Which End of Year Purchases Make the Most Sense for Your Trucking Business?
We all want to pay fewer taxes, right? Well, if recent conversations with your tax accountant have you concerned about your tax burden in 2018, this is the list for you.
We've gathered up some of the best year-end trucking purchases we'd recommend you get in before tax season.
First Things First
If you don't know what your taxable income is for 2018, talk to your tax preparer as soon as possible. Knowing your tax burden means you are better prepared when the bills come due, and you aren't scrambling to pinch pennies to make your quarterly payments.
It's a good idea for every business owner to stay apprised of their tax situation throughout the year and make business purchases as needed, but sometimes, there's need for a little extra push at the end of the year to lower your burden.
Purchasing necessary business items can be a great way to lower your tax bracket and prepare for the new year by stocking up on essentials. We recommend only purchasing useful items that you truly need. With that in mind, there are a lot of great options!
Tires are a known expense in trucking, and if you know you are almost due, consider prepaying so you can deduct them this calendar year rather than waiting. Many shops or dealerships will allow you to prepay for tires that you plan to have installed within the next several months.
Prepaid Licensing or Insurance
Sometimes you can prepay your licensing or even your insurance premiums for the upcoming year as well. Just remember the 12-month rule when considering time-sensitive purchases
The 12-Month Rule
In some circles it is frowned upon to prepay for insurance or licensing, but it is a completely legal practice as long as you remember the legal exemption in the 12-month rule.
The 12-month rule lets you deduct a prepaid future expense such as licensing or insurance in the current calendar year as long as the rights or benefits of the prepaid expense are no longer than the earlier of either 12 months from the date the payee cashes the check or until the end of the tax year following the tax year in which you make the payment.
For example, if you prepay your truck insurance for 2019 at the end of 2018 with a check dated December 31, 2018 and it is received and deposited on January 3rd, 2019, you meet the burden of the 12-month rule. The benefits do not exceed more than 12 months from January 3rd, 2019. Because it meets the 12-month rule, the expense is deductible on your 2018 taxes.
We recommend using registered or certified mail to send the payment. This allows you to prove when you sent the money and when the payee received it, should you be audited.
A note of caution: before you prepay anything with the expectation of reducing your tax burden, talk to your tax preparer and make sure he or she thinks it is a good idea, given your anticipated tax burden in future years. If you are anticipating a large salary increase it may make more sense to take the deduction in the next calendar year.
It is also wise to give insurance or licensing a heads up that this is your plan, so they know that they should deposit the check and not hold it thinking it was a mistake.
As a business owner, you are able to deduct administrative or office expenses. These are easy purchases to make at the end of the year as they are usually simple to anticipate.
Bigger ticket items you might consider purchasing include: computer, computer supplies, software, on-board camera equipment, trade memberships, cell phone, CB radio, and satellite radio.
Pillows, Blankets and More
Believe it or not, you can deduct many of the day-to-day living items you keep in your cab. With the holidays upon us you can find a lot of great deals on home goods, and that makes it a great time to stock up if you are in need of a few more deductions.
Here are some suggestions: pillows, mattress pads, sheets, blankets, microwave, refrigerator, slow cooker, rugs, floor mats, seat cushions, coffee pot, luggage, electric blanket, fans, and many more items.
If you are curious about what qualifies, contact your tax accountant and they will be able to give you more guidance.
Investing in Retirement
Planning for retirement can seem like a far away dream, but it is still important to plan for it now. If you don't already have an IRA or other retirement account, now is a great time to set one up and put aside some money. You'll get a deduction, and that small investment can pay off later when you're ready to hang up your keys.
Don't Use a Credit Card
Even if you like getting points back, it is wise to pay for these items using your bank account rather than a credit card. This makes it easier to track the deductions, and the IRS is generally happier in the case of an audit.
Want more articles like this? Check out this blog on important tax deductions!