Death and taxes… Benjamin Franklin said they are the only two things certain in life. It’s true, if your business brings in revenue, you will owe taxes. Unfortunately for owner-operators, April 15th will be here before you know it, and it comes after the toughest time of year for the industry. Many find they are short on cash when it comes time to file because they did not budget for taxes. Don’t let this tax season be the death of your business.
We hope you have filed your taxes already, but if not, it is not too late! Here are some tips to survive this year’s tax season:
- File Even If You Can’t Pay. Gather records and file all tax forms on time, even if you can’t pay anything. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and pay as much as you can, then explore other payment options.
- Request an Extension If You Can’t Pay in Full. If you request an extension of time to file by the tax deadline and you paid at least 90 percent of your actual tax liability by the original due date, you will not face a failure-to-pay penalty if the remaining balance is paid by the extended due date.
- Consider IRS Resolution. If circumstances make it unlikely you could ever pay the full tax, make an offer to settle your account for less than the amount owed (Form 656). To be considered, make an appropriate offer based on what the IRS considers your ability to pay. You can get these forms from the IRS website. If you receive a notice from the IRS, respond right away. Never ignore a letter from the IRS.
- Don’t Underestimate Your Taxes. Paying taxes can be annoying, but paying penalties for underestimating liability is worse. You can be penalized for underpayment if your total tax due when you file is over $1,000. However, there are a couple of things to help protect you from these penalties:
- If 90% of the total taxes owed are paid
- If the estimated payments made are equal to the taxes paid last year. This is particularly helpful if you saw a sharp increase in income over last year.
- Pay the balance of the taxes you owe by April 15th and you will get an interest-free loan from the IRS on the balance.
- Avoid the Interest Penalty. Quarterly self-employed taxes are due on the 15th of April, June, September, and January. Those who don’t pay their estimated self-employment tax will be subject to an interest penalty. If you have fallen behind on estimated tax payments, you can stop accruing interest by making an estimated payment that brings you up to date. Going forward, interest will not be owed, as long as you continue to make payments. You can’t protect yourself against penalties by waiting until the end of the year and making a large estimated payment. Often, when quarterly payments are not made, you don’t have the money to pay the full tax bill at the end of the year. This oversight has forced drivers out of business.
- Hire a Tax Advisor. With all the responsibilities and demands on your time, many truckers find hiring a tax professional can relieve the stress of preparing taxes. Choose someone who is familiar with the various technical terms and implications of taxes for trucking because they can decrease your tax liability.
Before selecting a business service provider to handle your taxes, ask a few questions to see if they offer the services and experience you are looking for.
- Experience: Have they worked with other owner-operators? How many owner-operator clients do they have?
- Knowledge: Are they familiar with trucking – seasonal trends, etc.? Is their knowledge of tax regulations relating to the trucking industry current?
- Price: What do they offer and will they guarantee their price? Is it a limited-service fee, or will there be added costs for additional services? If your return is audited by the IRS, what is their policy on assisting you? Do they charge extra?
- References: Ask for the names of some clients you can contact.
For example,
ATBS tax professionals prepare more than 14,000 tax returns a year and consult with owner-operators and company drivers year-round, to ensure their tax strategies are carefully and intelligently constructed.
Many owner-operators don’t realize when they are building up a substantial tax liability. The last thing an owner-operator needs is to lose their profits to the IRS in penalties. Have a solid plan that includes a budget for both state and federal taxes and stick to it. It’s always less expensive to prevent a tax problem than it is to fix a tax problem. Use these tax tips as the key to your business survival this tax season.