Trucking & Taxes – February 2024
Every year, we get flooded with tax questions. This edition of Trucking & Taxes will explore the questions we received most frequently in 2023 – ending with our No. 1 most-asked question.
- Why do I have to report my crypto transactions on my tax return?
First, if you used regular U.S. dollars to purchase assets in cryptocurrency that have remained in an exchange or cryptocurrency wallet, rest easy since you do not have a tax liability and no reporting is required. However, the Internal Revenue Service does require U.S. residents to report the following crypto events, which are considered taxable:
- You hold assets in cryptocurrency and used crypto to buy a good or service
- You sold or cashed your crypto assets for government-issued currency
- You traded one cryptocurrency for another
- Your employer paid you in cryptocurrency
- You were given free tokens through an airdrop
If any of these describe you, you have a filing obligation. This year, millions more Americans will be required to report this kind of activity to the IRS. Roughly 48 million U.S. residents now own bitcoin, and that number is increasing daily. Of course, just because you have to report an event to the IRS doesn’t mean you will necessarily owe money in taxes. Only transactions resulting in gains, versus losses, may be taxed.
- What are estimated tax payments?
Taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments. If the amount of income tax withheld from your salary or pension is not enough, or if you receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes or awards, you may have to make estimated tax payments.
If you are in business for yourself, you generally need to make estimated tax payments. Estimated tax is used to pay not only income tax but also other taxes such as self-employment tax and alternative minimum tax.
- Why is bookkeeping so important to taxes?
Bookkeeping helps you keep accurate records, allowing you to know where your business has been and where it’s going. It also tracks profit and loss and allows for better decision-making, in addition to providing the basis for doing your taxes accurately. Plus, if you’re audited by the IRS or state, good bookkeeping makes it easier to provide the requested information. And last but certainly not least, bookkeeping is important because the law requires you to keep financial records for your company.
Depending on your legal structure, it also may require you to keep financial records separate from your personal expenses. Failing to do so can lead to termination of your business.
- Should my company be an S-Corp?
Being an S corporation provides two main benefits. First, S corporations elect to pass corporate income, losses, deductions and credits through to their shareholders for federal tax purposes.
Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on corporate income.
Another advantage S corporations have over unincorporated businesses is that owners of unincorporated businesses are personally responsible for paying Social Security and Medicare taxes on all net earnings from the business. Owners of corporations, who are also employees, pay Social Security and Medicare taxes based only on their compensation.
However, there also are some drawbacks. All S corporations will have to file their own 1120s, which adds to the complexity of filing taxes and fees.
This business structure can make the payroll process more complex, as well. S corporation owners who work in the business need to be paid a reasonable salary through payroll – which adds to the complexity of filing quarterly forms (941) and annual forms (940 & W-2), as well as state filings for unemployment and state withholding.
- Is it better to lease or purchase my truck?
There are a lot of pros and cons to leasing or buying your tractor-trailer.
If you lease, you spend less up front and you might have an easy-out clause. However, your payments may be higher than buying. You also are likely to have fewer freedoms due to policies involving pets, smoking or making upgrades.
If you purchase, you build equity over time, and you may save money in the long run with smaller payments. You also have freedom to customize the tractor-trailer. But on the downside, you’re likely to have a higher cost up front and less flexibility if your business changes.
- Can I establish a payment plan with the IRS for tax debt?
When you owe money to the IRS, it demands payment in full. But at the end of the day, the IRS just wants what is owed from your tax filing or audit and will take payments over time, plus penalties and interest. These installment agreements can last up to 84 months. If you cannot afford the set payment, it takes effort and knowledge to get the IRS to accept a lower agreement.
- Why do I have to pay taxes?
Taxes are a part of life for many people. But not everyone understands what they are or why they’re required.
Taxes are mandatory payments made by people and businesses that help fund government services at the federal, state and local levels. Tax revenue pays for things like Social Security and Medicare, education, national defense, infrastructure and other goods and services intended to benefit society. Federal, state and local governments may levy three main types of taxes: income-based taxes, wealth-based taxes and consumption-based taxes.
Many people will debate whether or not to pay taxes, and why. Tax protestors will say everything from “It was never ratified” to “It’s illegal.” Regardless, taxes are still due. But that does not mean you cannot plan ways to reduce your taxes and deduct every business expense possible. LL
This article has been presented by TruckerTaxTools.com, a division of Taxation Solutions Inc. – Tax Relief. Barry G. Fowler, EA, president of Taxation Solutions, has been providing IRS tax debt resolution and bookkeeping services to the trucking industry for more than 21 years. To schedule a free consultation, call 877-966-2477 or use the form at TruckerTaxTools.com. This article does not give and is not intended to give specific accounting and/or tax advice, as everyone’s tax situation is different. Please consult with an expert at TruckerTaxTools.com, the leader in trucker taxes.