Tax Tips
Projecting your 1026 income taxes

By Howard Abrams, PBS Tax & Bookkeeping

I am an owner-operator and am really concerned about how much I will owe when I file my 2016 tax returns. I have more money now compared to last year and think my profit is up. I don't know what to do. Should I take the last month of the year off to reduce the amount I owe?

Wow. You said a mouthful. We suggest getting an income tax projection done to answer many questions in addition to what you asked. That said, we are seeing a majority of our owner-operator clients with higher incomes. If you are one who was able to tap into more trucking activity, combined with lower fuel costs, the end result might be higher profits and taxes.

You need to know your potential tax liability for the following reasons:

  1. To accumulate the money enabling you to prepay the possible taxes in advance of the due date to reduce interest and penalties.
  2. To find out what the effect is of not working the last month of the year. We are referring to cash flow as well as income taxes.
  3. To decide whether to purchase or trade for new equipment or to do that major truck overhaul. Can you pay for it?
  4. To help you decide whether you can make a retirement plan contribution and its effect on your taxes. Also, the type of plan to choose based on how much you may want to contribute.

What about writing checks in advance at the end of the year so my expenses are higher and, consequently, my profit is lower, which means lower taxes?

Yes, on a cash basis, you can deduct those checks on your business as long as they clear when they are presented at the bank and are sent by you before the end of the year. If the checks are returned for insufficient funds, then you cannot deduct the expenses for 2016. When they eventually clear, they will be deductible for 2017 taxes.

A payment by check is deductible when it is delivered to the payee or put in the mail (by the end of the year in the above scenario). If at the time the check is

presented to the bank, there are not enough funds to cover the check but the payee has overdraft protection and the bank honors the check, the deduction is still allowable in the year the check was given to or mailed to the payee. But if the check is presented to the payee and the payee is instructed to delay the cashing of the check because the sender's account has insufficient funds, the expense would not be deductible in 2016.

What sort of retirement fund should I consider?

We recommend opening a Uni-401(k) retirement plan before the end of the year to maximize possible retirement plan contributions. You don't have to fund the plan until 2017 when you're about to file your tax return and can see your potential tax savings. The plan offers a wide range of contribution limits. One word of caution, though: If you have any employees, you may have to contribute for them also. 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.