Tips for Maximizing Your Tax Deductions

8571667_mProbably one of the most procrastinated chores in human history, filing your taxes can be less painful if you’re paying less. And the best way to pay less tax legally is by maximizing your deductions. Below are some ways to make sure you’re getting as much as possible of your money back from Uncle Sam.

Save All Your Receipts – A lot of drivers mistakenly assume they don’t spend enough to itemize and deduct their expenses, but it’s easy to forget all the things necessary to live on the road and maintain a truck. Try keeping all your receipts for a week and see what you’re shelling out.

In the trucking industry, drivers can claim expenses for fuel, repairs, supplies and maintenance, meals and daily living expenses on the road, mobile phones and computers (that are 100% business use), tolls and other fees, depreciation and contributions to a retirement account. Mileage is another key deduction. For 2013, the IRS is granting 56 ½ cents a mile for business use of your vehicle.

XRSCorp.com offers a good overview of each of these to help you better understand what expenses may qualify as deductions.

Itemize Your Expenses – Taking the standard deduction is easier, but you can save a ton if you itemize. The 2013 standard deduction is $6,100 for singles and $12,200 for married couples filing jointly, and if your qualified expenses exceed those levels, it’s definitely worth the trouble to itemize. If you’re self-employed, own a home or live in a high-tax area, your qualified expenses you can reach those levels pretty fast.

Calculate Your Per Diem – There are two ways to take the per diem:

1) Save your receipts and itemize. You can deduct 80% of your total expenses.
2) Track the number of full days and partial days you’re on the road. You can deduct 80% of the IRS’s government’s per diem rate of $59.00 per day for each full day (in Canada, it’s $65.00), and $35.40 for each partial day. (The IRS doesn’t consider 20-hour day where you still sleep at home to be a full day. You’ll have count that as partial.)

If you haven’t done a great job retaining and organizing your receipts, you want option two, but if you think you’re spending more than $59.00 per day on expenses, make a commitment to yourself to get a better system in place for keeping your receipts in 2014.

If you’re a company driver, you can only take deductions for expenses required by your employer that aren’t reimbursed by your employer.

TeamRunSmart.com has a more in-depth explanation of exactly how to calculate what you can claim for your per diem. Also see Owner-Operators Independent Drivers Association’s (OOIDA’s) website for per diem explanation for company drivers.

Maximize Your IRA Contribution Up ‘Til Apr. 15 – If you’re under the age of 50, you can deduct all contributions to a qualifying IRA or Roth IRA up to $5,000. If your 50 or older, $6,500 is deductible. You have until the filing deadline of April 15, 2014 to make contributions for the 2013 tax year.

Figure Out If Your Capital Losses Can Offset Your Gains – It’s too late to improve the picture for 2013, but bear in mind for 2014 that capital gains and losses on business property can affect your tax picture []. Deb Tibbitts, Senior Accountant at ATBS, explains what to look out for. Toward the end the year, it might make sense to delay selling something – whether that’s a truck or a stock – if it’s going to bump you into a higher tax bracket.

Similarly, Howard at PBS Tax points out that with stocks at record highs, beware that taking any gains can come back to bite you when you file for 2014. Also, it’s a good idea to take a look at your investments in general, and if one stock has become too large a percentage of your portfolio, consider selling some of it. More of Howard’s tax tips are on OOIDA’s site. And he even offers his phone number to any driver with tax questions: (800) 697-5153.

Questions?

Good online sources for answers to your tax questions:

H&R Block’s Tax Institute
TurboTax

And you can download Your Federal Income Tax (2013) (Publication 17), the IRS’s general guide for individual taxpayers.

Just in Case April 15 Comes Up Too Fast

Download an IRS extension form http://www.irs.gov/uac/Extension-of-Time-To-File-Your-Tax-Return from their website, but don’t forget an extension on filing doesn’t mean you get more time to pay your tax. You’ll still need to estimate what you expect to owe and pay when you file for the extension.

Be Ready for Next Year

Get a jump on 2014 with these tax planning tips for truckers.

 

Please note: This article is just a guide for deductions you may be able to take. Be sure to consult a tax preparer for deductions you’re actually eligible to take.

 

Before You Sign that Lease-Purchase Agreement…

23572182_sIt seems like a smart move: don’t dive head-first into truck ownership. Sign on with a carrier’s lease-purchase program and ease into being your own boss, leaving the responsibility for the financing to the carrier.

But what happens too often is the driver signs on the dotted line without reading or understanding the contract. They trust what the company rep tells them and don’t get a lawyer to help sort out the details.

Unfortunately the contract is written to protect the carrier, who remains the legal owner of the truck until the driver has the title in hand. That means you have all the financial responsibility of truck ownership – maintenance and repairs – without any of the financial benefit of building equity in the truck.

And the risk of your truck loan being through the carrier (vs. a bank) is that you’re pretty much stuck with them. If they drop your miles or start charging you more for incidentals, there’s not much you can do.

Not To Say it Can’t Work

Lease-purchase deals have worked for experienced drivers who were careful about who they signed on with. In this Overdrive Online article, you can read about Andera Jackson, a Dayton, Ohio, trucker with 24 years experience, who is in a lease-purchase agreement with U.S. Xpress of Chattanooga, Tennessee, and close to owning a 2007 Freightliner Century.

His advice? “Know what you’re getting into. This is my third lease-purchase. I did two one-year leases before this one. It gave me insights into what’s going on.” He thinks the right program can be a great deal for a business-minded driver.

Most carriers are honest and don’t set out to fleece drivers, but know that you’re taking big risks with some of the agreements that are out there. Some things to investigate before you commit to a lease-purchase agreement:

Make Sure the Carrier’s Financial Health is Good

One risk, as Timothy Brady explains in this post http://www.cash4truckers.com/blog4truckers/2012/11/the-insanity-of-a-carrier%E2%80%99s-lease-purchase-program/, is that if the carrier goes bankrupt, no matter how many payments the driver’s made, he loses any stake in the truck and it goes on the block as one of the carrier’s assets to be liquidated. Investigate any company you’re considering. If it’s a publicly traded company, you can find their annual report on their website. If it’s not, ask the tough questions about long-term financial prospects and debt level. Research the company’s reputation in the industry.

Be Clear What the Company Is Paying For

Calculating what it’s really going to cost to take on a truck payment, you need to know what you’re going to get nickeled and dimed for. The Owner Operators Independent Drivers Assoc (OOIDA) points out that layovers, detention time, canceled loads, multiple drops and picks, insurance, permits – all these together start to take a big bite out of your profits. (Click to see OOIDA’s long list of questions to ask the interviewer when you’re searching for a carrier to lease with.)

Consider All Your Options for Financing

Allen Smith, founder of Truth About Trucking, explains that even though some lease-purchase programs work well, the failure rate is high for most participants. But these plans attract a lot of aspiring truck owners because they’re the easiest route. Problem is, if they’re making it easy for you, it’s unlikely to be the most economical route. Consider these other options that will be cheaper and make you less vulnerable to the whims of your employer:

  • Lease from a third party – You’ll probably get a better rate and you’ll be able to drive the truck for whoever you want. You will need to have decent credit and a down payment. Some may also offer a lease-to-buy option.
  • Finance your truck purchase through a bank or the Small Business Administration – You’ll need a down payment and good credit, but you’ll have the flexibility to drive the truck for any employer and if things don’t go well, you can sell the truck and pay off the loan.
  • Save up enough to buy a truck – this is probably the hardest way to go, but it positions you best for success. You’ll pay no interest, won’t be saddled with a house payment’s worth of debt and can leave a carrier’s employment without paying a penalty.

Do You Really Want to Own the Truck Offered?

If it’s been leased many times before, it’s probably not a vehicle you want to own – and probably this means the lease-purchase program itself should be avoided. Look closely at all the maintenance records. Be sure the truck’s mileage seems reasonable for its age. The carrier should have records of any recalls and when they were resolved.  If warranties are offered, study the terms.

Prepare for the Payoff

Lease-purchase plans for newer trucks often require the driver to come up with a large payoff to complete the agreement and take ownership of the truck. If you don’t prepare, you could make payments for years and have nothing to show for it because you can’t make that final payment.

Make Sure You’re Cut Out to be a Businessman

Even if the lease purchase deal seems fair and a good way to become an owner, take a step back first and make sure the truck-owning life is what you really want.

Small fleet owner and radio show host Kevin Rutherford says most people considering the move to being an owner-operator will list three reasons they want to do it: First, usually is “to make more money. Then it’s more ‘freedom’, ‘less hassle’, ‘fewer rules’. If your answers sound like these,” he says, “think again before you proceed,” because you’re likely to be disappointed.

According to Rutherford there are better reasons for taking on the additional work and away-from-home hours. Drivers who transition successfully to owner-operators are usually those who do so because they want the additional responsibility and challenges of being a business owner, and want to build a business that will support better lives for them and their families. Read the list of questions Rutherford suggests you ask yourself to further test your assumptions about being an owner-operator.

How Will Health Care Reform Affect You and Your Taxes?

This guest blog post comes from Esta Klatzkin, a tax and financial consultant who specializes in providing tax accounting and financial services to Owner/Operators, contract haulers, and other long-distance truck drivers in the transportation industry. Learn more about Esta and her company, kNOw TAXES, by clicking here.

It’s massive, and it’s complicated. At more than 2,400 pages, the Affordable Care Act (ACA for short) has left businesses and individuals confused about what the law contains and how it affects them.

The aim of the law is to provide affordable, quality health care for all Americans. To reach that goal, the law requires large companies to provide health insurance for their employees starting in 2015, and uninsured individuals must get their own health insurance starting in 2014. Those who fail to do so face penalties.

Insurance companies must also deal with new requirements. For example, they cannot refuse coverage due to pre-existing conditions, preventative services must be covered with no out-of-pocket costs, young adults can stay on parents’ policies through age 26, and lifetime dollar limits on health benefits are not permitted.

The law mandates health insurance coverage, but not every business or individual will be affected by this requirement. Here’s an overview of who will be affected.

For Businesses – It’s all in the numbers

  • Fewer than 50 employees

Companies with fewer than 50 employees are encouraged to provide insurance for their employees, but there are no penalties for failing to do so. A special marketplace will be available for these businesses, allowing them to buy health insurance through the Small Business Health Options Program (SHOP).

  • Fewer than 25 employees

Small companies that pay at least 50% of the health insurance premiums for their employees may be eligible for a tax credit for as much as 35% of the cost of the premiums. To qualify, the business must employ fewer than 25 full-time people with average wages of less than $50,000. For 2014, the maximum credit increases to 50% of the premiums the company pays, though to qualify for the credit, the insurance must be purchased through SHOP.

  • 50 or more employees

For companies with 50 or more full-time employees, the requirement to provide “affordable, minimum essential coverage” to employees has been delayed for one year and is not required until 2015. Originally, employers had been required to file information returns that reported details about the health insurance they provided, with penalties to apply if the insurance did not meet standards. Companies complained that they needed more time to meet the reporting obligations, and in response the IRS made the reporting requirement optional for 2014. Without the reporting, the IRS could not determine penalties, so the penalties also were postponed for a year.

Bottom line: the IRS is encouraging companies to comply in 2014 even though there are no penalties for failure to do so.

  • The business play or pay penalty

Starting in 2015, companies with 50 or more employees that don’t offer minimum essential health insurance face an annual penalty of $2,000 times the number of full-time employees over a 30-employee threshold. If the insurance that is offered is considered unaffordable (it exceeds 9.5% of family income), the company may be assessed a $3,000 per-employee penalty. These penalties apply only if one or more of the company’s employees buy insurance from an exchange and qualify for a federal credit to offset the cost of the premiums.

For Individuals – It’s all about coverage

Currently, attention is focused on the health insurance exchanges or “Marketplace” that opened for business on October 1. Confusion about the Affordable Care Act has left many people thinking everyone has to deal with the exchanges. The fact is that if you are covered by Medicare, Medicaid, or an employer-provided plan, you don’t need to do anything.

Also, if you buy your health insurance on your own and are happy with your plan, you can keep your coverage. However, the only way to get any premium-lowering tax credits based on your income is to buy a plan through the Marketplace.

  • The Exchanges (Marketplace)

Each state will either develop an insurance exchange (Marketplace) or use one provided by the federal government. The Marketplace will allow those seeking coverage to comparison shop for health plans from private insurance companies.

There will be four types of insurance plans to choose from: Bronze, Silver, Gold, and Platinum. The more expensive the plan, the greater the portion of medical costs that will be covered. The price of each plan will depend on several factors including your age, whether you smoke, and where you live.

Many individuals will qualify for federal tax credits which will reduce the premiums they actually pay. Each state’s Marketplace will have a calculator to assist individuals in determining the amount, if any, of their federal tax credit.

  • The individual play or pay penalty

If you’re one of the 45 million or so Americans without health insurance, you will need to get coverage for 2014 or pay a penalty of $95 or 1% of your income, whichever is greater. Low-income individuals may qualify for subsidies and/or tax credits to help pay the cost of insurance.

The penalty increases to $325 or 2% of income for 2015 and to $695 or 2.5% of income for 2016. For 2017 and later years, the penalty is inflation-adjusted. Those who choose not to be insured and to pay the penalty instead will still be liable for 100% of their medical bills.

Note: If you will be shopping for health insurance on the Marketplace, be aware that there’s no need to rush to enroll; the enrollment period runs from October 1, 2013, through March 31, 2014. Take the time you need to review your options and select what’s best for you and your family.

More About the Law and Your Taxes

In addition to the penalties required by the Affordable Care Act, the law made other tax changes that could affect you. Among them are the following:

  • Annual contributions to flexible spending accounts are limited to $2,500 (indexed for inflation).
  • The 7.5% adjusted gross income threshold for deducting unreimbursed medical expenses increases to 10% for those under age 65. Those 65 and older can use the 7.5% threshold through 2016. The additional tax on nonqualified distributions from health savings accounts (HSAs) is 20%, an increase from the previous 10% penalty.
  • The payroll Medicare tax increases from 1.45% of wages and self-employment income to 2.35% on amounts above $200,000 earned by individuals and above $250,000 earned by married couples filing joint returns. This rate increase applies only to the employee portion, not to the employer portion.
  • A 3.8% Medicare surtax is imposed on unearned income (examples: interest, dividends, capital gains) for single taxpayers with income over $200,000 and married couples with income over $250,000.

The Affordable Care Act may be one of the most complicated and confusing laws ever passed, but one thing is very clear: the law will affect the taxes of most Americans. In order to manage your tax bill, you will have to factor the new health care rules into your overall personal and business tax planning. For guidance, contact our office at (818) 345-7456.

To begin checking out your state’s exchange (Marketplace), start at www.healthcare.gov – the federal government’s website on the Affordable Care Act.

NOTE: This Memo is intended to provide you with an informative summary of the tax issues connected with the Affordable Care Act. This massive package of legislation contains varying effective dates, definitions, limitations, and exceptions that cannot be summarized easily.

You’ve Just Inherited a Truck. Sell it or Hire a Driver?

That’s the question posted over on TheTruckersReport.com forum. The resulting thread includes 62 responses and gets into all the nitty gritty of insurance, business plans, lease/purchase vs. owning, profit margins, how many cents/mile you’d need, maintenance expenses, how much to pay employees, what benefits to give them, and on and on.

Survey Says….

The consensus seems to be that for the hard-working, business-minded individual, hiring drivers, while risky, can pay off in the long run.

One driver, who claims to own 15 trucks and net $110,000 a year, chimed in with the following comment: “I went door-to-door at every business in my town with my portfolio of my ideas and found a local business that needed my services. I’ve dedicated my entire fleet to hauling just their product – which cut out having to deal with brokers.”

It Could Be a Very Bumpy Ride

But this fellow, who identifies himself as “Sled,” may be one of the luckier ones. According to the National Assoc of Small Trucking Cos (NASTC), the failure rate of small, start-up trucking companies is about 85%. Only 15% make it to the second year of operation.

NASTC offers training to help aspiring fleet owners beat the odds. On their website you can find more info about their training.

On that page you can also find a list of about 20 questions – just the tip of the iceberg as far as the kind of business planning you’ll need to do: How do you plan to find freight? Where do you plan to run? How will you find insurance? How are you going to keep the books? How are you going to do log audits, fuel taxes, and driver qualification files? How are you going to manage and interpret data and information?

Getting More than the Going Rate: the Secret Sauce is Customer Service

There’s easily a hundred details to work out and a hundred smart decisions have to be made, but before you get overwhelmed, there is a trick of the trade that can improve your chances: great customer service.
According to this article in Heavy Duty Trucking magazine, working smarter, not harder is the key. And the smart way to work is to focus your effort on building great relationships with your best customers. Earn trust by going above and beyond, and the good customers will pay more than the prevailing rate.

The Small Fleet Advantage

In fact, small fleets are in a better position to go above and beyond for their best customers, says Keith Tuttle, president of Motor Carrier Service Inc. of Northwood, Ohio. “We do many things for our customers that the huge carriers cannot do,” he says. “We put a service moat around them to keep others out – the specialty stuff, the last minute calls, the weekend stuff. The idea is to make the customer look good to their customers, and they will keep coming back.”

Rich Hernandez of Mustang Express in El Paso – also quoted in Heavy Duty Trucking – attributes his success to “reliability and transparency” with his customers. He says, “I can’t haul every load, but the customers who trust me with their freight know I’ll be there when I say I will, and if something goes wrong, I’m on the phone working it out. I believe they appreciate my honesty and effort, because they keep calling back.”

Focus on Priority Customers

Hernandez some customers are always shopping for rates. He gives them the best service he can but when he has to prioritize, they aren’t at the top of his list. “I look after my good shippers and take care of the rest as best I can,” he says. “The key is knowing the difference.”