How to prevent IRS audits & penalties:
Are you the owner of a trucking company and worried about being audited by the IRS? What if I told you that avoiding IRS audits and penalties is as easy as being good at recordkeeping? In this article I’ll explain the best tips for organized record keeping, as well as some of the most common tax deductions for owner-operators.
Protection from IRS audits & penalties:
Other than being honest, the best protection from IRS audits and penalties is keeping thorough and organized records.
#1 Keep all records that support every deduction you claim on your tax return, beginning with the logging system you use for per diem deductions.
#2 Save and label expense receipts, maintain an expense log, and sort it all out at the end of every run. Don’t forget to collect receipts for lumber fees or any other expenses automatically charged to your credit card. (This includes things such as tolls, scales, and credit-card fees.)
(TIP: Using separate credit cards for business and personal use could help simplify keeping track of your business expenses.)
#3 Don’t overspend on supplies, equipment, and services just to accumulate deductions. Only a portion of those expenses will be recouped through your tax filing. For a complete explanation of business expenses, check out the “Deducting Business Expenses” page on the IRS website, and IRS Publication 535 discusses common business expenses explaining what is and isn’t deductible.
Deductions and Recordkeeping
Owner-operators have to estimate the profit of their business so that they can make estimated tax payments. The profit equation you should use is:
Gross Pay (as reported on 1099-Misc) – Allowable Business Expenses = Net Profit
If you fail to show deductions or file a tax return, the IRS will determine the taxes that are due, without considering any of your potential deductions. This amount will most likely be much higher than you otherwise would have been required to pay.
Typical Tax Deductions for Owner-Operators:
• Interest paid on business loans
• Depreciable property
• Home office
• Insurance premiums
• Retirement plans
• Start-up costs
• Supplies
• Permits and license fees
• Travel
• Truck lease
• Accounting services
• Communication equipment
• Truck repairs and accessories
The main criteria in determining whether something is deductible is whether or not you have a record of the expense, and if it is considered an ordinary and necessary business expense.
Check out these articles for a more information about owner-operators:
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