EVERY LITTLE BIT HELPS
Some of the tax changes for 2002, though not major, are good news for owner-operators, especially those trying to save for retirement:
PER DIEM. The daily allowance for meals on the road remains $38 for 2002, but you’re now allowed to claim 65 percent of that, up from 60 percent. It goes to $40, at 65 percent, in 2003, then rises to 70 percent in 2004.
MILEAGE. You can compute business use of a personal vehicle at 36.5 cents per mile, 2 cents higher than 2001. In 2003, it will dip to 36 cents.
IRA CONTRIBUTIONS. The maximum contribution to an Individual Retirement Account rose from $2,000 in 2001 to $3,000 in 2002. It keeps rising to $5,000 in 2008.
IRA CATCH-UP. If you’re older than 50, you can kick in an extra $500 for 2002. That amount rises to $1,000 in 2006.
Four months from now, your accountant will be sending too much of your hard-earned money to the Internal Revenue Service. It will hurt, but it’s not too late to ease the pain.
Most year-end tax strategies boil down to delaying income or accelerating deductions to postpone some taxes for a year. Economics 101 tells you that today’s money counts more than future money, so these strategies are worth considering, especially if you’ve had a bad year.
PAY BUSINESS BILLS. If you’re sitting on bills such as long-distance phone charges, pay them in December. The same goes for discretionary business spending, perhaps for truck parts or maintenance. Thinking of buying office furniture or equipment? Order soon. It must be in use by Dec. 31 to qualify.
PAY HEALTH INSURANCE. If a premium is due, don’t put it off till January. Because you are self-employed, you can deduct 70 percent of your health insurance premiums paid during 2002. This applies even if your health care bills aren’t high enough to qualify for itemizing them as a deduction.
GIVE TO CHARITY. Being in the holiday spirit isn’t the only reason people give at year-end. Donations can add up to a nice tax deduction, as long as you have enough deductions to itemize, as opposed to taking the standard deduction. If you’re short on money, root around for clothing and household goods that can be donated to organizations that aid needy people.
GIVE TO KEY PARTNERS. If you want to give a gift to a mechanic, an accountant or someone else who goes out of their way to help you succeed, you can deduct up to $25 in value. Make sure you know company policy if you want to give to your carrier’s office personnel, especially a dispatcher, warns Gary Aitken, who operates a tax service for owner-operators in Indianapolis, Ind. “I’ve seen people terminated in that situation,” he says.
TALK TO YOUR ACCOUNTANT. Individual circumstances might dictate that you do something out of the ordinary. For example, if you exhaust your truck’s depreciation in two years (generally not wise, though more tempting than ever, thanks to a new depreciation provision, Aitken notes), you might get bumped into a higher tax bracket next year. In that case, the smart thing might be to delay deductions into 2003, where they will be worth more.