Importance of Properly Handling Paperwork

TRANSCRIPT

Announcer:
Coming up next on The Trucker CFOPodcast, you'll hear from Colton Lawrence, The Trucker CFO.  In this episode of the podcast, Colton will be discussing the important considerations for owner-operators and independent contractors when it comes to properly handling the paperwork of your trucking business.  Here's a preview…

Colton Lawrence:
These best practices can be utilized by our clients in a way that can minimize their audit risk.  And if they will do these things, it allows us at Trucker CFO to handle their bookkeeping, to make sure their records are as accurate as possible, but also in the event of an audit, these records will then be very easily handed over to the IRS so that they can do what they need to do and it will end up minimizing any future changes or restatements to those tax returns.  We want our clients to be as profitable as possible and we don't want them to pay a dime more than they need to in taxes.

Announcer:
Welcome back to The Trucker CFO Podcast.  Thanks for connecting with us again here on PodWheels.  As we've shared with our listeners on previous episodes of this series, Trucker CFO is focused on exploring the business, accounting, and tax topics that matter most to truckers, particularly the men and women who move the nation's economy as owner-operators, independent contractors, and professional drivers.  This podcast is also dedicated to the business needs of the fleet owners and small trucking businesses throughout the country.  PodWheels is proud to have the opportunity to partner with Trucker CFO in the development of this podcast series.  During its many years of service in working with owner-operators and independent contractors, TruckerCFO has become a trusted resource and a leader in the trucking industry for providing tax, accounting, and business advisory services for professional drivers. 

As we mentioned at the top of the podcast, The Trucker CFO Colton Lawrence will once again join us to talk about another important topic designed to help owner-operators and independent contractors with the business of trucking.  During this episode of The Trucker CFO Podcast, Colton will be discussing the considerations that come into play regarding properly handling the paperwork involved with your trucking business.  Colton will once again be joined on the podcast by Greg Thompson, the Executive Producer of PodWheels.  Greg will be talking with Colton about record keeping, collection of receipts, and other considerations related to handling the documentation aspect of your business. As always, Trucker CFO and PodWheels would like to remind our listeners to please keep in mind that every tax and business situation is unique.  In addition, the perspective shared on this podcast should not be considered as tax advice.  If you have questions regarding your specific tax situation, you should consult a qualified tax professional.  During the podcast, we’ll be sharing information on how you can connect with Trucker CFO.  Now let's join the conversation with Colton Lawrence and Greg Thompson.  Colton connected to the PodWheels studios through Zoom audio.

Greg Thompson:
Hello again everybody, Greg Thompson with PodWheels back with you on The Trucker CFO Podcast.  And joined once again by The Trucker CFO, Colton Lawrence.  Colton, it's great to be back with you on the podcast.  We're going to be talking about one of the most important aspects of running a business and that's handling paperwork.  And Colton, when we talk about this, one of the things that we've talked about a lot in this series is that when you're an owner-operator and you've got a small operation, say a single truck you're driving and you're running a business. Right now, talking about paperwork, that's when we're really talking about handling that paperwork and running the business.

Colton Lawrence:
Greg, too many drivers out there they think they can just go drive the truck and obviously that's the fun part of running the business right, is driving the truck, getting out there, seeing the country, but there are different aspects to running that business that they need to pay attention to in order to be successful.  And one of the most important things they need to do, that is admittedly one of the more tedious and less fun parts of their trucking business, is how to manage and keep track of all the paperwork that comes from running that business.

Greg Thompson:
And you hit it right on the head.  Getting out on the road and being on top of your business by putting in the miles.  That's the fun part of it.  But one of the reasons that we want to talk about this is that, as you said, it's the responsibility of handling the paperwork.  But if you really want to not have fun in your business.  If you want to be miserable in your business, don't handle your paperwork and then you'll find the exact opposite of fun out there.  Right?

Colton Lawrence:
That's correct.  What people need to understand is that every piece of paper that results from running that business is money in or out of their pocket. Especially when we're talking about receipts.  If drivers do not have a good system for keeping and managing those receipts and managing that paperwork, that is money that can ultimately end up coming out of their pocket in the form of an increased tax liability.

Greg Thompson:
And as we get into this, folks are going to learn about the responsibilities and the liabilities of not handling that paperwork.  And let's talk about the first item that comes up quite often for new entrepreneurs, new businesses.  Folks that are running a business, but they're also working with their personal finances as well.  If you don't separate the business from the personal, that can cause some headaches.  Right?

Colton Lawrence:
It definitely can cause some headaches.  And unfortunately in 2020, many of our drivers found out the hard way that by not separating their business and personal expenditures.  By not having that business bank account, it can come back to bite them.  And it did for many drivers in 2020 as they tried to get these PPP Loans and do some of the other things that were available to them through the Cares Act, which we've talked about in prior podcasts.  So it is definitely very important that as a business, you run the business like a business and you have that separate bank account that you can run your business income and expenditures through and keep that separate from your personal expenses.  Because the way we treat business expenses from personal expenses is very different.  Some are tax deductible and others are not.

Greg Thompson:
Well Colton and if folks will look through our podcast series, you'll hear us talk about tax preparation in a number of these.  And one of the things that we touch upon and I think it's a good place to remind folks again here is that when it comes to filing taxes, you're going to have your business and your personal.  So again, having those two records separate becomes very important when it comes to filing taxes.

Colton Lawrence:
It does.  One of the very first things that we are going to need for new clients as they sign up for Trucker CFO services and as we get ready to prepare that first tax return for them, is we are going to want a copy of a prior year tax return.  That's very important for us to see so that we can make sure that we have all of the information necessary on any carry over items such as depreciation or prior year losses if that's something that applies.  And so we recommend that whether you're a longtime client of Trucker CFO or coming to us for the first time, that you download and keep an electronic copy of all prior year tax returns and any support documents that come with that, whether that be a 1099, W-2, mortgage interest.  All those kinds of documents are items that they should keep a record of and have at their disposal when we ask for it.

Greg Thompson:
Well as always in these, you bring up a great point and that is having that prior year tax return, and something just came to mind.  I'm sure you've gotten into situations where somebody has come to you and said, hey I don't have that.  I use somebody that was a fly by night tax preparer, or things didn't end well with them or anything along those lines.  Just the fact that they don't have that.  What steps do you take in working with new clients in particular that don't have that prior year tax return?

Colton Lawrence:
If that is their situation and they just flat out don't have or can't get a copy of their prior year tax information, there are things that we can do such as pull a transcript from the IRS.  And we can get copies of anything that has been submitted to the IRS.  But it's important to understand that that's not always a silver bullet and not all information is provided to the IRS.  If you drove for a motor carrier who doesn't report a 1099 or other items pertaining to your tax situation, there are many things that may not be on that IRS transcripts that could prevent us from getting a full and complete picture.  But there are some things that we can do to help out in that situation.

Greg Thompson:
And the reason that we bring this up folks is that one or some of you may be listening to this and say, wow I need to have prior your tax records before I can even contact Trucker CFO.  And that's not the case.  If you're in that situation, you should contact Trucker CFO and your team can work with them, correct?

Colton Lawrence:
That's correct.  Most of what we talk about here are best practices that drivers should employ and incorporate into the running of their business.  And if that is not their situation, if they didn't plan ahead of time, we can still help them out.  We always will take them on as a client and put a plan in place for them to help them moving forward.

Greg Thompson:
Well Colton, let's dive into keeping records because there are some specific records that owner-operators and independent contractors need to keep throughout the year.  Can you walk us through those?

Colton Lawrence:
I sure can and one of the very first things that I want to mention is that many of the receipts, especially these fuel island receipts that are heat sensitive, they will fade over time.  You receive those from the fuel pump, you put them into the truck, you may throw them up on the dash or throw them into a bag, whatever the case may be.  And over time those receipts will start to fade and if you don't have a good process in place for getting those recorded, getting them digitized.  Oftentimes we will be unable to read the numbers off of that receipt and that can possibly cost you money in the form of an error or missed information on your tax return.  So we recommend that you get those over to Trucker CFO as soon as possible.  We will take that and do our part as far as the bookkeeping of that receipt and we will digitize that receipt so that we've got a permanent record of what that receipt looks like in the event that you ever audited.

Greg Thompson:
Now Colton, what I'm hearing you say is that your process, is that the owner-operator, independent contractor, the clients with Trucker CFO, are going to send you a copy of the receipt.  And from what we've talked about here, I'm thinking that's going to be an electronic copy.  Probably taking a picture with your phone and shooting an email and working with it that way, is that correct?

Colton Lawrence:
That's correct.  Our best practice is that when a client incurs an expense, for example, at a fuel pump, they take that receipt and they immediately take a picture of it and those pictures can then be emailed to Trucker CFO. There's a specific email address that our clients are very aware of.  Those receipts come into us.  Our data entry team will go through the process of doing the bookkeeping on those receipts and then all images of receipts are stored and are accessible through their Trucker CFO client access portal.  And for those individuals that do not want to use technology to digitize those receipts and send them over to Trucker CFO, we can accommodate receiving those receipts via US Postal Service, FedEx, UPS, whatever the case may be.  We can receive those into our office and still do the bookkeeping and accounting on them. And then at the end of the year we will send back to the client their original receipts.

Greg Thompson:
I just wanted to come back to one point that you brought up right at the beginning of this discussion about keeping records and knowing that some of those receipts can be heat sensitive.  So would you advise owner-operators, independent contractors to come up with a process that says, okay, when you're out, say for a week or two or however long you are, you're going to collect those receipts.  But we know that the truck can rise and fall in temperature.  But when you're done, when you get home, when you get that chance to move things off the truck from that run, it's probably good to keep those receipts in a temperature controlled environment.

Colton Lawrence:
Absolutely.  That is a very important thing that we recommend our clients do because of the heat sensitive nature of many of these receipts.  They need to get them off the truck as soon as possible.  If they're stored in the truck, make sure it's done in a way that they can stay somewhat temperature controlled. And as always, they need to digitize copies of that so that we don't lose the vital information from that receipt. 

Greg Thompson:
Well Colton, now that we've talked about the importance of handling receipts and records, let's talk about the types of records, the types of receipts that owner-operators and independent contractors need to keep and collect throughout the year.

Colton Lawrence:
Well, let's start off first Greg with the income side of their bookkeeping.  I think too often we spend more time talking about expenses because those records are higher in volume.  But one of the more important parts of their record keeping relates to the income that they're making.  And oftentimes owner-operators and independent contractors will rely on that 1099 that they receive at the end of the year to validate the income that they've received for tax purposes.  And more and more, we are seeing motor carriers that have set up operations that don't require them to send a 1099 to the owner-operator or independent contractor.  And as a result, those business owners need to have records of the income that they've received and generally that's going to come in the form of a settlement report.  That can be the detailed settlements or perhaps a summary statement of their settlements.  It might also be factoring reports and or load reports from their load boards.  Or if they're sourcing their freight on their own, they need to have some process in place for tracking that revenue and the receipts that they have received.

Greg Thompson:
Colton, you bring up several great points and among those is the fact that you really need to look at reconciling what you see on a 1099 and what you're seeing as a revenue from that carrier as part of your business because those two things might not match up.

Colton Lawrence:
That's correct.  And one of the important processes we go through as we get into tax season is taking the 1099s that those drivers have received and reconciling them to the source documents.  Whether that be settlements or factoring reports, we take those source documents and balance it to the 1099s to make sure that we are reporting all income.  And in the situation where those source documents do not balance to the 1099, we're making sure that all income is reported so that we can process the most accurate tax return possible.

Greg Thompson:
You talk about taking a headache off of somebody and a concern.  Think about that for a minute folks, the fact that if you're submitting all your settlements to Trucker CFO and you're getting your 1099 paperwork.  Colton, that is something that you and your team are doing and that saves a whole lot of time and a whole lot of heartburn I'm certain.  Because as you're bringing in new clients, that's probably one of the first questions that you're asking looking on the revenue side.

Colton Lawrence:
Absolutely.  As we get into a relationship with new clients, we are asking if they have any back bookkeeping that needs to be done so that we can get ahead of this situation before tax season.  That we can ensure a timely filing of the various tax returns that they may need to file.  And also to ensure that we are able to minimize their tax liability.

Greg Thompson:
Well Colton, as you and our listeners know, we've talked a little bit around and a little bit about the expense side.  But can you drill down on the expense side of things in terms of record keeping for our listeners.

Colton Lawrence:
Absolutely Greg.  And the first thing I would do is for those individuals that are looking for information on what types of expenses are deducted, we have done an entire podcast on that subject and they can go listen to that to get all the detailed information on what they should be looking for in terms of expenses that are tax deductible.  But in terms of the recordkeeping side, there are many items that they need to be keeping track of as an example, their cell phone bill.  The statements of pay for those cell phone bills are often tracked on the cell phone providers website.  They need to log into those services and download a pdf copy of that cell phone bill so they can keep it for their records and also send it to Trucker CFO so that we can do the bookkeeping. Also, when it comes to repairs, oftentimes the repairs for those trucks can be of a certain dollar amount or type of repair that will require us to treat it differently for tax purposes.  And they need to keep those repair type bills at the forefront of their minds so that they can notify Trucker CFO and let us know so that we are properly tracking it for depreciation and expense purposes.

Greg Thompson:
Sometimes, if you're with the carrier and you go out of network on fuel, that is something else that you want to make sure that you keep track of as well.  Right?

Colton Lawrence:
That's a very good point Greg.  When they incur those types of purchases out of network for fuel, they need to keep that fuel island receipt and many of the items that we have previously talked about will apply to that fuel island receipt in terms of being heat sensitive and needing to get that digitized as soon as possible.

Greg Thompson:
Well, I'm gonna ask you two of the most common questions that come up and one of these happens when, and we've talked about it before in previous podcasts, somebody who's used one of those strip mall places, the flag waving places, all of that.  You guys know where they are.  But some of those places will encourage professional drivers to deduct mileage and that is something again that you cannot do.  Correct?

Colton Lawrence:
That's correct. If you talk to anybody who is trying to make you as a truck driver taking mileage deduction on your tax return, you need to turn and run the other direction.  Make sure you're taking actual expense when it comes to the expenses related to the truck and your business.

Greg Thompson:
The other question that comes up is about food and keeping food receipts.  And I want to take a moment and have you talk about per diem because per diem covers food, correct? 

Colton Lawrence:
That's correct.  And we absolutely do not want your food receipts.  Don't take that personally.  It just is not necessary.

Greg Thompson:
And just for a moment, is there anything that they need to do in terms of record keeping on a per diem side to help Trucker CFO and your team out as your team works on their taxes?

Colton Lawrence:
Yes Greg.  There are a number of tools out there that drivers can use to help them track how many days they are out on the road away from home.  One of the best ways we found is for drivers to download the information from their ELD and as they do that that becomes a very good record of where they've been and how long they were away from home.  When it comes to an audit, it also is very good support because it justifies and shows that they were away from home on business which will then qualify them for the per diem.

Greg Thompson:
Now Colton, you just mentioned the magic word and that is audit.  And folks, we've got an entire podcast devoted to audits.  But Colton, I'm glad that you mentioned it here because I wanted to talk a little bit in terms of record keeping and audits and best practices for the amount of time that you're gonna hold on to all of this information.

Colton Lawrence:
Well Greg, you just touched on something that is very important.  And that is these best practices can be utilized by our clients in a way that can minimize their audit risk.  And if they will do these things,  it allows us at Trucker CFO to handle their bookkeeping, to make sure their records are as accurate as possible.  But also in the event of an audit, these records will then be very easily handed over to the IRS so that they can do what they need to do.  And it will end up minimizing any future changes or restatements to those tax returns.  Our best practice is that our clients keep these records for five years from the date they file their tax return and that should protect them in the event that they are audited in the future.

Greg Thompson:
Well as we close out this edition of The Trucker CFO Podcast. Again, you hit on it, if you follow all of the things that we've discussed here, particularly on how to keep those records, how to keep those paper records out of the heat sensitive situations, how to maintain those, and again looking at partnering with Trucker CFO on how to handle the paperwork because you guys have got professionals who do this all the time.  You work with 10 and 20 and 30 year veterans.  You work with folks who are just starting their trucking businesses.  You've seen the wide spectrum that is out there and you guys are on top of the changes in the industry.  You mentioned ELDs earlier.  The fact that records are there to be kept and they need to be kept for a long time. They need to be kept in certain ways.  That helps in securing your business, securing the smooth running of your business.  And it just gives you peace of mind.

Colton Lawrence:
That’s right Greg, we want our clients to be as profitable as possible and we don't want them to pay a dime more than they need to in taxes.  And by following the recommendations that we have put forward in this podcast, Trucker CFO will best be able to help them accomplish those goals.

Announcer:
That’s The Trucker CFO Colton Lawrence.  Everyone at PodWheels would like to thank you for listening to The Trucker CFO Podcast.  As we noted in the opening of the podcast, please keep in mind that every tax situation is unique and the perspective shared on this podcast should not be considered as tax advice.  If you have questions regarding your specific tax situation, you should consult a qualified tax professional.

Now before we close out the podcast, we'd like to talk to you about Trucker CFO.  Do you have a team of tax, accounting, and business advisory professionals who understand the complexities of the trucking industry?  There's a number of ways you can contact the team at Trucker CFO. Visit the company's website at TruckerCFO.com.  From the homepage you can fill out the get started form which will send an email to a Trucker CFO representative.  If you would rather email Trucker CFO directly, you can reach out to the company through the following address, info@truckercfo.com.  That's info@truckercfo.com. 

You can also call Trucker CFO toll free at 1-800-533-4230 and hit option two for sales.  The toll free number once again 1-800-533-4230 and choose option two.

Once again thanks for connecting with us on PodWheels.  You can stay up to date on the latest from PodWheels by downloading the PodWheels app.  It's available in the Apple Store and on Google Play.  Just search PodWheels in either store and download the app.  Be on the lookout for the next edition of The Trucker CFO Podcast right here on PodWheels. 

As always, Trucker CFO and PodWheels send our best for your safe travels on our nation's highways and finally, we would like to remind you that in addition to staying safe, you take the necessary steps to also stay healthy as you do the critical work of keeping the American supply chain moving.