Schedule C deductions
You work hard as an owner-operator to maximize your revenue. That’s great – until tax time. You and your accountant should work just as hard all year-round to document every possible trucking expense so you can lower the income you report to the Internal Revenue Service. Most of these business deductions can be claimed on Schedule C.
Always try to get a receipt, even if it’s handwritten. For business-related expenses for which you can’t get a receipt, such as laundry, showers and truck washes, keep a record of all your purchases.
Meals. For the 2001 tax year, you can take 60 percent of $38 for each day on the road – $22.80 per day, a total known as the per diem – or you can take 60 percent of the total of your meal receipts.
Because most truckers don’t spend $38 a day on meals, it makes sense to use the per diem. It’s also less hassle because you don’t have to keep meal receipts. But you must stick with one method. You can’t use the per diem some days and the actual amount others.
If you treat a dockworker or a customer to a meal, you can deduct 50 percent of the cost of that meal. Document the date, who was present, the amount and where you ate.
Gifts. In addition to meals and entertainment for customers, you are allowed to deduct the cost of business gifts, such as flowers or a pen-and-pencil set, up to $25 per year per person. Be sure to keep receipts.
Health-insurance premiums. Remember that health-insurance premiums are not deductible on Schedule C. Rather, they are an adjustment to income (shown on the first page of your Form 1040). For 2001, the adjustment is 60 percent. You can add the remaining 40 percent to your general medical expenses and deduct it on Schedule A. The amount must exceed 7.5 percent of your adjusted gross income, however. If your AGI is $50,000, for example, you can deduct only medical expenses exceeding $3,750 (7.5 percent of $50,000).
Home office. It is easier than ever to deduct home-office expenses. For tax year 2001, you can deduct expenses associated with using part of your home as an office if you follow a few rules.
The room or part of the house must be used only for business purposes. Putting a desk in your den or kitchen doesn’t make the room an office.
To determine the percentage of household expenses (rent, utilities and so on) allowed as business expenses, determine the percentage of your house that room represents. You can do that either by counting rooms or by counting square footage. If you use one room, and the house has 10 rooms, you can use 10 percent of all household expenses as a business expense. Or, if the space you’re using is 200 square feet in a 1,600-square-foot home, you can use 12.5 percent (200/1,600) of all household expenses as a business expense.
If you claim a home office, take photos of the furnishings and equipment as support for your claim.
Personal vehicle. Use of your personal vehicle for business can be written off at 34.5 cents per mile. Examples of business use are trips to the post office, the repair shop, a parts store, the bank or a store for trip supplies. Keep track of the mileage in a separate book. If your personal vehicle is financed, you can deduct a portion of the interest and the vehicle license fees.
Parking. Parking fees charged by some truck stops or for commercial parking when you’re at home are deductible. Paying someone to move your truck into a garage for protection against the elements is also deductible.
Phone. Experts suggest using a long-distance calling card to document your calls and keeping personal calls separate from business calls. If you use a cell phone, all your air-time charges should be deductible.
Prepaid calling cards are also deductible. How you document the expense of a prepaid card depends on where you get it. If you buy it at a store, you’ll get a receipt. If you buy it from a vending machine and don’t get a receipt, log the purchase in your notebook and save the card as proof of purchase. If you have a rechargeable prepaid card, and you write a check or money order or use your credit card to recharge it, you can use your canceled check or credit card statement as proof of purchase. As a precaution, keep the card.
Dog as alarm system. Many truckers write off the cost of food and medical bills for dogs that travel with them for security reasons. Pets other than dogs generally cannot be deducted because they cannot function as an alarm or a defensive measure.
Interest. Business-related interest is deductible. This includes the interest on your truck loan or a credit card you use only for business purposes.
If you use a home-equity loan for business, be sure to expense the interest on Schedule C and not Schedule A (personal itemized deductions) because the write-off is worth more. If you split the proceeds for personal and business purposes, you have to separate the interest between the schedules as well.
Motels. It’s a misconception that you can’t write off motels if you have a sleeper. Motel rooms are always deductible when you’re on the road. Again, be sure to keep your receipts. Document in your logbook that you slept in a motel.
Depreciation. This accounting method allows you to write off over years an expenditure on an asset that lasts more than a year. Your truck, trailer, building and computer fall into this category.
In addition, you are allowed to list as an expense all or part of the allowable depreciation (for 2001, up to $24,000) in the year when the asset was purchased. This deduction can take a big chunk off your tax bill.