Tax Tips
Year-end and critical tax time preparation

By Howard Abrams, PBS Tax & Bookkeeping

Fred, a company driver, asks the following: "I was a company driver for 10 months and started operating as an owner-operator at the beginning of November. Even though my business will show a loss, can I take the section 179 deduction for the tractor I purchased against my salary as a company driver that I earned the first 10 months of the year?"

Yes, as long as you are filing as a sole proprietor, Schedule C (Form 1040). However, you may not want to. You also may not want to maximize your regular depreciation. Because you have a loss from your business, you will not be paying any self-employment tax, which is 15.3 percent of net profit.

If you take maximum depreciation, you will reduce your income tax, but the excess depreciation you take will not help you reduce self-employment tax in the future. Just take the minimum depreciation allowed and reap the benefits of more depreciation in the years to come to offset not only income tax, but the Social Security tax as well.

John, an independent trucker filing a sole proprietor Schedule C, called to discuss the results of his tax return. "I'm nervous that my return might be audited. Do I have anything to be nervous about?"

We live in a time of extremely low IRS audits. That being said, your chances of being audited vary based on different factors - namely your income level compared to the types and amount of deductions claimed. The fact that you have a Schedule C does increase the chance of your return being scrutinized, along with the higher income level you have and high charitable deductions. Don't lower your income level. Just make sure you can support all deductions claimed, and report all income whether you receive a 1099 or not.

Another area that is looked over by the IRS is any businesses that are cash intensive and any business that reports a loss. Again, have ample support documentation for what appears on your tax return.

Other areas of concern for taxpayers are the following claims:

  • Alimony;
  • Hobby loss;
  • Meals, travel and entertainment;
  • Cars, SUVs or pickups claimed as business use (especially claiming a 100 percent writeoff with no indication of the personal use of those vehicles);
  • Early withdrawal of your 401(k) or IRA before age 59 1/2 without showing the 10 percent penalty. Make sure you fall into one of the penalty exception categories;
  • Gambling income and deducting gambling losses in excess of income;
  • Home office deduction. It's legal but does get scrutinized; or
  • Rental property losses.

I'm a company driver, but I don't know which expenses are deductible.

As an over-the-road trucker you may deduct your actual cost for meals. Save your receipts or deduct the IRS per diem allowance using your logbooks as substantiation. Regardless of which method you choose, 80 percent of your total expenditure or per diem is deductible. S Corp shareholders are not entitled to claim per diem unless shown as an itemized deduction on your personal tax return. The corporation can claim a deduction for actual reimbursement of meals and lodging. 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 our website at www.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.