It’s that time of year again and this is a very important time for owner/operators. The are a number of things to do before the new year arrives that can have a positive effect on your business. The number one thing you should be doing is meeting up with your accountant.
If you don’t have an accountant, then get one – and get one that knows the trucking industry. A good accountant may cost a few bucks, but they will save you a lot more. They will know all the deductibles that a trucking business can claim and there are thousands of dollars at stake there, so you need a professional on the job.
With only a few weeks left in the year, you will have a pretty good idea of how much profit you’ve made this year. How much of it you decide to give the taxman is now in your hands. As I said, a good accountant will be aware of the deductions available and you should be using every one of them. Our tax code allows these deductions and they are there for legitimate business expenses, so it’s perfectly legal to claim them.
Once all of your business expenses have been accounted for, you will be left with a figure – basically your profits. This is the amount that you will be taxed on and you can adjust that figure to lower your tax liability. You do this by lowering your profit or increasing your business expenses. You know what big-ticket items you’re going to need in the near future – a set of drive tires, for example – so buy them now and the tax savings you’ll make will go towards their purchase price.
I must again stress that anything you claim must be for a legitimate business expense.
The rules on this are very clear and you’ll be in hot water if you try to beat the system. A business expense is a business expense and there are thousands of legitimate claims for small businesses. A good accountant will play by the rules and ensure that you are not giving money away that you are not required to.
Once your adjusted profits and tax liabilities are figured out, there are now other decisions to make. Have you reached the point that incorporating makes sense? Should you carry on as you are or are you at the point that it would be a good time to sell that truck and get a job? Your accountant will know all this and will offer advice as to which direction you should take.
Business is all about money – if you’re making it then all’s well and good, but if you’re not, then you have some important decisions to make.
Either way, you need to sit down with all of the numbers and make decisions. You will know how much you’ve earned in gross revenue. Is this an area you need to address and what do you need to do to improve things, if that’s the case? It doesn’t matter how good your rate is if you do not earn enough from it to cover all your costs and make a profit.
Do you need to put a few more miles in next year instead of having every weekend at home and spending the winter in Mexico?
The other side of that coin is are you working too hard? At some point your earnings will balance out, meaning that every penny you make as profit is yours; once you earn more than this you start paying taxes on the rest.
As you make more profit, you pay more tax, so once you pass a certain tax threshold you may find you’re working harder to keep less of the money you earn. In that case you may be able to hit the beach for the winter and spend every weekend at home next year.
You should also concentrate on expenses. Break them down into categories; some you can change, some you can’t. Ignore the ones you have no control over and look at the ones you do. You need to figure out how to reduce these, as spending more than you need to is just throwing money away.
One area that really needs attention is fuel. It’s a huge expense and you can reduce your spending on that with a few easy steps. First is where you buy your fuel. You need to learn how IFTA works and optimize your fuel purchases. When you buy fuel, you’re actually paying for two things: fuel itself and provincial or state tax.
If you’re responsible for your own fuel tax then the best method to use is to completely ignore the tax and buy the cheapest-priced fuel.
The taxes will all be figured out by IFTA and you will either get a refund or have to send them a cheque, however that doesn’t matter as the tax costs are based on how many miles you travel in each province or state and you cannot change that.
Nett fuel price is different though. There’s a huge difference in nett pricing, take Alberta and Saskatchewan for example – if the pump price is a buck a litre in both provinces, Saskatchewan fuel is $0.05 cheaper than the same stuff in Alberta because of the different mileage tax in the provinces.
Sitting down and studying your profit and loss statement will show you what you need to pay attention to as you move forward.
If that is not something you feel comfortable with, book an hour with your accountant and get them to go through the numbers with you. Not only will it help you minimize your expenses, it’s tax deductible too!
A fourth generation trucker and trucking journalist, Mark Lee uses his 25 years of transcontinental trucking in Europe, Asia, North Africa and now North America to provide an alternative view of life on the road.