A paper trail for the taxman

Max Heine
mheine@rrpub.com

What’s your chance of being audited? The Internal Revenue Service says 4 percent of tax returns filed by the self-employed with at least $100,000 in revenue get special attention. IRS computers computers typically raise a flag, for example, when “income is down quite a bit but expenses stayed the same, or if a particular expense has gone up quite a bit – double in size or triple in size – but income has stayed the same,” says Glenn DeLoriea, an acting IRS program manager in the self-employment division. Claiming substantial expenses not common to a single-truck owner-operator, such as utilities, advertising or inventory, also might well draw an audit, DeLoriea says.

Of course, the reality of the owner-operator world is that a single engine rebuild can spike expenses for the year. Income, too, can be quite volatile, especially for independents.

If circumstances such as those put you among the one in 25 who get up close and personal with the IRS, just make sure you’ve got the documentation. Most IRS auditing of the self-employed boils down to verifying expenses, say DeLoriea and Mark Miller, tax manager for ATBS in Denver, the nation’s largest owner-operator financial services firm.

ATBS gets an IRS inquiry on about 5 percent of the returns it files, Miller says. The usual queries involve revenue that doesn’t match what carriers report on Form 1099, a problem with allocation of estimated quarterly tax payments or some other error, he says. Only 10 to 15 of the 5,500 owner-operator returns filed annually by ATBS end up in an actual audit. In most of those cases, the expenses are verified, and the taxpayer goes his merry way.

“I’ve audited truck drivers and others who are self-employed,” DeLoriea says. “The key is that they have proper books and records. They can’t just say they spent X dollars on diesel fuel and write it on a piece of paper. They need more than that.”

Accountants familiar with trucking fully understand this, as well as the more intricate tax aspects of an owner-operator business. Even so, you ultimately are responsible for your return. Some tax preparers are aggressive in claiming deductions; be aware of what’s being submitted on your return, and make sure you’re comfortable with it.


GETTING ORGANIZED
IRS Publication 552 goes into aspects of keeping records you might not have thought of, such as the kinds of records to keep and how long to keep them. You can download the eight-page “Recordkeeping for Individuals” from www.irs.gov or have it mailed by calling (800) 829-3676.


WATCH YOURSELF IN THESE AREAS
Three other potential audit problems for owner-operators: PER DIEM. Make sure you have an established residence where you collect mail, even if it’s a parent’s house you rarely visit. Without a home to be away from, you don’t qualify for the $39 daily writeoff for meals (75 percent of the $52 allowance).

HOME OFFICE. You’ve got to have a designated space used regularly and exclusively for business throughout the year. That means no personal e-mail on the computer, even on weekends. “I try to talk my drivers out of claiming it because it’s going to raise a red flag,” says ATBS Tax Manager Mark Miller.

SEPARATE ACCOUNTS. No law requires separate business and personal checking accounts or credit cards, but the law of common sense says otherwise. If you’ve mingled church and state, good luck proving to the taxman that grocery receipt was for meals in the truck.


Do you have ideas for this column? Call Heine at (800) 633-5953, Ext. 1038.

The Business Manual for Owner-Operators
Overdrive editors and ATBS present the industry’s best manual for prospective and committed owner-operators. You’ll find exceptional depth on many issues in the 2021 edition of Partners in Business.
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