Tax Tips – October 2020
Despite the bite of COVID-19 and its effects on our economy, our people and our truckers, there are success stories within our industry. Though social distancing and sanitization have made our lives more difficult, it’s still prudent to know what our taxes will look like going forward. We hope the following will be beneficial to you all.
Q. My trucking business is doing much better than last year, and I don’t want to shell out a huge check on April 15 like last year to pay taxes and penalties. How much should I set aside for taxes, and should I buy the new truck I mentioned to you?
A. In order to properly plan for your taxes and for tax savings, have an income tax projection prepared. With nine months of operations under your belt, it would be best to project your net income to reflect a full 12 months of operations and project your taxes as if we were doing your actual return. This would include year-end adjustments for depreciation, business interest, per diem and so forth. The adjusted net income would then be incorporated into an income tax projection which will show your expected tax situation at April 15.
However, since it is only October, you would have plenty of time to plan for tax savings.
You may purchase the new rig you have been thinking about or prepare for a 401(k) or IRA tax-deductible contribution to your retirement plan. No matter what you decide, it’s extremely important to give yourself enough time to huddle with your financial expert so that your tax planning options can be put into place by Dec. 31.
If anything, eliminate or decrease any underpayment of tax penalties by paying your adjusted estimated taxes on time (Jan. 15) and possibly avoid having any balance due at tax time. The projection can also be used to show the amount of tax savings you could realize if you did buy the new truck, make a retirement plan contribution, or apply any other tax-saving ideas. You can then decide if the tax savings warrant acquiring the new truck or other tax-saving ideas.
TAX TIP: If you buy a truck or trailer, it is not enough to enter into a contract before year-end to get the depreciation deduction. You must put that truck or trailer into service prior to year-end.
TAX TIP: Do not buy a truck or trailer just to save on taxes. Make sure it’s a money-making proposition without factoring in the tax benefits.
Q. I sold my truck last year for $35,000. It cost me $60,000. Do I have a loss of $25,000?
A. No, you do not have a loss of $25,000. When you sell an asset such as a truck, you must compute its adjusted basis. You then compare its adjusted basis to the sale price and that will determine your gain or loss. Let’s say you bought the truck for $60,000 but over a few years you took $40,000 in depreciation. You then take $60,000 minus $40,000 taken in depreciation which leaves $20,000 as your adjusted basis. Now, assume you sold the truck for $30,000. You take the sale price of $30,000 and subtract the $20,000 adjusted basis and that leaves a $10,000 gain. 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 their 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.