Tax Tips – August/September 2019
Financing equipment, tax FAQ
Q: I need to replace my equipment because repairs and downtime are mounting. I’m confused about obtaining a loan. How should I pay for the purchase? Where do I get a loan?
A: Once you have decided what you want and know the cost, you have to decide whether to buy or lease.
If you want to purchase your equipment, decide on the amount of down payment you can afford, which will then give you the amount to be financed. Shop around for the best financing available. The following are common finance sources:
- Dealers typically will provide financing.
- Some banks are business oriented. If your bank does not loan on equipment, find a bank that does and consider changing banks.
- Motor carriers. If you are purchasing through a motor carrier, they will provide a truck purchase program.
- Credit unions are always a source for good financing.
Obviously, compare the different finance offers. You may decide to alter the size of your down payment.
You also will need to provide current financial information and past tax returns.
Q: Should I lease the equipment?
A: Leasing the equipment can offer lower monthly payments. There are open- and closed-end leases. If you like to stay in newer equipment, leasing may be for you. You can get into a newer rig every three or four years easier than if you purchased the equipment.
Q: Should I pay cash for my equipment?
A: We don’t typically recommend that. Tying up cash in an asset that loses value is typically not a good idea. We suggest comparing all options (listed above) and consulting with your tax and financial adviser before deciding on your best approach.
Q: Should I borrow from my retirement plan to help with the financing?
A: We do not recommend using retirement plan funds for financing purposes. This could hurt your retirement plans.
Q: I work as an independent contractor, but I do not own a business and do not perform services in the name of business. I was told I had to pay self-employment taxes. Is that true?
A: The income you earn as an independent contractor generally will be considered income from self-employment and you will need to file Form 1040, Schedule C. You will need to pay self-employment tax. Since there is no withholding on your self-employment income, you may need to make quarterly estimated tax payments.
Q: How long do I need to keep certain records?
A: Period of limitations that apply to income tax returns per the IRS:
- Keep records for three years if situations (4), (5), and (6) below do not apply to you.
- Keep records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
- Keep records for seven years if you file a claim for a loss from worthless securities or bad debt deduction.
- Keep records for six years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
- Keep records indefinitely if you do not file a return.
- Keep records indefinitely if you file a fraudulent return.
- Keep employment tax records for at least four years after the date that the tax becomes due or is paid, whichever is later 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.