Deadhead Miles

1099 or W2: Who Cares?

Taxable Gain On Sale Or Disposition Of Equipment

Estimated Income Taxes

How Long Should You Keep Records

Title: Tax Areas Commonly Misunderstood
Author: Howard and Shata
Published By: Independent Contractor

A common misconception concerns deadhead miles.  There are many owner-operators and tax preparers who think that income lost as a result of deadhead miles is a deductible item.  That is not the case.  Only the cost to operate the truck i.e., fuel, repairs, maintenance covering those deadhead miles is deductible.  Additionally, many truckers often ask whether doing their own maintenance is a deduction.  You cannot deduct your time the benefit is that you are saving the cost of having someone else do the work.

Some owner-operators do take a deduction for deadhead miles as well as a deduction for doing their own repairs.  However, if they are audited, those deductions will be disallowed and they will be paying not only the tax owed, but penalties and interest as well.

This is insurance you’d get if you worked for someone else, like Sears or Wal-Mart. They usually pay for it, but your at a much less wage than if you were self employed.

This area is often misunderstood and results in having to pay penalties and interest to the IRS.  When you sell equipment that has been fully depreciated, you have a taxable gain to report.  For example, you purchase a tractor for $80,000 and you own the tractor long enough to claim $80,000 in depreciation.  You now have an adjusted basis of zero.  You then sell the tractor for $40,000; you now have a $40,000 taxable gain.  Many truckers and their tax preparers think that in this situation there would be a $40,000 loss since they paid $80,000 for the truck and sold for $40,000.  That is not the case as illustrated by the example we have just given you.  A benefit to trading equipment instead of selling is that the gain on equipment that is traded is not reportable to the IRS (i.e. no taxable gain); however, it does lower the basis on the new equipment.  There is also a benefit to selling equipment (i.e. not trading) and reporting the gain.  Your tax advisor can explain this to you.

If you happen to run into financial trouble and your truck is repossessed, you can still have a gain if the balance of the loan is greater than the truck’s adjusted basis.  What happens if you turn your truck in or it was repossessed and you owed $20,000?  The IRS says that any loan forgiveness is a taxable event.  When the property is repossessed or abandoned, the taxpayer generally reports the transaction as if it is a sale.  The amount realized on the sale of the property is determined by whether the debt was non-recourse or recourse.  The borrower is personally liable to pay any amount of the debt not covered by the value of the property.  The amount realized is the smaller of the debt cancelled or the fair market value of the transferred property.  Report the income from cancellation of a debt as business income.  The only time you would not have to report a gain for a loan forgiveness is if you filed for bankruptcy or if you’re insolvent.

Title: Tax Areas Commonly Misunderstood
Author: Howard and Shata
Published By: Independent Contractor

Many truckers who do not pay their estimated income taxes on a quarterly basis and prefer to wait until the end of the year are often surprised to find out that they have been charged penalties by the IRS.  The point here is that as a self-employed individual you are required to make quarterly estimated payments.  This is not an option!  The IRS want to get their money on a timely basis throughout the year and so they have set up a method of paying estimated taxes four times a year.  First quarter estimate is due April 15, second quarter estimate is due June 15, third quarter estimate is due September 15, and the fourth quarter estimate is due January 15.  If you do not adhere to this schedule, you are subject to penalties for any underpayment of your taxes.  If you are unable to pay the full amount set up by your tax preparer, pay as mush as you can instead of not paying at all.

Title: Tax Areas Commonly Misunderstood
Author: Howard and Shata
Published By: Independent Contractor

There are many different opinions as to how long to keep tax records.  We suggest to our clients that they keep records for at least 5 years and if they have enough space, we encourage them to keep seven years worth of tax information and returns.  This is especially true of our self-employed clients.

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.  Contributions to this article were make by Shasta May, Director Business Development for PBS.  If you would like further information, please contact us at (800) 697-5153.  Visit our Web Site 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.”

This is insurance you’d get if you worked for someone else, like Sears or Wal-Mart. They usually pay for it, but your at a much less wage than if you were self employed.

This is BUSINESS insurance that is required and is activated when you are under dispatch (deadheading) to go get your load, BUT NOT YET LOADED.

The phrase “Bobtail” was coined after a small animal named Bobcat, which has a short, stubby tail (Bobtail) while other animals typically have long tails. When a tractor has no trailer (missing the long tail) this was coined “Bobtailing) since the tractor has no load since it has no trailer. Normally Bobtail is associated with tractor trailers but now generally includes any delivery vehicle with NO load.

When a vehicle has no load and is dead heading to pick up it's freight, typically it is not traveling long distances. A carrier generally will not send someone dead heading extremely long distances because there's no full paid money in it. This is when your Bobtail insurance is activated. Bobtail insurance is generally very inexpensive, paid monthly. It's cost is low because your traeling short distances, at lower rates of speed (most likely in urban pick up area's) with a lower speed limit and your not loaded so your units weight is not much, so the risk level of an accident / serious accident is minimal, making the cost realtively low.

When your loaded, Bobtail insurance “turns off” and Primary Liability  insurance “turns on” - the risks are tremendously different and so are the rates.