I'm wondering if I should pay myself a wage?
Do I have to do this for tax purposes or can I simply put money in the bank for repairs/emergencies and consider the entire profit of the truck my wages?
Really Stupid Question - Should I Pay Myself a Wage?
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Depends on how you are set up. If you just work as an independant contractor then you don't have to pay yourself a wage. The best way to protect yourself and your future is to set yourself up as corporation then pay yourself a wage from the corporation. As an independant contractor the idiots out there can sue you and take everything you have as a corporation you have more protection under the law and can keep your livelyhood.volvodriver01 Thanks this.
I prefer a sub chapter S corporation. It is better than a limited liability in that you are indemnified from being personally sued in the event of a catastrophic "circumstance" such as the unfortunate pile-up on fog shrouded I-5 in Ca. Even though all the cars and trucks were in the fog bank without warning, the big rig companies were sued by each family. If you are an O/O and the award exceeds your liability umbrella on your policy, you are liable unless you are protected as a corporation. Just food for thought
You need to seek professional tax advice. That being said I will offer some suggestions based on what I know and have done in the past.
Whether you treat you business as a Sole-Proprietorship, Partnership (maybe with your wife), or S-Corporation (if I remember correctly) your taxes will be handled the same for all intents and purposes.
Everything you clear above operating expenses and allowed deductions will be taxable income. This will include wages you pay yourself, money deposited in the bank and funds put in escrow for repairs or other expenses. So how you pay yourself will not have an effect on your taxes. It is just a part of the taxable funds. I always pay myself an amount large enough to pay my personal bills.
You will pay federal tax, state tax and Social Security/Medicare on this taxable income. You will be required to estimate you tax liability and make quarterly payments for these items. If you pay too little in, you will incur a penalty at the end of the year when you file your tax returns.
You do not have to do anything to structure the business. If you dont, it will just be treated as a Sole-Proprietorship for tax purposes. Your income and deductions will be calculated on a Schedule C and income or loss will be transferred to the Form 1040. Social Security will be calculated on the Schedule SE based on the Schedule C income. It will then be transferred to the Form 1040 also.
You need to keep track of everything. Get an accordion folder and keep everything. Get an accountant or tax preparer now. The later will be less expensive and the former is over-rated in my opinion. Your first quarterly tax payments will be due at the end of September.
You will need to track all fuel purchases and miles by state for your IFTA quarterly reports. The company may do this for you. If they do, they probably use fleet figures, which are not in your best interest. Just know if you are responsible. You dont want to find yourself at the end of the quarter trying to reconstruct this information from your logbook and BOLs.
I personally prefer an LLC. It offers just as much liability protection as any business form.
In addition, it allows you to elect with the IRS your tax treatment. Within certain requirements, you can elect to be treated as a Sole-Proprietorship, Partnership or Corporation. This allows you to elect Sole-Proprietorship starting out which is less complex. As profits increase you can elect to be treated as a Corporation and avoid Social Security on money that is reinvested in the company.
Anyone who thinks a corporation or any other form of business entity will save their assets in a major lawsuit is suffering from a false sense of security and has been given bad information. A good (or bad, depending on your view) attorney will pierce the veil of protection if he is motivated to do so.
There are two major reasons this will happen. One, the corporation is wholly owned by the driver or owner/operator and not by shareholders. Two, the driver will be named in the lawsuit. It is painfully clear that if the driver is at fault (real or trumped-up), all his assets both company and personal should be and/or are at risk. This is obvious because he is the driver and the company. Therefore he himself, the company and his personal assets are all at risk if the motivation is high enough to go after them.
Sure there is some protection and other advantages to structuring the business. I would recommend it. Still don't think for a minute that it protects your personal assets from catastrophic events. I personally know of a case where in addition to a legally structured business, an owner/operator had all his personal assets in a Trust. In his case this did stop a judgment from being levied against his personal assets.
bbblotliz Thanks this.
On the other hand, if you are doing well financially, get the appropriate insurance to protect what you have and no more.
Whether to incorporate or not is absolutely a tax question and you should consult with a CPA to make this decision.
I have filed for an LLC. But, from what I am reading here, whether I have an LLC, a Sole Proprietorship, or I am not incorporated at all, as a one man, one truck, owner operator :
1. I will basically pay taxes the same way.
2. And, I am just as liable, regardless.
You can save some taxes if you operate under a corporate structure. For instance, you can pay yourself a smaller salary and any profits from the corporation can be distributed to stockholders (you) as dividends. Dividends are not subject to social security taxes. You only pay social security taxes on earned income. There are other possible tax savings that you might gain from operating under a corporation. Some assets could be owned personally and leased to the corporation or the corporation might own some assets rather than owning them personally which could enable them to be deductible. You can also set up your own 401k under a corporation and shelter some taxes for retirement purposes. If you use the sub chapter S election you can also treat some taxes differently than under a standard corporation.
Operating under a corporate umbrella might or might not protect your assets in a lawsuit. These days it seems like when someone gets sued that they serve everyone remotely involved.
I have a friend who set himself up as a partnership with his wife. That works best for his situation. Taxes are unique to each individual. As someone else mentioned, you may want to consult with a CPA or attorney before deciding which way you need to go.
A corporate structure has worked best for me over the years. I have owned several of them. The biggest advantage I have seen is the tax savings. Keep in mind that you will also may have some corporate fees to pay to your state, but the benefits may outweigh the drawbacks.
Some of this post I copied from my post in another thread, but it's relevant here, too. I read another post the person was asking about Partnerships vs. LLC vs. Corporate forms for the O/O business. Another post mentioned that there was trouble and he had to sell everything and had legal troubles because the "other Lawyer broke the Corporate Veil". Remember that if you incorporate you MUST play the paperwork game with up-to-date corporate records. That includes a corporate book, shares of stock, etc. It's not that hard to do and it's REAL important. If you don't the courts figure you're not a "serious" corporation and they allow the opposition's Attorney to "break the veil" and treat you like a sole proprietor or partnership, in other words, take your house, car... life, etc. If, say, you were involved in an accident that caused a fatality, and your business structure does not protect your personal assets, your life is pretty much ruined, future earnings gone... forever. You must be especially diligent if you form a "C" corporation, the compliance requirements are much stricter. The liability and protection of personal assets benefits of a "C" corporate structure are (generally) worth it, but keep in mind it's another hassle you MUST stay on top of.
I agree with G/Man, a corporate entity is what I'd prefer, and I prefer the full-blown "C" form, but something that protects personal assets is, IMHO, a MUST. Personally, I'd NEVER go into this business as a sole-proprietor or partnership. Too much liability risk. I'm not an O/O yet but from what I've been reading, if you can handle the paperwork compliance load of being an O/O, adding setting up and maintaining a corporation is not that big a deal. More paperwork hassle, yes, but once it's set up, it just kinda purrs along.
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