Ugh! Your least favorite cost of all: writing a check to the IRS. At least when you have to plunk down several grand for a transmission overhaul, you get a tangible benefit from that.
So let’s say you’ve filed your returns but you didn’t happen to have an extra eight or 10 grand lying around to send them a check.
What now? Are they gonna send the tax poe-poe after you?
You may be very surprised to learn, there is nothing at all illegal in owing money to the IRS. Even if you owe for several years.
It is illegal to go more than three years without filing. As a matter of fact the IRS can charge you with a felony known as Criminal Failure to File. Now, in the interest of full disclosure, more often than not, they would much prefer that you simply file your returns and begin at least putting a dent in your tax bill.
What happens sometimes is, the IRS prepares what they refer to as “substitute” returns. They tax your gross income, at the highest possible rate and, of course, with no deductions. And they can legally pursue this bogus liability against you just as if you had filed the return yourself.
We get calls every week from drivers saying they haven’t filed for years, but they are getting sky high bills from the IRS for taxes they couldn’t possibly owe. What most people don’t realize, and the IRS may not even tell you, is that even if the IRS has filed one or more of these substitute returns against you, you still have a right to go back and pursue the over-turn of the substitute return by filing your “real” returns, based of course upon what you netted after all your business deductions.
Now, to be sure, there is a special appeal process to request this relief from the IRS. If you simply have the real returns prepared and send them in through the regular channels, they will go straight in the trash. So if you have received a bill from the IRS when you haven’t even filed for three or more years, contact a tax firm that deals with the IRS every day and also knows trucker taxes.
Amend More Than 3 Years?
Another secret that the IRS doesn’t want taxpayers knowing about is this: Most taxpayers, and even most tax attorneys and CPAs, believe that you can only amend tax returns for a maximum of three years.
The Internal Revenue Code has a little known provisions that actually allows you to amend any return for which there is still a balance owed to the IRS.
Once that balance is paid, then the clock starts running on the three years statute for amending.
We have had the good fortune of helping numerous professional drivers both during the current, well-known three-year period, and also during the very-little-known additional seven years where there may be outstanding balances.
A Magic Wand for Cutting your Taxes?
One of the most frequent questions we get here is, “Should I incorporate?”
It probably wouldn’t be fair for me to say, “Yes, you should definitely incorporate.”
At the same time, our own experience shows that incorporating your trucking business, even if you are “just one person,” can often be the single best step to legally cutting your income taxes.
And even better, it is one of the few things that pays for itself immediately! (I wish I could find more things that would do that!)
What difference does it make to incorporate? A big one, in three (3) separate ways!
- More deductible expenses – There are simply additional expenses that are allowed to a corporation that may not be deductible by a sole proprietorship.
For example, life insurance and other types of insurance for officers and other employees — various fringe benefits and allowances. You are actually required by law to hold a meeting of shareholders, even if you are the sole shareholder. The full expense for travel and accommodations for this trip are fully deductible if held in the 48 contiguous states.
- An even juicier benefit to incorporating, particularly with a Subchapter S. Corporation, is that you have the prerogative, within reason, to not tax all income for Social Security Tax purposes.
How does this shake down? Let’s assume an example, a fairly common one actually. Let’s say that you gross $150,000, and after all your expenses, you net $50,000. Your Social Security, or Self-employment Tax on that net of $50,000 is $6,450.
However, with an S-Corporation, you are able to make the election for only half of your compensation, or $25,000 to be subject to Self-employment Tax. This, in our example, you would cut your tax bill by $3,225.
We actually have some clients that choose to pay self-employment tax on an even lower portion of their income. That is the taxpayer’s choice, but choosing to pay on half, or 50 percent of the income is a safe level for IRS purposes.
- We have clients that incorporate for this one reason alone: According to the IRS’ own statistics, for a business with gross income of $10 million or less, incorporating reduces the likelihood of a tax audit by over 50 percent. No one single move by a business can reduce your chances of an IRS examination as much as incorporating.
Is incorporating for everyone? Probably not. If you are in a brand new business, or if your gross income is less than $20,000, I would probably encourage you to wait for the time being.
To summarize, we have given you three tax secrets that the IRS doesn’t like anyone knowing:
- For any substitute return that the IRS has prepared and filed, you have a right to appeal for the overturn of it when you file your “real” return.
- You can file an amended return if you discover overlooked business expenses either during the current three-year period or for any year outside the three-year period for which a balance is still owed to the IRS.
- If you are an owner-operator, leased driver or small fleet owner, give serious thought to the huge tax-cutting advantages of incorporating
These are just three of the ways to cut your tax bill in a big way, that the IRS doesn’t want anyone, especially you, to know about.
When it comes to dealing with the IRS, make sure you seek out a CPA or attorney that specializes in trucker taxes and specializes in dealing with the IRS.
P.S. Have you called us here at eTruckerTax, or clicked onto contact.etruckertax.com/mag to get your totally free Trucker Checklist? Check it out today. Or give us a jingle at 770-984-8008.
Author and CPA E. Dennis Bridges is the Executive Director of eTruckerTax. His books include On Level Ground with the IRS and The Truckers Tax Relief Toolkit. He can be contacted at 770-984-8008 or firstname.lastname@example.org or eTruckerTax.com.