Owner Operators - Tax Tips
Year End Strategy
When operating your own business, the end of the year is a good time to review what worked for your business over the past 12 months and what didn't. Decide what changes need to be made and devise a plan to implement those changes in the upcoming year.
The foundation of every successful business is good bookkeeping habits. It's not enough just to keep receipts, although keeping receipts is very important. You must use the information from those receipts as a tool to manage your business. You need to know what's going on month-to-month with your income and expenses. Once you know those numbers it's a simple calculation to figure out your cost per mile (CPM). Total expenses per month divided by number of miles run per month equals cost per mile (CPM).
Expenses ÷ Miles = (CPM)
It's pretty much the same to figure your profit per mile. Net profit (money left after all business expenses) divided by number of miles run equals profit per mile.
Net Profit ÷ Miles = Profit Per Mile
Don't confuse what you're paid per mile with what you actually make per mile. You may be paid $1.20 per mile, but in reality it could be costing you .88 cents per mile to run, so you actually make .32 cents per mile. It's important to be informed, and to be informed you need to keep track of the proper information.
Hiring a good trucking accountant is probably one of the best things you can do for your business. If you can't afford to hire an accountant to handle your month-to-month bookkeeping needs, you really need to do the bookkeeping yourself. And you absolutely need a good trucking accountant for your year-end taxes. It's never a mistake to have a professional trucking accountant prepare your income taxes.
Year End Tax Strategies
Make charitable contributions before the end of the year. As long as you can itemize, you can deduct contributions of cash or goods to help reduce your tax bill. Maximizing medical deductions at the end of the year is a smart move. Medical and dental expenses can help reduce your tax bill, but only if you have enough deductions to qualify. The IRS says you can deduct all medical/dental expenses that exceed 7.5 percent of your adjusted gross income. That means if you make $40,000 you can deduct all eligible expenses over $3,000. Eligible means not covered by insurance or reimbursement plan. Cosmetic surgery does not count; there must be a medical reason for the procedure.
Income shifting is a great way to maximize the payment of expenses. If your income is up, pay as many expenses as possible prior to December 31 to lower tax for this year. For example, prepay charitable contributions and state income taxes. If income is down, try to defer paying the expenses until January, if possible. Also, it is favorable from a tax standpoint to purchase and put into service equipment or cars used in your business prior to the end of the year.
Company drivers who are able to file an itemized tax return can maximize their employee business expense deductions also by making purchases for work-related items before the end of the year as well. These include work boots, cell phone, flashlight, first aid kit, fire extinguisher, etc. Remember, this is true only if you are able to file an itemized tax return. If you do, you can deduct any expenses that are necessary or required in the performance of your job and/or operation of the truck, but are not reimbursed by your employer.
Per Diem Rates
The per diem rates for taxpayers in the transportation industry under DOT hours of service rules stays at $52 per day for 2007. The deductible percentage is 75 percent for 2006 and 2007.
The New Year is always a chance to make a fresh start. This coming year make a resolution to make the best choices for your business. Take care of your bookkeeping, make estimated tax payments, and hire a good trucking accountant to do your year-end taxes.
Best Wishes for a Healthy, Happy and Safe Holiday Season and a most Prosperous New Year from Everyone at PBS Tax & Bookkeeping Service.