“Success occurs when opportunity meets preparation.” – Zig Ziglar
The beginning of the year is an excellent time to take stock of your trucking business’s finances and prepare for the following year. Let Money Guy, Brian Preston guide you through some simple money saving tips for truckers to ensure you’re headed in the right direction in 2019.
You drive for profit, so make profit a priority.
What worked in the last year? Which jobs have been the most satisfying and profitable? A big part of business success is finding your niche, so prioritize your very best opportunities.
- Calculate your cost per mile. Make sure you include both fixed costs (payments on equipment, insurance, license and registration, software, cell phones) and variable costs (primarily fuel, maintenance, and your expenses while on the road). How do your numbers compare to your peers?
- Prioritize an emergency fund. Do you have enough available cash to keep unexpected mechanical issues from derailing your plans and causing unnecessary stress? Breakdowns are impossible to plan, but we all know they’re coming sometime. So be prepared and keep some reserves to make sure you’re back with little downtime.
Take advantage of new money-saving deductions.
If you need to upgrade your equipment, the new (2018) Tax Cuts and Jobs Act will provide several improved deductions and planning opportunities.
“Faster Value Loss” can save you money – Prior tax law allowed used tractor and trailer purchases to be depreciated over three to five years. In 2018 taxes, you have the option of accelerating all the depreciation in the first year. In the past, this accelerated depreciation only applied to the purchase of brand-new equipment. Now you can use this on both new and used equipment purchases.
Visit the IRS’s trucking page. Did you know that the IRS has an entire section of their website devoted to trucking taxes? Keep up with your favorite Uncle at IRS.gov.
Should you incorporate?
Was 2018 a good year? If your trucking business is consistently generating more than $60,000 a year in profit and benefits for you, then you may want to move your business beyond sole proprietorship. There are several potential benefits to this change:
- Reduced liability risk. Having a corporation creates one more layer of protection for both you and your family.
- Higher salary and reduced taxes. You’ll have the potential to pay yourself an industry salary and reduce self-employment taxes. Think of it as being two different persons: an owner and an operator. With that in mind, you can as a:
- OPERATOR: A portion of the income is attributed to your time as an employee driving and operating the truck. Pay yourself a reasonable salary for these functions.
- OWNER: The other component is the income attributed to owning the trucking business. Defining the best trucking business structure will create important money-saving
Money Tune-up Tip: U.S. Small Business Administration has lots of detailed information on choosing a business structure.
Your money should work as hard as you do.
Make sure you’re saving for the future and maximizing retirement plans. This is one of the biggest legal money-saving tax loopholes out there for owner-operators. The reason is simple – the government wants you to save for the future.
You can start with very simple retirement savings accounts (SEP-IRA), but you can also consider more advanced and feature-rich options like the Solo 401(k). Here are a few of their benefits:
- Pay it forward. In addition to the trucking company contributing up to 25% of profit to the plan, participants have the option of adding salary deferrals ($18,500/year and, if over 50, that number increases to $24,500). These contributions can be tax deductible when contributed traditionally pre-tax.
- The ROTH option. If you are willing to forgo the current tax deduction of your salary deferrals, you can contribute your 401k salary deferrals as ROTH contributions. ROTH holdings grow completely tax free. This is a tremendous opportunity for younger savers that have time to maximize the power of compounding interest.
- ERISA creditor protection. 401(k)s are more protected from creditors and lawsuits than IRA options.
Money Tune-up Tip: Fidelity has a great chart comparing the most popular small business retirement plans.
As you can see, there are lots of planning opportunities for owner-operators in the new year. By simply starting the habit of reviewing and maximizing your options on an annual basis, you’ll be on your way to creating a level of success that could be virtually limitless. Use this checklist as a roadmap to owner-operator financial success, and ultimately help build a foundation for your financial independence. Have a successful New Year!