Dollars & Sense
Tax Tips and General Information
In these trying times, many truckers have tried to refinance their equipment or homes to get them through bad financial situations only to be rebuffed because of bad credit scores.
Many of them were refused loans or refinances because they are maxed out on their credit cards or have too many credit cards. It is best to have one or two credit cards or even three, one for business and one for personal, as long as you are not close to the credit card limit.
If you have many credit cards, you can consolidate them by putting the balances on one or two cards. That will only work if you have ample credit left on the cards. For credit scoring purposes, it is generally better to have smaller balances on a few cards than to max out on a single card.
That is according to the credit card company that created the leading FICO credit score. The more you use any one line of credit, the more your credit score can be hurt.
What you need to do is pay off the balance on your highest rate card as soon as possible while paying the minimum on your other debts. Once the highest rate card is paid off, then start the procedure over again for the next highest card.
Continue this procedure until all your cards are paid off. Paying down your debt has powerful, positive effect on your credit score.
You can convert your regular IRA to a Roth IRA before the stock market recovers. It may pay to do so. However, that is a taxable event. The value of a traditional IRA is taxable when you convert it to a Roth IRA which when you withdraw in the future is tax free.
Therefore, if you are considering conversion and you wait until the market goes up, your tax costs will rise. By converting now you are in a "can't lose" situation. A conversion made in 2003 can be reversed as late as October 15, 2004. So if the market falls after you make your conversion, you can reverse it and then redo it later at an even lower tax cost.
News Flash regarding the earned income credit
The IRS estimates that 30% or more of all earned income credit claims are erroneous. The IRS audits returns that take the credit. Beginning in July, the IRS plans to pre-certify the eligibility of persons who intend to claim the earned income credit. Look for the IRS to start contacting anyone who has taken the credit in the past.
This may be a little self-serving or self-incriminating, however you may look at it. Beware of tax preparers who promise big tax savings. The IRS is toughening up the enforcement of tax laws and it has more than doubled its investigation of tax return preparers who generate false returns.
According to the Internal Revenue Service, the following are warning signs that your tax preparer may file false claims:Claiming he or she can obtain unusually larger refunds than other preparers Basing fees on the percentage of the amount of the refund shown on your return Refusing to sign your tax return or provide you with a copy of it for your records
Choose your tax preparer carefully.
The National Taxpayer Advocate to Congress has prepared a 400 page report available on the IRS website, www.irs.gov, which lists the worst problems taxpayers face when dealing with the IRS. The two biggest problems taxpayers have encountered are:
(1) difficulty in locating personnel at the IRS who have the responsibility for resolving your problem and
(2) the inability of the IRS to effectively administer the offer in compromise program.
Tax tip - per diem
For the truckers who travel away from home for most of the year, it can be tricky to establish a "tax home". We have received many calls from truckers who say "their truck is their home". That is not good. A trucker needs to have a tax home.
Temporary living expenses such as rent, food, and laundry are deductible by a taxpayer who is away from home on business. Generally, to establish a tax home you must be able to demonstrate to the IRS that, as a result of your extensive business travels, you were required to incur duplicate living expenses at your permanent residence.
Obviously, if you own a home or pay rent, that would qualify as a permanent residence. The tax court has ruled that if you have no tax home, i.e. no permanent residence, you are not entitled to the per diem expenses incurred while away from home.
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 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."