Tax Tips – June 2019
Tax and financial matters
Q: My tax return was filed but it included a Form 2210, underpayment of withholding and estimated taxes. I was hit with a penalty as I did not pay enough estimated taxes. I now have been hearing maybe the penalty was in error. Am I correct?
A: Yes. The threshold for the penalty has been lowered, so you may be eligible for a refund. File Form 843, Claim for Refund.
Note: Be sure to pay all your estimated taxes, and if you have taxes withheld from your earnings, adjust your withholdings so you would not owe taxes at the end of the year.
Q: I’m operating as a sole proprietor. Should I become an LLC?
A: Operating under your own LLC, or limited liability company, is another way to operate. 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. Even reporting the business on your personal tax return is done under the LLC name. The LLC offers an alternative to corporations and partnerships by combining the corporate advantage of limited liability protection with the partnership advantage of pass-through taxation. With this status, the LLC’s income is not taxed at the entity level, although the LLC typically completes a partnership return if the LLC has more than one owner.
Q: I’m young and new to the trucking industry. Besides all the nuances of being a trucker, I am also concerned about saving for retirement. My parents have recommended starting saving as early as possible. What is your advice about saving for retirement? I do have some excess money left from my income.
A: We are a believer in starting to save for retirement as early as possible, but first you do have to have some money set aside for a so-called rainy day. Aside from that, though, starting to save as early as possible is a huge plus. As an example, to accumulate $250,000 by making monthly contributions to a retirement plan and investing in stocks, stocks funds and bonds earning 8% annually. See the chart. The chart assumes you will retire at age 67.
Age Investment Saving goal
37 years $168/month $250,000
47 years $424/month $250,000
57 years $1,367/month $250,000
62 years $3,402/month $250,000
As a further example, lowering your investment return to 7% annually and starting at your current age of 22, investing as little as $90 per month will yield you $280,000 by age 65. As you can see, your parents have given you great advice. We suggest you talk with an investment professional as to how your retirement savings should be invested. 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.