Tax Tips - October 2018
It’s time to start preparing for tax season
Q. My trucking business has been quite successful this year, but I don’t know what to expect when my taxes are actually done because of the new tax law that took effect Jan. 1. What should I do?
A. Now is a good time of year to prepare for 2018 taxes, which under the new tax law will be different than your 2017 tax return. It’s extremely important that you should have a tax projection of your 2018 income taxes prepared. Under previous tax law, all net income or loss from a sole proprietorship, partnership or S-corporation would not be taxed on the entity level. Instead, it would be passed on to the individual members. This pass-through income would then be taxed based on the member’s tax rate.
The Tax Cuts and Jobs Act added an estimated 20 percent deduction for any taxpayer that has qualified business income from a sole proprietorship, partnership or S-corporation. For the average sole-proprietor owner-operator, this could mean a tax savings of around $2,000 per year.
Q.What is an income tax projection?
A. Think of income tax projection as a mini tax return done during the year using year-to-date results projected to reflect a full year results.
Q. How is it done?
A. First you need to know your year-to-date net income as of a certain date then add to that the projected net income for the rest of the year. That will give you the projected net income from operations for the year. Then make your adjustments, such as depreciation and per diem, (if applicable) to arrive at a projected business income for tax purposes. Then project what your taxes would be by preparing a preliminary tax return.
Q. What is the purpose?
A. To find out whether you will owe or get a refund and to adjust your estimated taxes accordingly. You may have to adjust your projection based on actual results going forward.
The benefits from the tax projection are as follows:
- Reduce potential penalties by not estimating your taxes accurately.
- Allows you plenty of time to do tax planning before the end of the year.
- Helps you determine the availability of cash regardless of whether you will owe or get a refund.
Q. I own a trucking business. I use the cash method of accounting. While looking over my books, I realized that I may have a large net profit from my business. How can I reduce my net profit in order to reduce income and self-employment taxes due? I have several expenses that I have not yet paid. Can I write checks for these expenses and mail them by Dec. 31, and deduct the expenses on my 2018 tax return?
A. Yes, you can deduct the expenses on your 2018 tax return as long as the checks clear when they are presented to the bank. LL
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. 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.