Act now to cut ’08 taxes

Max Heine

When the economy’s in crash-and-burn mode, it’s hard to think business strategy much beyond day-to-day matters of survival. Still, there are a few weeks left for money matters that could lower the amount of that check you send to Washington, D.C., in four months. These questions can help pinpoint your potential savings.

I’m an independent and my accounts are paying slower. What should I do?

a) Get a factoring service.
b) Talk to the Mafia about selling “protection” to your shippers.
c) Maintain your collection efforts, but save the hard sell till late December.

You’re the best judge of how hard to press your accounts and whether a factor is worthwhile. The value of (c) is that income deferred until January becomes part of 2009’s taxable income.

My freight’s down and getting worse. How should I time my business spending?

a) Anything you might need in January or February, buy now.
b) Spend as much as you can on your business because the expenses are all tax-deductible.
c) Hoard every penny.

Your natural tendency might be (c), but (a) makes sense for taxes. Buying those tires or an auxiliary power unit now reduces your 2008 taxable income. As for (b), “Don’t buy tax deductions,” says Mark Miller, tax manager at ATBS, the Denver-based owner-operator financial services provider. “Seventy-five percent of that’s coming out of your pocket.” In other words, your business expenses do not amount to a dollar-for-dollar tax rebate.

My bank drafts $200 a month into my Individual Retirement Account. How should I handle this now that the economy is flatter than week-old road kill?

a) Make no change.
b) Quit throwing away money until the market improves.
c) Increase my contribution to $300.

Unless you’re counting the weeks to that final haul, history dictates that virtually any stock or mutual fund you buy today will be worth more, perhaps much more, when you retire. So (a) is good, (c) even better if you can afford it. “We’re seeing prices at levels we may never see again in our lifetimes,” says Trent Leyda, who works with owner-operators from the Vero Beach, Fla., office of Raymond James & Associates.

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My non-retirement stock investments would hardly buy a buffet meal at Joe’s Truck Stop. What should I do with them?

a) Nothing.
b) Sell enough to offset capital gains from other investments.
c) Sell them and buy fixed-interest, recession-proof bonds.

Again, stock prices will rise eventually, so (a) is good. Not many people are in a position to benefit from (b), but some might be. For example, someone who’s owned a home for decades and sold it, even at today’s prices, might well have made a profit. If that’s you and you’ve got some stock that’s still in the toilet, “now might be the time to take those losses,” Leyda says.

I like to donate to my church and another charity every month, but times are hard and my wife is wearing out the plastic for Christmas. What should I do?

a) ‘Tis the season to play Scrooge with your charities.
b) Keep giving if you can afford it.
c) Steal your wife’s purse.

As with other deductions, this one helps your tax bill only in part, depending on your tax bracket. So (b) is ideal, though Miller cautions that the deduction works only if you itemize your deductions. Furthermore, “The IRS has continued to get tighter in terms of documentation and receipts. Just a canceled check is not enough anymore.”

And should you make the bizarre discovery of a purse in your rig’s locked toolbox around Dec. 26, my lips are sealed.

What you get back
Assume you are in the 15 percent tax bracket. As a self-employed individual, you also face the self-employment tax of 15.3 percent. Because you get to reduce your taxable income by half of the self-employment tax, Miller says, 25 percent is a good ballpark figure for estimating the net tax impact. These purchases, by reducing your taxable income, give an idea of how your 2008 tax bill would be lowered:

APU $10,000
Tires $7,000
Laptop $1,500

TOTAL $18,500

25% of $18,500 = $4,625 tax savings