Trucker tax return - suggestions needed

[FEDUKE404]

I have recently been contacted by a potential client whose preparer has (like many?) decided to "retire" this year.

Here is the issue: The client is a single, self-employed long-haul truck driver. He travels throughout the eastern US, and routinely sleeps overnight in his truck. (He does have a "real" home in the local area.) Knowing his approach to things (and other family members), there is little doubt in my mind that his records will be in excellent shape.

I have NOT seen his tax return from 2011, but will do so in the near future. Our first telephone conversation indicated he apparently has NOT been claiming any meals. (I won't believe that until I see the prior returns!)

In any case, here are my four questions:

1) - For 2012, what will he be entitled to using applicable per diem rates? (I will assume his log will support overnights.) As best I can tell with preliminary reading....it's been a while since I did such a return....he can essentially claim the single per diem rate for meals with adjustments for starting/ending days. Overnights only, of course.

2) - **IF** it turns out meals were not claimed in prior years, how careful do I need to be to consider amending? Other than per diem rates, same basic meal guidelines for years that could now be amended?

3) - Are there ANY circumstances that could warrant additional state income tax returns other than for his home state? Other than possible estimated tax payments, are there any other "regular" tax documents he would need to file with the state(s)?

4) - For all intents and purposes, just about anything related to operation of his business/truck/"office" expenses/etc can flow to a Schedule C?

I realize some of this research could be done by gritting my teeth and going forward, but at this stage I am undecided as to what might be involved --- hence the above questions. I figured some of you may be able to do trucker's tax returns in your sleep, and could offer some quick general advice. As the old saying goes, "I do not want to bite off more than I can chew!"

Thanks in advance!

FE

[Snaggletooth]

My understanding

Tar Heel Guy, I think they are automatically entitled to $52 per diem. Not only that, but the "disallowed" portion of these meals is only 20% instead of the usual 50%. He cannot, however, take the $52 per diem and then take additional meals for the same time frame. And he has to travel overnight for any portion to apply.

It is impossible to operate without spending a ton of money, thus all revelant expenses are deductible. Become familiar with industry averages: 35%+ of sales for fuel, 25% for equipment/repairs, 20% for other operational expenses. If the guy ends up with 15% left over, that should be the minimum. Some drivers and do better if they operate older tractors and do their own repair work.

Most states do not require a truck driver to file a tax return just because he is driving through their state, as they are deemed to not have established residency or force someone to report destination only sales. However, ALL of them measure their highway pump tax liability by forcing them to report all mileage driven within the state. Every truck should thus be reporting this on an "IFTA" tax return every quarter. He probably is already doing this, but if not, be aware that the state that issues his tags requires him to submit this "IFTA" for all states. It is a singular tax form submitted only to NC, but apportions highway tax to all states.

If he is a leased unit (and most single-unit operators are), he might have to report a state income tax if his lessor who pays him is located in some state other than NC, and of course he will have to report to NC as well.

Hope this helps...

[JohnH]

When asked what he'd do if he won the lottery, a truck owner-operator was hear to reply:
"Oh, I'll probably just keep driving a truck until I lose it all."

[MAMalody]

I have an Excel worksheet that may be of some benefit to you for truckers. If you would like it shoot me an e-mail at ClergyTaxes@aol.com.

[smithtax]

Feduke404

Check your private messages.

[FEDUKE404]

Making progress

Thanks for the responses. Those who offered a worksheet have been contacted.

I think my decision will hinge upon what this guy's most recent tax return/records look like. With enough coffee, crayons, and candles I can fight through just about any tax return, but I tend to avoid "basket cases" as some on these boards have recently encountered. Are these returns doable with good records, or an annual PITA regardless??

My initial contact (parent) made some reference to "filing gasoline tax forms" as being an urgent matter. Assuming that is the (quarterly?) IFTA stuff, what kind of time frame/deadline does that involve, and how much "extra" work should I expect merely for that aspect?

Thanks again. In the meantime, I'll just keep on truckin' !!

FE

[Snaggletooth]

IFTA Return

The gas tax returns he's referring to are almost certainly the IFTA returns.

Here is a link to the North Carolina version:

http://www.dor.state.nc.us/downloads/gas1276.pdf

You might be able to figure out the gist of what this does by following the dots, if not,
the same website has instructions.

[Roland Slugg]

Hello FE. I would like to offer suggestions regarding one or two of the topics where you requested ideas.

First, as you have already said, the trucker may or may not have been deducting meal expenses. His previous tax preparer may have been using the standard M&IE rate without the T/P even realizing it. If you determine that no deduction for meals has been taken, you will, of course, want to figure that deduction when you prepare the client's 2012 returns. You may also wish to consider preparing amended returns for 2011, 2010 and 2009, and I have a suggestion about that below.

Regarding a deduction based on the "standard" M&IE rate, I trust you know where to look to get that rate ... IRS Pub 1542. Pub 463 may also contain information you will find useful. The standard M&IE rate varies from locale to locale, from a low of $46 to a high of $71, I believe, but as one other post above points out, truckers have the option of using a "blended" rate of $59 per day, and this is what I would probably do. (See Pub 463, page 6.) That $59 rate may have been lower in prior years, and it may even be higher for 2012. The $59 rate was the one in effect in 2011, I believe. New M&IE rates are published each year effective October 1st, and can even change at other times during any year.

Whichever method is used for figuring the meals expense, it will be subject to the percentage reduction ... normally 50%. However, if your client is subject to DOT regulations, he can deduct 80% instead of 50%. (Code §274(n)(3)) The 50%/80% limitation does apply even when the standard M&IE rate is used. One other point: When figuring the M&IE rate for the day an out-of-town, overnight business trip begins and for the day it ends, a T/P may use a prorated part of the full M&IE amount for those days, and absent a different proration, the IRS allows 75% of the full M&IE rate for those days.

Amended returns: A discussion of amended returns for this T/P may be premature, since you have not yet seen his prior year returns. But when you do, and if you determine that no deduction for meals was taken, then amended returns for the three open years should certainly be considered. If his prior year returns appear to be "clean," I would not hesitate to advise filing amended ones ... both federal and state. It has been my long experience that amended returns rarely draw IRS scrutiny or trigger audits; they almost always get processed without a hitch. I also believe that one of the keys to hassle-free amended returns is the explanation provided. It should be clear and concise, and based on my reading of your many excellent posts on this forum, I have no doubt you would write a good one. Btw, I also believe that when two or more amended returns are being filed by the same T/P and for the same reason, that they should be mailed together, with a cover/transmittal letter accompanying them. When I do this for a client, I write the letter on my stationery, sign it, and ask my client to enclose it on top of the amended returns.

Finally, if a review of your client's prior year returns reveals that he did not claim a deduction for meals, but also reveals one or more significant issues or deductions that are questionable, or worse, I would discuss with the client not filing amended returns at this time. Instead I would suggest "saving" the undeducted meals expense and using it as an offset in the event of an IRS audit. This is a judgment call, of course, and one where the client should make the final decision, and it depends on the amount(s) involved with the meal issue, as well as the other "problem" issues identified in his prior returns. If you are asked to prepare amended returns, you would, of course, be required to correct all other errors of which you become aware, and the netting effect would result in smaller refunds, or none at all ... or even more tax due!

[FEDUKE404]

Working more information

Roland - Thanks very much for the updated information.

As you noted, I have not yet seen any prior returns. I have found out that the former (retiring) preparer previously worked at HRB, then went solo. Hopefully that is a good sign...also the client most likely has excellent records (if he is remotely related to his dad, whom I've known for years). I have requested to see 2009, 2010, and 2011 returns at least for a cursory review.

My initial inquiry was answered "WHAT meals?" but I will take that with a grain of salt until I see the Schedules C for those years. (One would think the client would be aware of such, but perhaps the preparer just "filled them in" from the records provided.) It appears the $59/day meal rate is the simplest, at least for 2011 issues. There would need to be reductions for the first/last day of each trip. As for the further 50%/80% issue, in plain English what does "subject to DOT regulations" involve? As mentioned earlier, he is a long-haul driver who generally works throughout the southeastern states.

I also plan to check VERY carefully for the presence of our old friend, the SEHI adjustment to income. That would certainly be fertile grounds for a 1040X venture!

For now I'm still very much in the dark on the NC IFTA stuff. On several occasions today I called the two numbers listed for the NCDOR department....no answer of any kind....after a long time of waiting "the party you are calling is not answering...you are now being disconnected...CLICK." Interestingly enough with the last quarter (Jul/Aug/Sep to be filed in Oct) they have now gone to an online quarterly filing system. Questions I would like to have clarified: "Is the whole purpose of the doggone thing to pay a new tax, or just reallocate whatever tax you already paid when you pumped the diesel fuel in the first place? And from looking over the manual above, it appears you can either owe money or get a credit."

Every now and then a challenge is good for any preparer. I'm making good progress, and obviously have the available assistance of several folks on these boards.

FE

[Roland Slugg]

As for the further 50%/80% issue, in plain English what does "subject to DOT regulations" involve? As mentioned earlier, he is a long-haul driver who generally works throughout the southeastern states.

Good Q! That's all it says in Pub 463. I'm sure, however, that all or almost all long-haul, interstate truckers are DOT regulated ... hours of service limits, log-keeping requirements, and prolly a LOT of other behavior and record-keeping rules. Even intrastate truckers may be DOT regulated. In any case, just ask him. He might not know about his meal deductions, but he will surely know if he's governed by the DOT rules for truckers.

I know nothing about the ITFA reports. But from doing a little reading about them just now, I would think it is something your client would file on his own, based on fuel purchase records he would keep current.

Oh, regarding one of your original Qs:

For all intents and purposes, just about anything related to operation of his business/truck/"office" expenses/etc can flow to a Schedule C?

Absolutely! Of course, the OIH flows to Schedule C via F-8829 ... that is IF he actually has an OIH and meets the requirements to qualify for a deduction.