Beware of tax law changes
Q. I have heard so much about the new tax law that I am confused as to what changes will affect me and my family.
A. Good question. The most common changes affecting the individuals are:
- Overall tax rates have been reduced.
- The deduction for personal exemptions has been eliminated.
- The standard deduction amounts have increased – $12,000 for individuals and $24,000 for married couples.
- The deduction for state and local taxes is limited to a combined $10,000.
The elimination of most itemized deductions will hurt company truck drivers since they can no longer deduct employee business expenses, which include per diem, job search expenses, moving expenses and more.
Q. Since I have my own trucking business, I have heard I can get a 20 percent deduction of my business income?
A. Generally the deduction is 20 percent of qualified business income of your sole proprietorship. It also applies to pass through entities such as S corporations and limited liability companies. However, we suggest you contact an expert as we are still in the early stages of this deduction as new alerts come out frequently.
There may also be a 20 percent deduction for qualified rental income if you happen to have a rental property.
Q. Are there advantages to becoming an LLC (limited liability company) versus an S corporation?
A. Referring to the 20 percent of qualified business income (QBI) it might now be more beneficial to become an LLC because if you are an S corporation you will need to take a salary which may limit the 20 percent (QBI) deduction.
As an LLC, you can operate as a sole proprietor. Everything you do from opening up your bank account, to the debit or credit cards, and purchasing your truck, is done in the LLC name. The limited liability company offers an alternative to corporations and partnerships by combining the corporate advantage of limited liability protection with the partnership advantages of pass through taxation. With this status, the LLC’s income is not taxed at the entity level. However, an LLC typically completes a partnership return if the LLC has more than one owner.
Q. I am a team driver with my wife and we were hired by a company that classified us as independent drivers when we should have been classified as employees. We drove their equipment. Our employment was terminated after two months, and we were turned down by our state upon filing for unemployment benefits since we have not paid into the unemployment system. What should we do?
A. This has become a big problem in the trucking industry. Being treated as an independent contractor versus an employee can lead to self-employment tax in addition to income tax and, as you found out, being denied unemployment benefits. Your first step is to first determine if your worker classification was wrong. Try to get clarification from the company. You may then need to contact a labor attorney for further guidance. LL
This article has been presented by PBS Tax and Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for more than a quarter century. If you would like further information, please contact us at 800-697-5153. Visit our website at 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.