Tax for O/O

[gondi]

I was talking to an O/O and he was showing a way to handle your income so you would pay less taxes. I'll try to explain it the best I can. Anyone with any input please post, I basically want to know if this is actually legal or just some bs.

He basically said that I should have 3 accts.(Truck acct., Maint. acct., and my personal acct.) The check from the company my truck is leased to should go into the Truck account. All the expenses (payroll, fuel, truck maint, bobtail ins., etc..) comes off the truck account. He basically says that the payroll(take home) is not taxable so therefore he doesn't pay taxes on his personal income, He only pays taxes on the profit left after all the expenses are deducted. Here is an example with estimated figures:

Team Driving
225,000 miles @ .96cpm= $216,000

Expenses per year
$110,000 ($55,000 each driver)
$18,564 truck payment
$43,269 fuel (leasing to fedex ground 1.25 per gallon)
$20,250 set aside for maintenace

All this equals out to $194,315 per year leaving a total profit of $21,685.

So according to him if I do it this way I would only pay taxes on the $21,685 right? Does this seem ok, or do I still gotta pay taxes on the $55,000 I would pay myself?

[Rev.Vassago]

Your income is most certainly taxable. Anyone who tells you otherwise is either a liar, or a tax cheat. You pay tax on anything left over after all deductions.

This applies if you are a sole proprietor. Corporations are done a bit differently.

[gondi]

So I still have to pay taxes on my personal income and the profit of the truck right?? If so which one pays more taxes (%age wise) the profit of the truck or my income? I knew that it all sounded bs.

[Rev.Vassago]

Under a sole proprietorship, the IRS considers EVERYTHING the truck earns as income. Then you go in and deduct your expenses (fuel, depreciation, interest on loans, lease payment, insurance, etc.). That gives you your net income. That is what you are taxed on. There is no "salary" and "truck profit". It is all the same.

Under an S corp, you can shelter some of the income, and defer any taxes you would pay on it. In that situation, you would draw an income, and that is what you would be taxed on (just as if you were an employee). But in that situation, you would have to deduct taxes as if you were an employer. There is no real benefit to having an S Corp for a sole proprietor.

A competent trucking accountant can walk you through all of this. I recommend American Truck Business Services http://www.attrucktax.com/ They are my accountant, and truck taxes is all they do.

[BanditsCousin]

Whoever is recieving compensation will have to pay tax. In this case, each of your team drivers. They don't have to have befits and insurance or anything, but they must get a pay stub, whihc is filed like the rest of America (W-2, 1099, etc)

The PROFIT from the operation is also taxable, hence why you should be trying to run for a loss. Thats right, a loss. At CRE, you'd never have to lie about your taxes

[P Jug Joe]

Yeah- right. The IRS isn't going to make you pay income tax on income.

Umm... there are ways to pay less in taxes, but what you are saying doesn't make sense. If each driver is being paid $55,000 then that is personal income. There are some STATES that don't tax personal income, but the federal government taxes it no matter what state you are in.

Just like there are some states that don't tax small business corporations- but the federal government does.

Your scenario doesn't work. Talk to a good trucking accountant.

[rank]

Team Driving
225,000 miles @ .96cpm= $216,000

Expenses per year
$110,000 ($55,000 each driver)
$18,564 truck payment
$43,269 fuel (leasing to fedex ground 1.25 per gallon)
$20,250 set aside for maintenace

All this equals out to $194,315 per year leaving a total profit of $21,685

I'm not an accountant.

The whole idea is based on the fact that our governments penalize those who are financially successful. If you paid personal income tax on that $76,000 that would be successful so the idea is to split it into smaller chunks so you can be a failure.

So your trucking business profited $76,000 correct? ($55,000 to you and $21,000 left over).
Like Rev says...it might be advantageous if the trucking company is a corporation. Here's approx how it would work in Canada.
The drivers would each pay approximate average rate of 30% tax on that $55,000 and the corporation would pay 18% tax on the $21,000.

If the drivers were treated as self employed contractors you *might* be able to get away without income tax at source and paying them benefits....BUT, this amounts to less pay for the driver so you'd likely need to pay more than $55,000 if you were to get anybody that's any good.

Tax rates really sky rocket when you start earning over $40,000 as an individual, but corp. tax rates stay at 18% up to 300,000. It might be advantageous if you payed yourself (driver) as little as possible because personal tax rates are high and leave as much profit as possible in the corp (where tax rates are low until you hit $300,000).

SCENARIO 1:
Sole Prop and take all $76,000. For simplicities sake, lets say you pay 25% tax on the first 40,000 and 50% on the remaining $36,000. As a sole prop you pay $28,000 tax on $76,000 ($37% average).

SCENARIO 2:
Incorporate and take $20,000 salary as a driver and the corp profits $56,000. Tax bill is $5,000 on the $20K and $10K on the $56,000 for a total tax bill of $15,000.

You save $13,000 in tax...BUT you eventually need to get that money out of the corp at which time you will need to pay personal tax rates.

I am not an accountant.

[BanditsCousin]

For someone who isn't an accountant, you sure break it down well

The name of the game is to show as little profit as possible. If you can show yourself at a LOSS, even better! Remember, 5 years at a loss triggers a red flag for an audit.

There's only so much I can say on a public forum without the IRS calling me or paying me a surprise visit, but talk to any o/o thats been in the biz 10+ years and you'll catch on. I got my "diapers changed" in one afternoon at the EZ8 in Pheonix by a couple of bedbuggers over some beers. I think I have a PhD in taxes now! 8)

[LOAD IT]

There is no real benefit to having an S Corp for a sole proprietor.

The benefit of an S Corp is you right off the loss against your personal income tax. Also being a Corporation protects all of your personal assets including your rig which you lease to your S corporation. Talk to an accountant and a lawyer, and not a truck driver for sound advice when you are ready to make the leap.

A LLC set up is a good way to go, it is simpler than a S or C corp. The profit ( if any, after all legitimate deductions) is simply passed thru and taxed at your personal rate.

[Rev.Vassago]

Also being a Corporation protects all of your personal assets including your rig which you lease to your S corporation.

This is not necessarily true. If you were to get into an accident, and the person you hit sued both your company AND you (as the driver), then your personal assets would be at risk.

[jackoboyo]

The benefit of the S Corp. is the profit is not taxed as wages. Therefore no Social Security, approx 15.5%, from that amount. As a Sole Proprietor all income after expenses is considered wages. In this case 76k wouls be subject to ss tax and income tax. In an S corp 55k would wouls be subject to ss tax and 76k to income tax, a savings of about $3,250.00. If he lowered his salary to 30k he would save over $7k. The benefit of the S corp is in lowering salary and increasing profit.

[Rev.Vassago]

But with an S corp comes a lot of responsibility and possible expense at maintaining it to the IRS standards.

[jackoboyo]

But with an S corp comes a lot of responsibility and possible expense at maintaining it to the IRS standards

True but for a 1 truck operation $5-$7 thousand in the owners pocket should more than cover the expenses and hassles.

[GMAN]

But with an S corp comes a lot of responsibility and possible expense at maintaining it to the IRS standards.

The only thing the IRS cares about is if you used the right form. You may have more of a hassle with the state of incorporation than the IRS. As long as you have kept your receipts and records straight, it is only a matter of putting the right figures in the correct place. That is what you need to do as a proprietorship or corporation. The "S-corp" is only a form you fill out with the IRS. It is called a sub chapter S election. It prevents you from being taxes twice. Either the corporation or individual pays the taxes. Essentially, you have the protection of a corporation, but are taxes as a partnership. In a standard "C-corp" both the corporation and individual are taxes. Both offer the same protections. You will never be 100% guaranteed not to be included in a lawsuit. If you operate your corporation as a separate entity, you should keep your protection in tact. If you pay yourself a salary from the corporation, you will need to pay taxes on that money. If you pay yourself in dividends, you should not have to pay Social Security Taxes on that amount. You can also opt out of Social Security and not have to pay anything into the fund. The catch is that you will never be able to collect Social Security benefits.

[RostyC]

I'm set up as an S corp, there's nothing extra in expences that I can think of other than the initial set up and accountant fee's, but you'll have accountant fees no matter how you're set up. It does save you money in SS tax.

[GMAN]

A corporation needs to file an annual report with the state in which you are incorporated. In some states, you also need to pay a franchise and excise or similar tax on the corporations assets. In my home state most small corporations will pay from about $100-300/yr.

[Rev.Vassago]

Corporations also need to have shareholders meetings, and file reports of such. Accountants will do this for you, for a price.

I used to have a corporation (not a trucking corporation), and it is a hassle if it is not really needed. The "protection" that these people who will set them up for you like to advertise (for a price), is not necessarily there.

IMO, a corporation for a one-truck operation is pointless overkill. You will end up paying taxes on the profit anyway, one way or another.

[rank]

Actually, Something I forgot in my earlier post. As a shareholder in a Canadian corp, I beleive you can collect $25,000 in tax free dividends. No need to pay personal tax rates on your salary.

Lets say the trucking company profits $75,000, the shareholder can take a $25,000 tax free and pay 20% corp tax on the remaining $50,000 that's left in the corp.

Total tax bill on $75,000 profit: $10,000.

[GMAN]

It is easier to shelter income when you have a corporation. You need to do some planning, but if you treat the corporation as a separate entity, then you can legally avoid paying taxes you would otherwise have had to pay individually. There are benefits and drawbacks to any company or corporate structure. I prefer dealing through a corporate structure. One benefit is that you can borrow money through the corporation once you become established. If the corporation borrows the funds, it will likely not affect your ability to borrow personally. I am not suggesting that you go out and get heavily into debt, but that is one benefit. It can be a drawback if you over extend. It is best to have as little debt as possible. It makes it easier to survive slower economic cycles like we are in right now.