Tax Tips
Get ahead of your 2016 taxes

By Howard Abrams, PBS Tax & Bookkeeping

I’m an over-the-road trucker. I knew my business had grown and I was making more money. Wow, I could not believe what I owed the IRS on my 2015 income tax return. What can I do to prepare for this in the future?

You must keep current on the profitability of your business. Ask yourself how you are doing this year compared to last. Don’t just concern yourself with your gross income. Be concerned with your expenses and how they compare.

Also, compare how much you have in your business checking account in the current year to the previous year and search for why there may be any major changes. These comparisons during the year should alert you to what your current-year operations may look like once the year is complete, and you should act accordingly.

You are not alone when complaining about larger tax bills. Truckers whose gross income stayed the same for 2015 compared to 2014 had big increases in net profit. Why? Because their fuel expenditures dropped tremendously. Just a few years back fuel expense was running 35 to 45 percent of gross income. For 2015 that percentage dropped to 20 to 25 percent in many cases.

So I determine I’m doing much better this year and my net profit is going to be much higher than last year. What’s next?

Pay your estimated taxes. Since you paid income taxes for 2015 year, you should be set up to pay estimated taxes for this year based on those results. If you are doing better this year than last year, you would need to adjust your estimated taxes accordingly to reflect the potential tax increase. The goal is to enter the next tax season confident that you paid in enough in estimates that you should not owe any more taxes. In addition, paying your estimates should eliminate any underpayment penalties.

I’m usually afraid to send in quarterly estimates because I may need the money for possible breakdowns. How much should I set aside?

You need to project how much you should be paying and you should keep six months to one year of operating and living expenses on hand. If you come up short, you can set aside for taxes what you would owe, but keep the money on hand to ease your fears. In this case, you may be subject to underpayment penalties.

How much of my income should I set aside for taxes?

It’s best to have an income tax projection prepared to minimize the guessing game. If that’s not possible, then you should consider setting aside up to 10 percent of your gross income or up to 25 percent of your projected net income to cover potential taxes.

I am a non-filer and I owe the IRS back taxes. What should I do?

The first thing to do is get your back taxes filed. I’m assuming you are receiving letters from the IRS stating you owe those large amounts in back income taxes. What the IRS does is take any income information and prepares your taxes without the benefit of deducting any operating expenses or personal deductions. File your back taxes and get your debt to the IRS instantly reduced. It’s even possible that you may not owe them anything. You need to find that out by filing those delinquent returns.

Since the IRS is more interested in getting you back in the system, don’t worry about going to jail. But do worry about having your assets seized. If the IRS starts coming after you, set a timetable with them as to when those back taxes will be filed.

Another reason to get current with the IRS is you may need financing. You are operating a business. Life happens. It’s doubtful you can obtain any loans without showing your two most recent income tax returns to the loan underwriters. 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.