Dollars & Sense
The Hidden Tax and Getting Your Own Authority
Many of you have heard about or have been caught by the Alternative Minimum Tax. The purpose of this tax is to insure that taxpayers who take advantage of tax shelters must still pay the taxpayerâ€™s â€œfair share.â€ The alternative minimum tax (AMT) is a second income tax system that runs parallel to the regular individual income tax. Your tax is recomputed disallowing some tax benefits.
The AMT was intended to target a small group of high-income individuals who had managed to avoid all taxes to ensure they paid a minimum amount of tax. Changes since the AMTs original enactment mean that today it reaches into the ranks of the middle class, potentially denying them the benefit of many of the deductions, credits, and lower tax rates available under the regular income tax system.
The AMT also significantly increases the complexity of tax filing for taxpayers subject to the AMT and for millions of additional taxpayers who must complete AMT forms to determine if the are subject to the tax.
The most common items that can kick in the amount in addition to large capital gains are itemized deductions for state/local taxes and miscellaneous itemized deductions.
The AMT tax, while not common, is something to be aware of when projecting your taxes for planning purposes. Since capital gains and the itemized deductions are much larger now due to inflation, than when the AMT was first enacted, many of our truckers are now subject to it. The AMT can result in underpayment of tax penalties.
BEYOND GETTING YOUR OWN AUTHORITY
Youâ€™ve obtained your own authority, now what? Here are a few things to consider. Make sure youâ€™re operating legally. You are now responsible for all licensing, registration, permitting and insurance for your equipment and your business.
Select a tax advisor, preferably one that specializes in trucking. Trucking is a very specialized industry and if you donâ€™t use someone familiar with your industry you may pay too much in income tax. Having professional advisors such as accountants and attorneys is invaluable to your business.
What type of business entity is right for you? Sole proprietor, partnership, limited liability company (LLC), S-Corporation or C-Corporation. Most businesses are better off starting out as a sole proprietorship because itâ€™s the easiest and least expensive way to operate. Once the business is up and running and making a consistent profit, your tax professional will run projections to see if changing to another entity can save you tax dollars. For liability protection, please consult your attorney.
Hopefully before obtaining your own authority you asked yourself these questions.
What are you going to haul?
How much are you going to gross?
Who are you going to haul for? Are they reliable? Verify their track record. Do they pay on time? Do your research.
Are you going over the road or will you be running local daily runs?
Are you going to need a helper?
PROJECT YOUR INCOME AN EXPENSES OVER A FIVE YEAR PERIOD AND MAKE SURE IT COMPARES MOST FAVORABLY VERSUS YOUR RECENT OPERATING RESULTS.
You now need to decide on the type of equipment you are going to operate. Your choices may be dictated based upon the commodity you are going to haul and the area that you are going to frequent. Once you have decided on the type of equipment, is it going to be new or used? Are you going to purchase, lease/purchase, or lease? Once you find out the cost of the equipment, you need to determine how you are going to acquire it.
You must maintain at least six months working capital to handle breakdowns or business slowdowns. You will need to set up a system for billing and bookkeeping.
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. If you would like further information, please contact us at 800-697-5153. See our Web Site at www.pbstax.com.
Please remember everyoneâ€™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.â€