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The following excerpt, "Paying your kids", is from "Making The IRS Work In Your Favor" presented by Mark W. Sullivan, EA at the 2018 CMC LIVE hosted by Kevin Rutherford and Let's Truck.
Trucking like any small business is often a family affair. My son started working in my accounting practice after school when he was 10 - shredding paper, stamping and stuffing envelopes. Whether you are a solo owner operator or run a trucking company, it is not uncommon to put your kids to work helping in the business. Here is what you need to know to take advantage of a great tax saving opportunity.
First and foremost: Your children must be bona fide employees
WARNING:
Sole Proprietorship / Partnerships
Children under 21 wages subject to income tax withholding, but not :
Corporations
Children under 21 are subject to:
In 2018 the standard deduction for SINGLE filers raised from $6,350 to $12,000.
|
Example: Employment Tax on Wages of $12,000 |
||
|
Sole-Proprietor |
Corporation |
|
| FICA / Medicare / FUTA 16.8% | $0.00 |
$2,016 |
Reference Material:
Refer to: https://www.irs.gov/businesses/small-businesses-self-employed/family-help
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Per Diem Plus is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups (logbooks) to substantiate away-from-home travel.
Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.
In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA
Disclaimer
This article includes general tax information, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case. Please consult with a licensed tax professional.
Internal Revenue Code Section 199A generally provides a 20% passthrough deduction for qualified business income (QBI) derived from a sole proprietorship, partnership or S corporation that is a qualified trade or business, like a trucking business.
The 199A deduction is complicated! The estimated average annual burden hours per taxpayer is 2.5 hours, thus taxpayers are advised to seek professional tax guidance when calculating the deduction for their business.
The section 199A deduction is the lesser of:
WARNING: Section 199A deduction:
Qualified Business Income (QBI) is defined at Sec 199A(c) as the net amount of qualified items of income, gain, deduction, and loss for a tax year with respect to any qualified trade or business of the taxpayer.
Line 9 of the Form 1040 for 2018 (draft). IRS will be issuing new tax returns, worksheets and other tools to assist individuals and businesses with their deduction calculation and tax preparation. DOWNLOAD 2018 DRAFT F1040 101718
Small businesses with qualified income below:
Small business qualified income exceeds:
S-corporations and partnerships are generally not taxpayers and cannot take the deduction themselves. However, all S corporations and partnerships report each shareholder’s or partner’s share of QBI and W-2 wages on Schedule K-1 so the shareholders or partners may determine their deduction.
PDP Small Fleets requires users to complete the account setup HERE before using the app.
Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.
In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA
Copyright 2018-2023 Mark Sullivan Consulting, PLLC; Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®
Reference: 2017 Tax Cut & Job Act, Kenneth K. Wright (2018)
Disclaimer
This article includes information is not included in the Internal Revenue Bulletin 2018-64, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.
The transportation workers’ special standard per diem rate has been increased to $66 from $63. For travel to Canada the rate increased from $68 to $71 per day.
The new rate becomes effective October 1, 2018.
Have questions about trucker per diem? Contact us at info@perdiemplus.com
Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.
In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA
Presented by Mark W. Sullivan, EA - Tax Counsel for Per Diem Plus, LLC
Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.
In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA
The following question was posted on Trucking With Authority Facebook Group,First impressions are that the existence of the IRS tax lien will be fatal to this trucking company and prohibit the securing of accounts receivable financing (commercial transactions financing agreement). However, the IRS is more interested in collecting unpaid taxes than putting companies out of business and has procedures for resolving tax lien issues.
The trucking company is seeking a commercial transaction financing agreement (factoring) in order to improve cash flow and insure liquidity and future tax compliance. However, the IRS filed a tax lien against the company prior to granting a monthly repayment (installment) agreement.
The appropriate action is to submit a Form 14434, Application for Certificate of Subordination of the Federal Tax Lien. In this case the factoring company will require the IRS subordinate the tax lien up to the amount of the factoring credit line, while also demanding proof that IRS has approved an installment agreement (Form 433-D) for the delinquent taxes.
Generally, these are loans to a taxpayer to operate a business. The creditor and the taxpayer, in the course of trade or business, agree that loans to the taxpayer will be secured by taxpayer’s commercial financing security. Security can include, but is not limited to, accounts receivable, mortgages on real property, and inventory.
Per Diem Plus® FLEETS is a configurable mobile application platform that automates administration of an IRS-compliant accountable trucker per diem plan for fleets managers. No matter how big or small your company is, Per Diem Plus has a solution for you.
Truckers designed it, tax pros built it, drivers want it. Our cloud-based FLEETS mobile app platform enables motor carriers to implement an IRS-compliant fleet per diem plan that will:
"Partnering with Per Diem Plus provided Reliable Carriers a turn-key solution configured to meet the needs of our fleet and offer this benefit to our drivers”
Nick Adamczyk, Controller
Reliable Carriers, Inc.
Implementing Per Diem Plus FLEETS is a breeze and does not require specially trained professional installers like telematics solutions.
Configure your per diem app in minutes with our simple check-the-box menu.
For example, the app allows you to select individual, team drivers or both. The geofence tax home radius can be set from 5 - 50 miles and that best matches fleet lanes and app installation type. Or to minimize cellular data plan usage you can white list the app using our static IP address.
Purchasing a fleet per diem mobile solution for your business does not have to be a tedious effort. Consult one of our business solution specialists to learn more about the benefits of our automated per diem solution.
* Deep-link integration scheduled for Q4 2020 release
Per Diem Plus 2020. All rights reserved. Per Diem Plus is a trademark of Per Diem Plus, LLC. A proprietary software application, which provides automatic per diem and expense tracking for truckers (USPTO Registration #86754053)
The following article is summary of the impact of the 2017 Tax Cuts and Job Act (TCJA) on truckers The following is a list of common trucker tax deductions that were changed by the TCJA (except where noted).
The TCJA eliminated itemized deductions for employee drivers, which includes all unreimbursed employee business expenses. The following is a non-exhaustive list:
This provision does not apply to Owner Operators who claim travel-related and business expenses on Schedule C or Form 1120S.
IRC Section 199A generally provides a deduction of 20% of qualified business income (QBI) derived from a sole proprietorship, partnerships, or S corporation that is a qualified trade or business. The §199A deduction is taken from adjusted gross income (AGI) in determining taxable income and therefore does not reduce self-employment income. See my article titled "Understanding the 20% Passthrough Deduction" for a detailed discussion of the complicated deduction.
The §199A deduction is complicated and will require significant guidance from the IRS.
The deduction for alimony and separate maintenance payments by the payor is repealed. The payee (recipient) will not be required to include such payments in gross income for divorce or separation instruments executed after December 31, 2018.[i]
Medical expenses continue to be deductible to the extent they exceed 7.5% of adjusted gross income (AGI) for 2017 and 2018. For years after 2018 the threshold is 10% of AGI.
The moving expense deduction is repealed except for members of the Armed Forces. The exclusion from gross income and FICA wages for employer reimbursed moving expenses is repealed other than members of the Armed Forces.
This provision does not apply to Owner Operators who claim expenses related to moving a business operation on Schedule C or Form 1120S.
A taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for married filing separately) for the aggregate of (1) state and local property taxes not paid or accrued in carrying on a trade or business (See IRC Sec. 212), and (2) state and local income taxes (or sales taxes in lieu of income taxes) paid or accrued in the tax year[ii].
This provision does not apply to Owner Operators who claim business-related taxes on Schedule C or Form 1120S.
The deduction for interest on home equity indebtedness is disallowed and applies to existing home equity loans. Home equity loans used for business or substantial improvement of a residence may still be deductible[iii]; any used for personal or investment purposes are not[iv].
The base for cash contributions is increased from 50% to 60%. No deduction is allowed for payments to colleges and universities in exchange for rights to purchase athletic seats.
All gambling expenses are now subject to the gambling winnings limitation and not just wagers. Schedule A filers can still deduct gambling losses to the extent of winnings but must have total itemized deductions exceeding the increased standard deductions.
The individual tax for failure to maintain minimum essential coverage is reduced to zero with respect to health coverage status for months beginning after December 31, 2018.
The standard deduction is increased to $24,000 for married filing jointly, $18,000 for head of household, and $12,000 for unmarried (single). The pre-2018 additional $1,250 standard deduction for taxpayers over age 65 or who are blind are retained.
Personal exemptions and dependency deductions are repealed. The IRS is examining how the definition of qualifying relative should be addressed.
Section 6695(g) of the internal Revenue Code requires paid return preparers to satisfy due diligence requirements to ensure clients qualify for the American opportunity credit, lifetime learning credit, earned income credit, and child tax credit.
PDP Small Fleets requires users to complete the account setup HERE before using the app.
Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.
In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA
Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.
Copyright 2018-2023 Mark Sullivan Consulting, PLLC; Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®
[i] Notice 2018-37, 2018-18, I.R.B. 521
[ii] IRC § 164(b)(6) (flush language)
[iii] Temp. Reg. § 1.163-8T
[iv] Refer to Publication 936 (2017) Home Mortgage Interest Deduction for definitions of “substantial improvement”
The ELD mandate has contributed to record freight rates that, along with tax reform, have been a boon for trucking companies. Unfortunately, due to the prospect of lower wages for employee drivers resulting from the elimination of itemized deductions, many prospective drivers are opting for a gig-economy. As such, the driver shortage will continue to get worse unless fleets take proactive steps that mitigate the negative financial impact on drivers[i].
A company-sponsored per diem plan can increase driver pay by 2.8ȼ - 4.3ȼ per mile, while saving the fleet over $2,600 per driver.
The IRS allows a maximum of $63 per day for travel in the USA [$68 for Canada], but a fleet can opt for a lower amount, i.e. $45 per day, so long as it is paid at a flat rate[iv].
How does a fleet convince drivers who previously itemized deductions to claim per diem and unreimbursed business expenses to participate in a company-paid per diem program? Optics are everything with drivers; show them the numbers. The average driver who is away from home 5 nights will take home an extra $70 a week or 2.8ȼ per mile.
for a high-level overview on how we can work together.
Novel tax defenses won't work with the Internal Revenue Service. The law allows as a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. This include expenses for traveling while away from home[i]. Since the average OTR truck driver is away from home 250 nights a year and accumulates hundreds of receipts, it is tempting to inflate tax deductible travel and business expenses to minimize taxes.
Billy was a self-employed truck driver subject to DOT hours of service regulations who was entitled to claim meals per diem and other business expenses as a tax deduction[ii]. However, for the tax year under audit he also claimed hometown meals and provided the IRS with a novel defense.
Billy's novel defense:
No. The novel tax defenses did not persuade the U.S. Tax Court:
As this case demonstrates novel theories for tax deductible items will not survive scrutiny in a tax audit. The unique nature of the trucking industry compels drivers to exercise due diligence when assembling tax records and reviewing the tax return lest you end up like Billy.
Available as a $7.99 monthly subscription on Google Play or App Store
Per Diem Plus is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups (logbooks) to substantiate away-from-home travel.
Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.
In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA
Copyright 2022 Per Diem Plus, LLC. All rights reserved.
"It's my accountant's fault" is not a good defense in a tax audit. Tax season is in full swing and the airwaves are awash with ads for tax services fighting for a piece of the $168 billion income tax preparation market[i]. While, most of tax firms provide quality services, there are invariably bad actors who come out of the woodwork. The foregoing highlights the importance of selecting a competent tax professional who is knowledgeable in tax accounting for truck drivers lest your effort to blame the accountant for a tax bill will fall on deaf ears.
For the tax year under audit Johnny showed tax owed on his return of $446. Unfortunately, an audit revealed Johnny did not take the time to properly review his tax returns and ask questions of his tax preparer. He failed to report over $40,000 of income, which resulted in:
He blamed the accountant.
Taxpayers in similar situations can avoid the substantial understatement of tax penalty if they can show that they relied on the advice of a professional tax adviser[ii]. Even if the court assumed Johnny received “advice,” the case law lists three factors to decide whether reliance on a professional was reasonable[iii].
Johnny claimed he relied on Frank, a qualified professional tax preparer. As proof, he provided printouts of the preparers advertising material. He argued that each type of truck driving requires a different type of tax preparer, but he provided no evidence for this theory.
However, the courts biggest issue was that Johnny could not possibly have relied on advice from a tax preparer to whom he did not give the necessary taxinformation. Afterall, he did not report all of the income from the Forms 1099-MISC that he received. And not reporting income is a special sign of negligence[iv], and it might not get a taxpayer off the hook for a penalty even if he gives the information to his preparer[v]. Therefore, it is not surprising that the court concluded Johnny did not meet the "due diligence" burden of proof.
Johnny’s lone defense in claiming "It's my accountant's fault" was providing Frank’s advertising material. However, the court discovered:
The unique nature of the trucking industry compels drivers to exercise due diligence when assembling tax records, reviewing the tax return and selecting a licensed tax return preparer lest you end up like Johnny.
Available as a $7.99 monthly subscription on Google Play and App Store
Per Diem Plus is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups (logbooks) to substantiate away-from-home travel.
Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.
In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA
Please remember that 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 your own tax or accounting professional.
Per Diem Plus, LLC Copyright 2018
[i] https://townhall.com/tipsheet/katiepavlich/2014/04/14/americans-spend-billions-of-dollars-and-hundreds-of-hours-doing-their-taxes-each-year-n1824148
[ii] Sec. 1.6664-4(b), Income Tax Regs.
[iii] Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff’d , 299 F.3d 221 (3d Cir. 2002).
[iv] sec. 1.6662-3(b)(1)(i), Income Tax Regs.
[v] see Metra Chem Corp. v. Commissioner, 88 T.C. 654, 662-63 (1987) (reliance on preparer with complete information not reasonable cause where cursory review would have revealed errors); Magill v. Commissioner , 70 T.C. 465, 479-80 (1978) (taxpayer still has duty to read return to make sure all income included even if all data given to tax preparer), aff’d , 651 F.2d 1233 (6th Cir. 1981).
[vi] IRS Circular 230 governs licensed tax preparers and establishes the annual continuing professional education requirements
[vii] SHALOM JOHNNY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent UNITED STATES TAX COURT - SUMMARY OPINION T.C. Summary Opinion 2015-3 Docket No. 21078-11S. Filed January 20, 2015.
