acquisitions total $625,000. For 2008 the first year write off is $128,000 and the phase out begins at $510,000.

Question:  What if I bought a SUV for business use?

Answer:  If the SUV weighs more than 6000 pounds and is used for business, $25,000 of its cost can be immediately deducted. If under 6000 pounds then first year deduction is limited to $3060 for cars and $3260 for light trucks.Don’t rush out to buy in 2008 yet. Congress may eliminate the heavy SUV tax break.

Question:  I am a sole-proprietor and run my business activity through my personal bank account. I’ve been told that this is asking for trouble with the IRS. Have I broken the tax law?

Answer:  No, there is no legal requirement that you have to have a separate bank account for the business. But, we highly recommended that the business has its own bank account, to simplify your record keeping and tracking.
 

Question:  I am a sole proprietor and want to contribute a large amount of money to a retirement plan. What plan would work for me?

Answer:  The solo 401K would work. This 401K plan is for single sole proprietor participant. A single person LLC, which is taxed as a sole proprietorship, would also be eligible.
 

Question:  How much can I contribute to the solo 401K plan?

Answer:  You may contribute up to $45,000 for the 2007 tax year or up to $50,000 if you are age 50 or older.
 

Question:  What is the big advantage?
 

Answer:  Depending on income, the solo 401K may allow twice or more tax deductible contributions when compared to other self employed retirement plans.
 

Question: When will I have to put the contributions in?

Answer:  The contributions are due by the due date of the tax return including extensions for the year you’re claiming the contribution. Unlike traditional 401K’s the deferred contribution is also due on the last day of filing the tax return.
 

Question:  When can I start a solo 401K?

Answer:  A solo 401K must be opened by the end of the year for which you are going to claim the contribution. Therefore, unless you have one in place for the year 2007 it is too late to contribute for the 2007 plan year. So if you think you have the funds and needs in the future to make the large contributions to enhance your retirement we would suggest you open your solo 401K for the year 2008 immediately. Remember, you won’t have to contribute when you open the plan.

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.

“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.”