It's important that no matter what, you file your tax return April 15

Tips for tax time

By JOHN EWING
Truckers Connection

4/10/2008

So with April 15 just around the corner, here’s your reminder to take care of your taxes.

Either finish them up and get them paid if you own something or file for an extension.

If you’ve gotten them done, but you’re coming up short on what you need to pay them, file anyway and just send in a partial payment or no payment at all.

It is better to file and not pay or only pay a portion than it is to simply ignore your taxes.

The IRS can and will impound your truck if you have unpaid back taxes and the penalties for not filing are stiff. 

Failure to File Penalty

This is calculated from the time your return was due and the penalty is five percent for each month the tax return is late up to a maximum penalty of 25 percent of the tax due on the return.

Failure to Pay Penalty

This is 0.5 percent of the amount due for each month that the tax is not paid in full.

Interest

This rate changes every three months. Currently it’s six percent per year and is based on the amount you owe. 

As you can see, failure to file carries the biggest penalty, so even if you can’t pay the bill when you file, it still pays to file on time. To put this in perspective for those of you who aren’t good with numbers, if you own Uncle Sam $4,000 in taxes and you don’t file a return until April of the following year your tax bill will go up t

Taxes due: $4,000

Non-Filing Penalty: $1,000

Non-Payment Penalty: $25.06

Interest: $308.39

So, your original $4,000 tax bill has now grown to $5,333. If you had filed and waited until April of the following year to pay this bill it would only be $4,246.71. Not filing cost you $1,086.74. So even if you have to wait a year to pay them, FILE YOUR TAXES now. These penalties only apply to tax due. If you have a refund coming, there are no penalties for filing late. But unfortunately many new owner-operators don’t realize that they need to be making estimated tax payments throughout the year and end up with a big bill at the end of the year. Once you’ve filed your first years’ taxes it’s easy to calculate your estimated payments for the following year, and if you’re using an accountant, they should provide you with payment coupons for your payments. It’s that first year that get many owner-operators and contract drivers into trouble, as they may not even be aware of the need to file estimated taxes.

There are basically two strategies that you can follow in filing your estimated taxes. The first is to simply take what you paid the previous year and divide it by four. Then make a payment of that amount each quarter. This may get you into trouble though if you make considerably more as an owner-operator. The safer method is to base your yearly projections on your current quarter and then adjust it as the year progresses. To use this strategy, you would take your net revenue (what’s left after you deduct all your expenses for the quarter) and multiply it times four at the end of the first quarter. That will give you your projected income for the year. At the end of the second quarter, you would take your net revenue for the first six months and multiply it times two to get your new projected income for the year. At the end of the third quarter it’s a little more complicated, but still relatively simple. Take your net revenue for the first three quarters and divide it by nine, then take the result and multiply it times 12 to get your yearly projected income.

Once you have your yearly projected income you will take that and multiply it times your tax rate, plus the self-employment tax rate. For most truckers, whether single or married, the tax rate is going to be the same as an owner-operator as it was as a company driver. This doesn’t mean you won’t make more as an owner-operator, it simply means that you will probably not make enough more to move you into the next tax bracket. The average truck is making $30,000 to $50,000 a year. If you’re married, you would have to increase that to more than double to move into the next tax bracket. So, to get your average tax for federal withholding, take your 1040 for the previous year and divide your income tax, line 43, by your adjusted gross income, line 37.  Now take that number and add the 15.3 percent self-employment tax to it and you’ll have the tax rate you’ll need to figure your approximate tax amount.

Here’s an example to help make this clearer. Let’s use “Success” again and let’s say that last year Success made $40,000 in wages. After taking all of his adjustments he ended up with an adjusted gross income of $30,000 and his federal tax for the year was $3,000 (this does not include social security or medicare). So, 3000/30000=10 percent, his average tax for the year. So now we’ll add 0.10 + 0.153 and get 0.253, his effective withholding rate.

This year during the first quarter, after paying all his deductible expenses for the business (fuel, fees, interest on his truck, etc.) success had $12,000 left. Then he would want to pay 12,000 x .253 = 3063.00 in estimated tax. You can also do this calculation monthly if you want. Simply take your Net Profit for the month and multiply it times your average tax rate to get the amount due for that month.

If all this seems like a lot of work or math just isn’t your thing you can find a tax calculator on our forums, www.thetruckershelper.com. Click the forum for Truck Taxes and you’ll find the calculator at the top of the forum. All you’ll need for the calculator is to put in your average income either weekly or monthly and the calculator will tell you how much you owe Uncle Sam using the current tax table rates. This will give you the same numbers an employer would get if he were withholding, so it will give you an accurate estimate of what you need to send in for your estimated payment.

Estimated taxes are due April 15, June 15, September 15 and January 15. You can also pay your estimated taxes monthly if you wish and this is sometimes easier as it’s a smaller payment if you break it up into 12 payments instead of four. If you are good at saving and can not touch your tax money even in an emergency, then you might as well make the interest by putting the money away a little each week and then pulling it out only when the payment is due. If you’re not good at saving, or if that big chunk of savings is too tempting when you need to fix the plumbing, send it into the IRS monthly. If you don’t pay Uncle Sam you may not have any plumbing to fix, so keep those tax bills paid.

 Till next month, be safe.