In our first episode of the podcast for 2022, we’ll be discussing what owner-operators and independent contractors need to be thinking about as the calendar turns to tax season. Colton Lawrence, the Trucker CFO, will be walking us through a number of key considerations as trucking professionals begin the process of working toward filing tax returns for 2021. In addition to discussing first steps related to information gathering, including best practices for tracking revenue and expenses, Colton will be covering the very important changes that were made to per diem in the latter part of 2021 and how those changes will impact tax filings on 2021 returns.
TRANSCRIPT
Announcer:
Coming up next on PodWheels, you'll hear the first Trucker CFO Podcast of 2022. Here's a preview featuring The Trucker CFO Colton Lawrence on getting ready for tax season.
Colton Lawrence:
Understanding how you're paid and understanding what your receivables are is very important. If you happen to be someone who is driving out under your own authority and you're using that load board, you are invoicing for your own loads. You want to make sure you've got a system in place to track those loads, to track what you've been paid, what you haven't. A good accounting system in place is going to help. That's very important because it's easy to get behind on that, and to fall behind on your collections, cash is king. If you don't have the cash coming in, you're not going to be able to sustain that business.
Announcer:
Welcome back to The Trucker CFO Podcast, and thanks for connecting with us again here on PodWheels. In our first episode of the podcast for 2022, we'll be discussing what owner-operators and independent contractors need to be thinking about as the calendar turns to tax season. Colton Lawrence, The Trucker CFO will be walking us through a number of key considerations as trucking professionals begin the process of working toward filing tax returns for 2021. Colton will be joined on the podcast by Greg Thompson, the Executive Producer of PodWheels. In addition to discussing first steps related to information gathering, including best practices for tracking revenue and expenses, Colton and Greg will be covering the very important changes that were made to per diem in the latter part of 2021, and how those changes will impact tax filings on 2021 returns.
Before we take you to our conversation with Colton, 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. Later in the podcast, we'll share some information on how you can connect with Trucker CFO to discuss your specific tax, accounting, and business advisory needs.
Now let's hand it off to Colton Lawrence and Greg Thompson, Colton connected with Greg and the PodWheels Studio through Zoom audio.
Greg Thompson:
Hello again everybody, and welcome to the first of our 2022 editions of The Trucker CFO Podcast. Greg Thompson alongside Colton Lawrence. And Colton, we just got finished with the holiday season as we record this in early January and now we're moving into what is your busiest time of the year and maybe, is it your favorite time of the year? Tax season?
Colton Lawrence:
Well, it's definitely our busy time of the year. As far as whether it's our favorite time of year, it's definitely the season that we put in a lot of long hours. We're working with our clients to get all their tax returns done, doing everything we can to help them pay as little tax as possible. While we look forward to this time of year, we also look forward to when it's over. Just like I'm sure our clients do.
Greg Thompson:
Let's talk a little bit about it. We are at the beginning of January. Of course, our regular listeners know that we had our year end podcast about what people needed to be doing year end of 2021. So now we're into 2022. We’re early in the year. The clock is ticking to the tax deadline of mid April. What do we need to be doing right now?
Colton Lawrence:
They need to be gathering all their tax documents. They need to be getting their receipts organized. They need to be getting with their CPA, and they need to be prepared to pay their taxes. The question I was asked is, shouldn't that have all been done last year? I would say that it should have been. You mentioned our podcast that we did at the end of 2021. I would recommend folks listen to that. It's always a good reminder of the things they should be doing. But as our listeners know, we really emphasize that our clients should be doing these things throughout the year. Have these processes in place, and we're going to talk just a moment about what some of those recommendations are.
Greg Thompson:
It's a great setup and let's dive into this. What should you be doing right now, if you're sitting out there, you're an owner-operator, independent contractor, you're running a trucking business? What should you be doing right now in relation to taxes, and all of those things that need to be done to make sure you're in good graces with the IRS and everything is moving forward?
Colton Lawrence:
They need to be staying caught up on their tax responsibilities and to do that, they need to have a system in place for one, tracking their days on the road for per diem purposes. We're going to talk more about the per diem here momentarily. But it's really important for those owner-operators and independent contractors that do qualify for per diem, that they track those days that they are out on the road away from home throughout the year. There's a number of ways they can do it. We've talked about it in numerous podcasts prior to this. They can use their ELD and different reports from the ELD. There are a number of different apps out there. They can just use a simple calendar, but they need to really make sure and do that. We already have sent out our tax organizers to our clients here at Trucker CFO and one of the things we ask for is their days on the road. As we start to receive those back, we can tell very quickly which clients have a system in place to track those days versus the ones that don't. Many of the clients will send that information back and their days on the road will add up to greater than 365 days. That's a pretty quick indicator that they don't have a very good system in place. It is one of the largest deductions that owner-operators, and independent contractors are going to be able to take and it can make a big difference. So, if they don't have that in place, it's something that could definitely impact their tax liability.
Greg Thompson:
Well, when you talk about having a system, and we've talked pretty much every podcast we've done, we've always go back to have a plan. So when I look at that, having a plan for tracking your days out on the road. Having a plan for expenses. Can you talk about that? Because that is another huge thing and we're making money, but we're spending money out on the road. So tracking those expenses is something that's huge.
Colton Lawrence:
It's very important for small business owners to have a system in place for tracking those expenses because, if they wait until the end of the year, if they've got a shoe box or a bag full of receipts. Those receipts will degregate over the course of a year. Ultimately, they'll lose some. If they're not taking the time to organize that information throughout the year, more than likely it's going to result in a situation where they missed deductions that they could have otherwise taken and that's going to result in a higher tax liability. So we really recommend to our clients that they take the time when they're done driving for the day to organize those receipts, get some folders, get some ziploc bags, do something to organize those and get them turned in to their bookkeeper, so that those expenses are tracked and entered in for bookkeeping purposes throughout the year. That's a much better way of doing things than just waiting until the end of the year and turning it all in then.
Greg Thompson:
So for our first time listeners and maybe somebody that's first year in running their trucking business, and maybe the enormity of running their business, they did end up putting everything in a bag, right? For the first year. How can you guys help them here in year one, and then obviously following what you just outlined for year two, but if I came to you with a bag of receipts, how can you guys help?
Colton Lawrence:
Greg, we can help folks if that is their situation. We recognize that as owner-operators, independent contractors that are new to the industry just coming in, trying to get these systems in place. We recognize that they may not have done a very good job to start out, and if that is their situation, we're happy to help them out. We do it all the time. We've got many, many horror stories that I'm sure most of our listeners will not even come close to exceeding where we've received bags of receipts full of all kinds of nasty little surprises. Literally, we've had to dress some of our employees up in hazmat suits before to go through some of this stuff.
Greg Thompson:
Really, O my goodness.
Colton Lawrence:
It can get a little bit crazy, but believe me, when I say, we can take on just about anything and we're happy to do it. But then take our advice moving forward, make sure you put that plan in place. Get with us, and we will definitely work with you to help alleviate some of the pains associated with taking care of your bookkeeping throughout the year.
Greg Thompson:
So what I'm hearing is that, if I'm sitting here and I'm thinking, wow, I've enjoyed running my business, I'm out there running, I've collected these receipts, I've not organized anything. And right now it might seem insurmountable. What you're telling me and telling all of us is that you guys have seen practically all of it, including having, as you said, to wear hazmat suits while you're doing it. So don't be intimidated by this. Make sure that you bring everything you guys will sort through it, and you will help the folks find the deductions that they're allowed to take.
Colton Lawrence:
That is the goal. We can help them find those deductions, take every deduction necessary. Depending on the situation, it could possibly require some work on their end, in conjunction with the work that we are going to do. But at the end of the day, the goal is to reduce their tax liability, and in order to do that, we've got to have an understanding of what expenses they have incurred, and what exactly is deductible versus what is not.
Greg Thompson:
Now on the list of what we should be doing right now. Let's talk a little bit about receivables and collecting your revenue, and also about understanding what you're paid.
Colton Lawrence:
Yes. So our clients are paid in many different ways. We have the type of client that has their own authority, is perhaps factoring their receivables. They're using load boards, perhaps they’re invoicing their own loads. That's a much different operation than an independent contractor who's leased on with the motor carrier and being paid via settlement. So, understanding how you're paid and understanding what your receivables are is very important, regardless of that situation. If you happen to be someone who is driving out under your own authority, and you're using that load board, you are invoicing for your own loads. You want to make sure you've got a system in place to track those loads, to track what you've been paid, what you haven't, a good accounting system in place is going to help. That's very important because it's easy to get behind on that, and to fall behind on your collections. Cash is king. If you don't have the cash coming in, you're not gonna be able to sustain that business. So make sure you've got a good system in place. And again, anybody that needs help with that, we're happy to come in and see what we can do to straighten them out on that side.
As far as understanding how you are paid. I always like to say trust but verify. I believe that motor carriers, and shippers, and load boards, anybody that you are working with to haul loads, I believe for the most part that people are honest, but at the same time you need to understand how they are paying you and verify that what you have received is what was agreed upon. Most of the time, if there are mistakes, it's not out of malice or out of being untrustworthy. It’s just a function of the business environments, and you need to understand how you are paid so that you can go in and verify that, and get back with the folks that are paying you if there are any mistakes.
Greg Thompson:
So Colton as I'm looking down our list of what people should be doing right now, early January. Let's talk a little bit about quarterly taxes, because this is one of those things that if you're running a business, and if you've been doing it for a few years, you're familiar with this. Quarterly taxes requires some discipline, but they also help you to avoid a large tax bill. Talk to us about quarterly taxes. In January, we have 1/4 quarter tax payment due and we've talked about this before in a previous podcast, but it's probably good to review it. The quarters of the IRS setup are very different from the quarters that we’re used to in just about any industry, including trucking.
Colton Lawrence:
Yeah, let me just kind of set the stage for you a little bit here and paint a picture of an owner-operator who has come into the industry or perhaps somebody who's been in the industry but has chosen not to pay their quarterly taxes. They will have perhaps gone throughout the year of 2021. Let's say they've made 80, 90, or $100,000 during the year of 2021, and they have not paid their quarterly estimated taxes for the year. They are now in a situation where we will be working on their tax return. If they are a single member LLC, a partnership, or just a sole proprietor, they're going to be in a situation where they are paying income tax, but also paying self employment tax, and they can expect to pay somewhere in the range of $10-$15,000 or perhaps more in taxes between those two tax liabilities.
In addition to that tax liability, they're going to have their first quarter of 2022 that is due in April, which will be, assuming they're making about the same amount of money, somewhere between 4 to $6000 perhaps. And so now they're going to be in a situation where they're stuck owing $15,000 or more to the IRS for 2021, 4 to $6000 for their estimated tax liability for Q1 of 2022. You're looking at $20,000 plus perhaps, given that situation, that they now owe the IRS. And that's a lot of money for people to just keep in their bank account when they've got lots of other liabilities and lots of other things that come about with maintenance and breakdowns and all kinds of things happen. Right?
Greg Thompson:
Sure.
Colton Lawrence:
So we recommend that they stay on top of that, make sure they've paid their quarterly taxes so that they don't get behind and so that when that annual tax return is prepared and it's time to reconcile with the IRS, they're not stuck with that big bill at that time.
Greg Thompson:
Again we're talking a little bit before about. It is a discipline because you mentioned, it's easy to get behind on this and if you get behind it's hard to catch up. How do you guys at Trucker CFO approach quarterly taxes because I know there's a lot of different ways that you can approach it? But let's again talk about a plan.
Colton Lawrence:
The way we work with our clients is a little bit different than most other CPA firms and accountants will work with their clients. We focus on actual income and expenses for the year, and we will do a calculation based on those actuals. Most other CPA firms and accountants will just take your prior year tax liability, roughly divide it by four and tell you to send in that amount. We've touched on this numerous other times and other podcasts and that's an okay way to do things because at least you're paying in something, but if you're making more money this year than you did last year, you're going to under
pay. If you make less money this year than you did last year, you're going to
overpay. So the benefits of estimating your tax liability for quarterly's, based on what you have made that year to date, is that you're going to be much more accurate.
Greg Thompson:
Now Colton, before we close out this edition of the podcast, I wanted to circle back to something you mentioned earlier, and that's per diem. Just so our listeners know, our second episode of the Trucker CFO Podcast, coming to you in 2022, will be focused on notable changes in the tax law that will have an impact on your 2021 filing. Now Colton, as you know very well, per diem is such a significant consideration as owner-operators and independent contractors are gathering information for their 2021 tax returns. We wanted to take a moment here in our first episode of 2022, to talk about the changes with per diem. So with that in mind, let me ask you this, what's taken place with changes in the tax laws around per diem, and how will those changes have an impact on the 2021 tax returns for owner-operators and independent contractors? I know that's a lot, but I know you know what's happening with per diem.
Colton Lawrence:
Greg, the per diem for 2021 had an increase beginning October 1st. And so as a result, owner-operators and independent contractors that are eligible for the per diem, they need to track how many days they were on the road from January 1st through September 30th. That period of time will be one rate which is $66 per day if they were in the US. And then from October 1st through December 31st is a separate rate of $69 per day. On our tax organizer that we have now sent out to clients for the 2021 tax season, there's two different sections for per diem. A section for that first period of January through September, and a section for the second period of October through December. And in addition to this split year per diem, there's also been a change due to Covid where typically per diem is subject to an 80% allowance. With these changes due to Covid, they are allowing a 100% deduction for per diem. And as I have talked about as I've been on the radio with Jimmy Mac and some of the other hosts at RadioNemo, that per diem change is something that only a tax preparer, who knows and understands trucking and transportation is going to grasp. If you go to one of these franchise based tax preparation firms and you get somebody who perhaps has gone through a three week training or who is only doing taxes on a seasonal basis. I can pretty much guarantee you that they are not going to understand that 100% deduction. They probably are not going to understand the split year with per diem, and as a result it's going to cost you money. So understanding these key changes and understanding what it means to you is important, so that at a minimum you can ask the right questions. But best case scenario, you're going to come to somebody like Trucker CFO and let us prepare your taxes because we already know these changes.
Greg Thompson:
Well Colton, those were all great points to bring up because, as our regular listeners know, we like to dive into this from the perspective of how it impacts folks in the trucking industry because as folks that are trying to do our due diligence, trying to do the right thing, we just want to try to keep things as simple as possible. So having a resource where we can come in, and we can trust that you guys know what you're doing, you guys know how it applies. That means so much to folks in the trucking industry.
Colton Lawrence:
Greg, you're absolutely right. We do take pride in understanding our client's, understanding how tax code impacts them, understanding where and how we can help them minimize their tax liability. And we do that by understanding their goals. By understanding what it is they are trying to accomplish whether it be a one truck operation or a 40 truck operation. We work with all different types of owner-operators and independent contractors in transportation. Something we've done for a long time, and we know their pain points, we know what to look for and we know how to help them.
Announcer:
That's The Trucker CFO Colton Lawrence closing out this edition of the podcast. The Trucker CFO Podcast is produced by PodWheels in collaboration with Trucker CFO. As we noted at the top 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.
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 are a number of ways you can connect with the team at Trucker CFO. Visit the company's website at TruckerCFO.com. From the homepage, you can fill out the contact us form, which will send an email to a Trucker CFO representative. Also through the Trucker CFO website, you can connect to the company through the find the time to talk button to set up an appointment or you can use the chat feature. 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. That toll free number again 1-800-533-4230 and choose option two.
Thanks again for joining us on the Trucker CFO Podcast. Just as a reminder, you can find and subscribe to our podcast through all major podcast platforms. If you do become a subscriber, we'd like to ask you to take a moment and rate The Trucker CFO Podcast.
Beginning in January and throughout 2022, Colton will be making regular appearances and taking calls from professional drivers on the Dave Nemo Radio Show, Nemo Weekends, and the Tim Ridley Show. All of these programs are part of RadioNemo and they can be heard through SiriusXM's Road Dog Trucking Radio. All of the programs from RadioNemo can be heard in the mornings on SiriusXM channel 146 or through the SiriusXM app.
To learn more about RadioNemo, visit RadioNemo.com. That's N-E-M-O RadioNemo.com.
As always, Colton Lawrence and the entire Trucker CFO Team wish you the best for continued safe travels and good health as you work to keep the American economy on the move.