Have you been trucking since 1912 or earlier? If so, you are a true trucking pioneer, have an incredible fitness regimen and once earned an income without paying the Internal Revenue Service a dime!
Thats right. It wasnt until 1913 that income tax was made a permanent hassle by the Sixteenth Amendment to the U.S. Constitution. That means 2013 marks the 100th anniversary of the IRS.
While this is not a day you will celebrate with cake and gifts, it is a good idea to devote some time and effort to your relationship with this federal monster, because forgetting an anniversary with your significant other may seem like a cakewalk compared to the tax man!
To keep your trucking business running smoothly and the tax man away, it is critical to prepare for tax season. Lets take a look at a few tips to get your trucking business ready for this tedious but necessary part of running a business.
Keep Accurate Records
Whether you plan to file taxes yourself or hire a professional, the most important first step you can take is to get yourself organized and know what you need to keep and what you can throw away. It is important to maintain the right records to keep the tax man off your back. These include receipts, invoices and bank statements.
One good way to stay organized is to simply get a box of envelopes at the local truckstop and start putting every receipt for that month into one envelope that you label January or whichever month you are in.
Another way is to buy a file folder at any local office supply store such as Staples or Office Depot. File folders will let any trucker put receipts for each category such as fuel or food into one folder for each month. This way, you or your professional tax preparer can quickly understand what expenses were incurred in which week or month.
Track Payments to Subcontractors
If you paid anyone for any work last year, that person was most likely a subcontractor, and if youve given work to a subcontractor you must keep track of those payments.
For payments to a subcontractor that were more $600, he or she must complete a W-9 form and return it to you. Its simple enough to be filled out at a long stoplight, although you may wish to advise your subcontractor not to fill it out until theyre safely pulled over!
Have any subcontractor complete this form if you suspect he or she will be paid at least $600 during the year. For example, if you typically subcontract several thousand dollars worth of work every August to cover for a vacation, have each worker fill out this form on the front-end in case you lose touch later on.
Take Advantage of Tax Deductions
There are countless tax deductions that small business owners such as you can take advantage of.
A tax deduction is an expense, something you paid for during the year to run your business. This expense gets subtracted from your taxable income and is called a tax deduction. The less taxable income you have, the less tax you pay.
Neglecting to take advantage of all your legal tax deductions means you are paying too much in taxes, so use all available deductions. Your tax professional should be able to find all available items to deduct and keep more money in your wallet.
Consider Hiring a Tax Professional
As an owner-operator, youre a do-it-yourselfer. However, unless you are very adept at tax preparation, Uncle Sam may become an uninvited guest in your lif.! So it pays to hire a professional.
"There are well over 72,000 pages in the IRS tax code," says Scott Christensen, director of tax at Equinox Owner-Operator Solutions. "While nobody has memorized every tax law, a professional can help make sense of your taxes and get them right the first time."
Taxes are perhaps the most complicated part of your life. (If they arent, it would be interesting to know what kind of life you live!)
Given the complexity of this issue, it will be worthwhile to start thinking about your taxes early and begin considering what you need to focus on in order to have your trucking business ready for tax season.
Keeping thorough documentation, educating yourself about possible tax deductions and reaching out for professional advice if needed can help you avoid being the next IRS punching bag. By doing so, youll be prepared for tax season and make it go as smoothly as possible.
Colton Lawrence is a CPA and vice president of finance for Equinox Owner-Operator Solutions, which offers business services for truck owner-operators such as bookkeeping, tax and payroll preparations, fuel analysis and real-time business consulting.