Tax Tips
Deductions and depreciation

By Howard Abrams, PBS Tax & Bookkeeping

I just reviewed my tax return, and it does not make sense. I sold my truck last year for $30,000. It cost me $60,000. Don’t I have a loss of $30,000?

No, you do not have a loss of $30,000. When you sell a depreciable asset such as a truck, you must compute its adjusted basis. You then compare its adjusted basis to the sale price and that will determine your gain or loss.

You bought the truck for $60,000 but over a few years you deducted $40,000 in depreciation. You then take the original cost of $60,000 and reduce it by the $40,000 depreciation you deducted since acquiring the truck, which leaves $20,000 as your adjusted basis.

You sold the truck for $30,000. The computation for the sale of the truck is as follows: The sale price of $30,000 is reduced by the $20,000 adjusted basis which leaves a $10,000 gain.

If you traded the truck in on a new one instead of selling it, the gain is not reported but you must reduce the basis of the new truck by that gain. There are advantages and disadvantages relative to sales of equipment versus trade-ins.

Also, keep in mind that loans do not affect gain or loss. So in the above example, if you bought the truck with a $10,000 down payment and borrowed $50,000 and you still owed $35,000 when you sold the truck, you would be out $5,000 after paying the truck off. However, you would still have a gain of $10,000. You would have received $30,000 from the sale, but you have to pay off the loan of $35,000.

I have been hearing a lot about taxpayers preparing their own tax returns. Are they doing the right thing? Should I be preparing my own tax returns and save the preparation fee?

Doing your own tax return could be an extremely dangerous endeavor. It’s not the accuracy that I’m worried about (computer-generated tax returns will always add up and be accurate). It is the content that could really hurt you.

By dangerous endeavor and content hurting you, I’m referring to the ultimate result. Other than straightforward income and deductions such as W-2 income and mortgage interest deduction, other items such as business expenses; depreciation; taxable and nontaxable interest and dividends; capital gains; and per diem reimbursement plans can present problems in judgment and actuality that can cost you more tax dollars than you’ll ever pay a tax preparer.

Be extremely careful about the company or individual you choose to prepare your income tax returns. New companies and those with bad reputations should be avoided. Make sure you get referrals of clients that have used the tax preparer for many years. A decision regarding which depreciation method to use and how much to expense can haunt you for some time whether you or a “not knowledgeable” tax preparer makes that decision.

I am a company driver. What is deductible when I’m on the road?

While self-employed individuals can generally deduct any expenses incurred to earn their income, company drivers are limited to non-reimbursed expenses required by their employer. You are entitled to per diem for overnights and motel expenses. A good rule to follow for deductions would be any expenses incurred that are necessary or required in the performance of your job and/or operation of the truck but are not reimbursed by your company, such as uniforms, gloves, logbooks, maps, cellphone, CB, tools, Windex, paper towels, showers, etc. Remember, as a company driver, these deductions are available only if you itemize deductions and are not available if you take the standard deduction. 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 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.

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.