A LITTLE MORE TO CHEW ON
The new tax law bumps up the daily per diem food allowance for trucker from $38 to $40. However, it doesn’t change the schedule for increasing the percentage of the $40 that can be deducted as a business expense. That percentage is rising every year.
2002-2003 – 65%
2004-2005 – 70%
2006-2007 – 75%
2008 – 80%
“I get phone calls,” says accountant Howard Abrams, speaking of his owner-operator clients. They ask: “Is it true the government’s going to give us $100,000 back?”
Yes! And your dispatcher’s going to polish your wheels if you ask him politely.
Actually, the $100,000 does have a basis in reality. The newly passed income tax bill makes it possible to expense up front, before regular depreciation kicks in, up to $100,000 of new equipment in the first year, up from $25,000. However, as with the all-you-can-eat buffet at the truck stop, just because something’s possible doesn’t mean you should do it.
Suppose you buy a new truck this year. Come April 15, 2005, if you expensed all the truck in 2004 for your 2003 taxes, you’ll have nothing left to depreciate. Without that nice addition to your business expenses on Schedule C, your income tax will be much higher. On top of that, it could even bump you into a higher tax bracket.
Furthermore, there is the matter of resale, notes Abrams, who runs PBS Tax & Bookkeeping Service in Tarzana, Calif. The faster you depreciate equipment, the less it’s worth – in the eyes of the Internal Revenue Service – when you trade it. If you sell a 3-year-old truck for $50,000 that’s been totally depreciated, that’s $50,000 in gains you’ll pay taxes on.
Most single-truck owner-operators won’t find it prudent to take full advantage of the accelerated depreciation, he says, unless they’re in an unusual tax predicament.
Other aspects of the new tax law are favorable to owner-operators, note Tom Sonricker and Pam Seal, owners of Transport Business Solutions in Greensboro, N.C.:
Lower tax rates. Some of the middle-income tax rates have been cut. For example, the existing tax brackets of 27 percent, 30 percent and 35 percent each drop by two percentage points.
Child tax credits. This credit, now $600 for children younger than 17, bumps up to $1,000. The IRS is expected to mail $400 rebates this summer to middle-income taxpayers who claimed children on their 2002 returns.
“Marriage Penalty” relief. The standard deduction (for those who don’t itemize deductions) has been raised for married couples filing jointly to $9,500 – at least for 2003 and 2004, unless it gets extended. That’s double the $4,750 deduction that singles get. Married couples can also earn more money ($56,800 adjusted gross income instead of the current $47,450) and stay in the 15 percent bracket.
So don’t go into debt spending that phantom $100,000 just yet. But you can expect at least a tiny tax break, and if you’re married with young children, something more substantial.
HOW MUCH WILL I SAVE?
The new tax changes will save most middle-income taxpayers hundreds of dollars, according to estimates from the Urban-Brookings Tax Policy Center. The model averages all taxpayers – single or married with or without children younger than 17 – reporting a given AGI.
AGI – Estimated Tax Savings
$20,000-$30,000 — $189
$30,000-$40,000 — $323
$40,000-$50,000 — $451
$50,000-$60,000 — $703