It’s common for businesses owners to look at taxes as a quarterly or annual obligation. But the most successful entrepreneurs know that taxes should be in the back of an owner’s mind all year-round, not just before deadlines – especially in an industry as complex as the trucking business. Avoiding some of the most widespread tax mistakes can help business owners maximize deductions and minimize audit risk, make important business decisions, and even enhance trucking company valuation.
Sloppy record-keeping is the most common tax mistake by businesses of all sizes, according to the Internal Revenue Service. Owners will often make a purchase on a personal credit card, make a note on a napkin to record the transaction later, and promptly forget all about it. Sound familiar? Failure to track and report money going in and out can deprive owners of the ability to take important business deductions and put companies at elevated risk for costly and time-consuming audits. Remember, the IRS is looking for real numbers, not estimates. Not surprisingly, poor bookkeeping is one of the No. 1 turnoffs for buyers. If you don’t understand the value of a business, how can you expect a buyer to understand it?
Pop quiz: Are your workers independent contractors or employees? It sounds like a straightforward question, yet thousands of transportation companies improperly classify drivers and other workers on their taxes. If you’re listing your contractors as employees, you’re putting yourself subject to unnecessary payroll taxes. Contrarily, if you’re classifying real employees as contractors in order to avoid withholding and paying FICA taxes, you’re putting the company at risk for hefty fines and penalties. If you’re truly not sure, filling out a Form W-8, or consulting with a tax professional who understands the trucking business, can set things straight.
Getting Excited About a Tax Refund
Everyone likes getting a check in the mail. But if you’re a small business owner and that fat check is from the IRS, it’s a sign you need to reevaluate your tax situation. If you’re self-employed and paying quarterly taxes, receiving money back means you’re overpaying – in other words, you’re giving a free loan to the government. You’d be better off keeping those dollars invested in your company. If you’re having a hard time gauging how much to pay, a tax professional can help.
Mixing Business and Personal
Business owners sometimes commingle business and personal accounts, writing business checks for personal reasons or withdrawing from a business account to cover a personal expense. Mixing funds makes it difficult or impossible to track income and expenses, affecting your ability to make deductions and to attract potential buyers should you decide to put your trucking business for sale. It’s also a surefire invite for IRS scrutiny. Do yourself a favor and keep a clear separation between business and personal accounts.
Not Seeking an Industry Professional
The trucking industry is one of the most complicated and highly-regulated sectors in the market. General business accountants are even less likely to understand the business than a truck business owner. Whether it’s identifying trucking-related deductions or correctly classifying employees, a tax specialist familiar with transportation businesses is often your best bet. Properly prepared taxes increase deductions, minimize mistakes and penalties, and put a company in an ideal position for the future – whether the plan is to seek financing or put up your truck business for sale.