Dollars & Sense

Year End Tax Planning

The end of the year is fast approaching and a little last minute tax planning can really help a lot. Here are some useful tips:

Contribute to charity
Make any charitable contributions before the end of the year. You can make a cash contribution or charge the contribution on your credit card.  Clean out the garage and donate unwanted goods to your favorite charity.  Be sure to get a receipt for your charitable contribution. 

Pay deductible expenses
If you need more write-offs, a good year-end business strategy is to prepay deductible business expenses before January 1, 2008 so you can take the write-off in 2007.  Pay insurance, state income taxes, buy new tires, and pay any business expenses you would normally be paying in January, 2008. 

Company drivers
Company drivers who are able to file an itemized tax return can maximize their employee business expense deductions also by making purchases for work related items before the end of the year.  These include work boots, gloves, cell phone, logbooks, flashlight, first aid kit, fire extinguisher, etc.     

Fund retirement account
Contribute to a deductible retirement plan.  If you are self-employed and looking for something other than an IRA/Roth IRA consider a Keogh plan.  However, Keogh plans must be opened before December 31.  Another option is the Uni-401(k) retirement plan which also must be opened by December 31.

Issuing Wage and Income Statements (W-2 and 1099)
If you’ve hired employees or independent contractors in 2007 you will be required to complete and mail their earnings statements by January 31.  This includes individuals that have hired their children to work in their business. 

Changes in tax status
Marriage, divorce, financial support of a parent, cohabitation, birth of a child, adoption, death of a loved one – all of these changes have an impact on your income taxes. Be sure to consult your tax preparer if you have experienced any of these events in the past year.

Note: You are considered married for the entire year even if you get married December 31st.

Tax implications of giving up equipment
If you’ve had equipment repossessed or voluntarily returned this year, be prepared for potentially significant tax implications.  The IRS considers defaulting on an equipment loan as a taxable income event. 

When equipment is repossessed or abandoned, the taxpayer generally reports the transaction as if it is a sale. Discuss potential tax implications with your tax preparer so that potential taxes can be kept to a minimum.

Per diem rates
The per diem rate for taxpayers in the transportation industry subject to DOT hours of service rules will remain at $52 per day with the deductible percentage increasing to 80 percent for 2008 and on.

Making estimated tax payments
Making quarterly estimated tax payments is one of the smartest things you can do.  If you think it’s tough coming up with a tax payment four times a year, it’s virtually impossible to come up with a lump sum on April 15th. Owing the IRS money is the last thing you want when you’re self-employed.    

Individuals who are self-employed, in a partnership, a member of an LLC or a small business corporation are subject to paying quarterly estimated income taxes.  Estimated taxes are due 4/15, 6/15, 9/15 and 1/15. 

The goal of the IRS is to make sure your taxes are paid based on your current year’s quarterly profit.  You can avoid underpayment penalties by paying the proper estimated taxes each quarter.

If a payment is due and you don’t have the full amount, pay what you can afford but definitely pay something. You will probably need the help of your tax preparer for exact calculations that include depreciation and other more complex tax issues. 

Best Wishes for a Healthy, Happy and Safe Holiday Season and a most Prosperous New Year from everyone at PBS Tax & Bookkeeping Service.

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 made 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.”