Long Haul Trucker deductions

[DaveO]

Oh Bees

It deducts it as taxable compensation. As an employer, the S corporation can decide to pay its employees in the form of groceries, or paying their electric bill, or putting gas in their tank, or paying for their education. Most simply give their employees cash. Such expenses are deductible as ordinary and necessary expenses because paying wages to employees are ordinary and necessary.

I have spent years telling my S-Corps not to pay their personal bills out of the company!

I know what your saying of course. It's just getting those expenses onto the W-2 that's the hard part. Many take draws and I have to gross up earnings each quarter to put it on the 941.

I know where your'e coming from C.F. most of my truckers swore up and down their training was deductible. Same for Realtors and Insurance agents.

[Zee]

It deducts it as taxable compensation. As an employer, the S corporation can decide to pay its employees in the form of groceries, or paying their electric bill, or putting gas in their tank, or paying for their education. Most simply give their employees cash. Such expenses are deductible as ordinary and necessary expenses because paying wages to employees are ordinary and necessary.

Employee compensation in any form is deductible by the employer and taxable to the employee. The corporation paying deductible compensation in the form of a tax-free fringe benefit is another matter. In order for the benefit to be tax free to the employee (while still deductible by the employer), it has to be specifically mentioned in the code as a tax free fringe benefit. Compensation in the form of Educational Assistance under IRC Section 127 is one example of a tax free fringe benefit.

I like the idea. Am I missing anything?

Let's see if I understand this correctly. You're suggesting an individual can establish an S-Corporation trucking company that requires licensing to become active, and pay himself wages as an employee in the form of CDL driver's training. Then, the Corporation can deduct the wages and treat them as a non-taxable employee assistance program benefit as long as they're less than $5250 (maybe more). Is that correct?

But, I'm still concerned with the fact that the business is "inactive" and is not ready to provide services at the time the wages are paid. My understanding about "reasonable & necessary" expenses is they don't really began until the business is "open for business". In that case, the training is a start-up expense which can include wages for training employees which can be deducted by the corporation up to $5000, or amortized over 180 months, and I suppose if the training expenses are paid as an employee assistance program they would still be non-taxable up to the $5250? Is that correct?

Of course, both situations would necessitate the formation of the Corporation prior to the training. Is that correct?

Have I been missing this planning opportunity all these years? Of course, most people have already screwed up the process by the time I see them.

[Bees Knees]

I was speaking generally. In general, educational benefits may be provided to employees tax free under Section 127. However, if you try to do use Section 127 for a single shareholder of an S corporation with the single shareholder being the only employee, it won’t work.

IRC Section 127(b)(3) says:

(3) Principal shareholders or owners

Not more than 5 percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer.

You can still do it, but the benefit will not be tax free to the shareholder/employee, unless at least 95% of total educational benefits paid by the S corporation are for non-shareholder employees.

[Zee]

I was speaking generally. In general, educational benefits may be provided to employees tax free under Section 127. However, if you try to do use Section 127 for a single shareholder of an S corporation with the single shareholder being the only employee, it won’t work.

IRC Section 127(b)(3) says:



You can still do it, but the benefit will not be tax free to the shareholder/employee, unless at least 95% of total educational benefits paid by the S corporation are for non-shareholder employees.

Bees-

Bingo! I suspected there was some provision that wouldn't allow this practice as a tax-free benefit to a single shareholder Corporation. It just didn't make sense.

Many of us have had unhappy clients because they couldn't deduct their educational expenses qualifying for a new profession, especially when they're starting a new business. In most cases, mine have been Schedule C individuals. I'm going to save this thread for future reference.

Thanks for the clarification.

[JohnH]

---> Many of us have had unhappy clients because they couldn't deduct their educational expenses qualifying for a new profession, especially when they're starting a new business. <----

The problem is always the same - trying to overcome the fact that the guy who sold them the seminar or training progam always says something to the effect that "If you have a really sharp tax person, they can figure out a way for you to write off the entire cost. Now sign here"

[Zee]

---> Many of us have had unhappy clients because they couldn't deduct their educational expenses qualifying for a new profession, especially when they're starting a new business. <----

The problem is always the same - trying to overcome the fact that the guy who sold them the seminar or training progam always says something to the effect that "If you have a really sharp tax person, they can figure out a way for you to write off the entire cost. Now sign here"

I had a client that attended the Donald Trump seminars. First, they have a "freebie". Then, they sign folks up for their real estate & other investment seminars at a $5000+ cost. The selling point? "It's tax deductible".