The Inc. mystique
Jeff Welch of Portales, N.M., incorporated on the advice of his accountant. “I can’t really tell that it has helped me, but my accountant says it helps taxwise, and I know it takes some of the liability off you,” Welch says.
Brooks Mack of Cantonment, Fla., incorporated when he became an owner-operator in 2000. “My lawyer talked me into it. He said I should do it for tax reasons,” Mack says.
As Welch and Mack learned, liability and taxes are the two big issues that come up in discussions about incorporating your trucking business. Most lawyers and accountants specializing in trucking agree that the decision to incorporate depends on your individual case – particularly the size and type of your operation, your personal assets, and how much hassle you can handle. Before you choose to incorporate, you should talk to a lawyer, accountant, financial planner or business consultant – preferably more than one. Generally, the bigger and more successful your operation, the higher the likelihood that you could benefit from incorporating.
One-truck owner-operator or team
Chad Betland of Anoka, Minn., never looked into incorporating. “I probably should do it for certain purposes. I just haven’t had a chance to talk to my tax guy,” says Betland, who owns and operates one truck.
When Betland takes the time, he might find not all tax guys say the same thing. Rick Bell, president of Harvard Business Services, a Lewes, Del., company that helps people incorporate, says that a one-truck owner-operator should check whether he has substantial personal assets. “If you drive one truck and you’re breaking even, and you don’t own anything, you don’t really need to incorporate,” Bell says. “If you’re not making any money, you’re not going to save any on taxes.”
But Bell says there are other reasons to incorporate. “You get to pick a name, and that’s a benefit,” he says. “And there are some things that companies can deduct that individuals can’t.”
Kevin Rutherford, vice president of Whiteline Business & Financial Services in Orlando, Fla., says, “If there is only one truck and one driver, there is almost never a reason to incorporate.” That is, unless you’re bringing home more than $60,000 a year after expenses. “You might be able to save on self-employment taxes, but there are no clear guidelines on exactly how much you’ll save,” says Rutherford, who also operates a small fleet.
Rutherford also points out that the tax code eliminates the per diem meal allowance for corporation owners, meaning an owner-operator would have to save meal receipts and end up deducting the actual meal expense instead of the more generous per diem amount.
Bell says incorporation is a smart move because it shields your personal liability when you are at fault in an accident. “If you are an owner-operator who has not incorporated, you’re risking everything you’ve worked for every time you get behind the wheel,” Bell says.
Russell Fullingim of Truckers Financial Services in Corning, Calif., disagrees. “It doesn’t make a difference if you’re incorporated or not – you’re still going to lose everything.” He says there are only three reasons to incorporate: “Lawyers make more money, accountants make more money, and you have bragging rights in the truck stop.”
If you are in an accident and pulled into a lawsuit as a corporation, most of the time lawyers find reasons to throw the corporation out of court anyway, Rutherford says.
Another consideration is if you are leased or running on your own authority. If you are leased to a carrier, that carrier probably has $2 million in insurance on you, so if you are in an accident and someone sues you, the carrier’s insurance should cover that, Rutherford says. If you’re independent and you have the proper amount of insurance for your operation, incorporation probably won’t add much more protection.