In my research over many years, I have found that about 40% of all operators are about 1 year BEHIND in paying their taxes. In some situations, the amount is too high to sustain a household dependent on the income from operating a truck. Too often taxes are used as the ‘excuse’ for why an operator got out of the industry.
The blaming of taxes for failure is extremely misleading… it is a false narrative. Taxes do not cause operators to fail. Personal spending that is too high causes operators to fail. Sometimes abnormally high maintenance can cause operators to fail… but not taxes. Taxes are ALWAYS predictable. If the operator follows the rules of proper business cash flow, they automatically reserve cash for taxes. If an operator is self-employed, it is more difficult to determine taxes month after month, but it can be done if personal and business earnings are kept separate. If 30% of all ‘drawings’ from the business account is set aside for taxes, there will be no surprises. The problem is, trucking has significant cash flow. Lots coming in and lots going out. If the operator thinks too much or ALL that comes in is ‘personal’ and ends up spending it… there will be nothing left for maintenance and taxes. That means that a one-year-old tax bill will cause a slow-motion financial ‘car wreck’ the following year.
Too many operators think that just finding the right accountant will solve the tax problem. If everyone followed the rules of taxation, every accountant would get the exact same tax dollars due. But, of course, they don’t. Of those who prepare taxes, most know what they are doing. The rules regarding using the TL2 simplified method are rather simple. The first 24 hours away from your home terminal are not usable. The rules are very clear and yet too many don’t count, or they ‘over count’ on purpose. I have a friend who was a local driver; we calculated his return as $1,500 and he went to another tax guy who got him $4,500. I asked if he told the guy he was local and not long-distance… he didn’t. If he gets audited, he pays it back… penalties and interest.
There is another guy who prepares taxes who has an amazing reputation for getting HUGE returns. This guy writes off everything that is given to him: household food, lawn care equipment, parents as dependents (who live out of the country), haircuts… you name it. The key to his ‘success’ (albeit short success) is manually printing out the several hundred T1 returns he completes. The name of his ‘firm’ is nowhere to be found on the returns and his fees are in ‘cash’. So, when the taxpayer is audited… he will be on his own. I know several drivers who will be getting a $9,000 + refund. If they are audited… it is a temporary refund since the interest and penalty ‘financing fees’ will be astronomical… my guess is 15-30%.
I’ve been preparing taxes for over 30 years. I’ve seen cheaters come and go. Many get away with the actual fraud at the time… but I’ve seen where they end up in 20 years. They are just as broke and just as addicted to crisis. Over 20 of those years I have seen clients who pay their taxes on $30-40,000 income becoming wealthier than those who ‘cut corners’ or fudge their returns at tax time while making $80-120,000. It defies logic but I can’t think of any exception. If you want to be a good operator, learn the art of great cash flow management. Follow The Rules.
The simplest system to guarantee tax efficiency and safe money management is using non-taxable benefits. It saves operators on average $12,000 in taxes every year. Not only does it save $1 K per month in taxes but if you follow the rules associated with corporate payroll, you never fall behind in taxes… ever. It was what I wrote my first book about. It’s what I have been referring to in these articles for over 14 years. Check out our PODCASTS.
About the Author:
Robert D. Scheper is a leading Accountant and Consultant exclusively serving the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His second book “Choosing a Trucking company” is the most in-depth analysis of the independent operator industry today. He has a Master’s degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.
You can find him at www.makingyourmilescount.com or 1-877-987-9787.
Robert D Scheper operates an accounting and consulting firm in Steinbach, Manitoba. He has a Masters Degree in Business Administration and is the author of the Book “Making Your Miles Count: taxes, taxes, taxes” (now available on CD). You can find him at www.thrconsulting.ca and thrconsulting.blogspot.com or at 1-877-987-9787. You can e-mail him at: email@example.com.