Caution Prospective Independent O/O! My Embarrassment.

Discussion in 'Ask An Owner Operator' started by TallJoe, Oct 20, 2017.

  1. spyder7723

    spyder7723 Road Train Member

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    This is exactly right. We have to get out operations efficient enough that we can survive and make a living wage on a buck fifty a mile freight cause no matter how good freight is today, it will always cycle back to those lousy rates in bad economies. Survive the lean years so you can thrive in the good years.
     
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  3. Scooter Jones

    Scooter Jones Road Train Member

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    The most important part of that post ;-)
     
  4. stayinback

    stayinback Road Train Member

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    Ok, I know your being funny but.................?
     
  5. Tug Toy

    Tug Toy Road Train Member

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    Good for you @TallJoe !! I started in 2016 and understand. I was fine but it was close a few times. Last year was much better and the first quarter this year is even better.

    I feel the same way. I’m running and operating like the worst quarter I had. Is going to be tough to go back to those poor rates when they come back around. But like you a mans got to do what a mans got to do. Difference this time around the truck will be in better shape, most of the debt will be gone or cash in the bank to clear it up and the war chest most of the way full this time. In the meantime I’m working as hard as I can to keep working even though I want to take it easy. I’ll save that up for when rates are in the crapper again.

    Thanks for the update!
     
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  6. paulf

    paulf Bobtail Member

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    The federal tax on $80,000 of business net income in 2018 will be $15,045 if you file married jointly and $17,450 if you file single. It is calculated as follows:

    $80,000 * .9235 = $73,880 * .153 = $11,304 (self employment tax)
    $80,000 - $5,652 (1/2 self employment tax deduction) - $16,000 (20% qualified business income deduction) - $24,000 (married filing jointly standard deduction) = $34,348 (* .12 - $381) = $3,741 + $11,304 (SE tax) = $15,045

    Substitute in a $12,000 standard deduction for a single filer gets you to $46,348 (*.22 - $4,061) + $11,304 = $17,450.

    The tax will be reduced further by any health insurance, Health Savings Account and SEP IRA deductions.

    Anyone thinking about electing to be an S Corporation for 2018 has to work the numbers to see if it will be worth it to pass up a full 20% qualified business income deduction for a pass through entity because of having to take a paycheck for a S Corporation. The salary income does not qualify for the 20% deduction.
     
    Last edited: Apr 1, 2018
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  7. TallJoe

    TallJoe Road Train Member

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    I was set up as an S-Corp from the very get go. The Idea was to reduce the self employment tax, while keeping the wages ("paying yourself") at the "reasonable" level. Well...the least "reasonable" level according to my CPA is 50-60% of gross earned business profit...which translates into 30-40 cpm... In my particular case, it works all right, I have two dependents plus quite a bit of property tax (close to 9K) about which there is nothing you can do but pay. I contribute the max of 11k (I and wife) to traditional IRA, pay premiums for health insurance... I end up getting a refund every year. Still...all the Individual taxes considered: married filling jointly - I wind up paying close to 15k per year (IRS, State Income + Property).
     
    Last edited: Apr 1, 2018
  8. TallJoe

    TallJoe Road Train Member

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    Back to my numbers....
    There is a certain constant trend I noticed,...you get to keep about half of your gross Revenue per year. Say you gross $100 then about $50k is left in your wallet...if you want 100K you must generate 200K of gross. It also worked that way when I was leased on...

    Edit: That's before IRS takes their cut...
    Example: A trip from Chicago, IL to Winchester, VA for the rate of $2500 (dry van) translates into $1200-1400 at the end of the fiscal year, however initial trip profit seems much better...after fuel and tolls cost of $500 you might think you made 2000 for two days of work...not really.
     
    Last edited: Apr 1, 2018
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  9. Scooter Jones

    Scooter Jones Road Train Member

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    Of course, the more you make, the higher % they take ;-)
     
  10. paulf

    paulf Bobtail Member

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    If you are paying yourself more than $22,000 as a S-Corp employee and you are under 50 years old, you might want to look at having the S-Corp make a 25% SEP IRA contribution on your behalf based on your salary. For example, if you pay yourself a $30,000 salary, the S-Corp can make a maximum SEP IRA contribution of $7,500 ($30,000 * .25). The SEP IRA contribution is a deduction as a pension expense on the corporation tax return, which reduces the pass through income that is taxable on your personal tax return. Your spouse still qualifies for a spousal IRA contribution and deduction on your personal tax return. The break even point for a person over 50 who can contribute $6,500 to an IRA is $26,000 for a SEP IRA S-Corp contribution.

    Another thing to take into consideration when you are a S-Corp is the pass through income that is not subject to self employment tax does not count as earnings when calculating your eligible social security income when you retire. If you are planning on having social security supplement your retirement income, this should influence your decision on whether to elect S-Corp status for an LLC entity.

    Many unscrupulous accountants always recommend their clients to elect S-Corp status because then they can bill for two tax returns instead of one. An S-Corp tax return will always command a higher fee with these accountants because it is a separate entity.

    I have many clients who are S-Corps, but skirting the self employment tax is not the main reason why they chose this type of entity.
     
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  11. TallJoe

    TallJoe Road Train Member

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    I was thinking about this Social Security supplement before. Is it really worth maximizing it? If I were a sole proprietor and paid 100% self - employment tax, is there any prediction of what it could be ...say in 20 years?
    I just think that I'm better off to have more available cash on hand now...it feels that I need it more now vs. in older age... 20 years from now.... which according to a truck driver's life span prediction, is not something to be so certain about. :(
    Sep IRA is the way to go, it seems, if there is plenty of cash sitting around.
     
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