THE IMPORTANCE OF TAX PLANNING IN TIMES OF UNCERTAINTY
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here are few things that can ruin a day as quickly as a call from your accountant with the news that you owe more than expected on an upcoming
tax deadline. Thankfully, there is an alternative to tax deadline surprises. With thoughtful tax planning in the third and fourth quarters, transportation companies can take control of their tax liabilities, which is of utmost importance during times of financial or economic uncertainty, and is crucial as we weather the current pandemic.
For transportation companies, the basics of income tax planning consist of the following analysis:
• Project financial statement income for the remainder of the year
• Update depreciation schedules for current year activity and forecast any remaining acquisitions/ dispositions
• For cash method taxpayers, estimate end-of-year accounts receivable/accounts payable balances
• Review shareholder distributions and any changes to shareholder loan balances for tax consequences
• Consider any corporate acquisitions, unusual items, loss carryforwards, or changes to entity structure that will have a tax impact
The exercise of tax planning is important because a company’s financial statement income or loss generally does not reflect their taxable income or loss. Especially
Accrual-to-Cash Adjustment – Transportation companies that utilize the cash method of accounting need to monitor the year-over-year change in their accounts receivable and accounts payable balances. The net of those accounts represent the prior taxable income that has been deferred to a future tax period. If your business has declined due to economic conditions, accounts receivable has likely fallen. Correspondingly, if cash flow is tight, a company might request extended
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for a trucking company that typically has several significant book/tax differences such as depreciation, accrual-to-cash adjustments, and non-deductible expenses like per diem (20% non-deductible).
Of particular importance, this tax year could result in a large differential between book and tax income for several key reasons:
Equipment Purchases – Many trucking companies have not added or replaced equipment during 2020. Due to accelerated “bonus” depreciation, there may not be any tax depreciation remaining from purchases made in prior years. If your company is in this situation, to calculate your taxable income you must take your book income and add back all of the book depreciation deducted to arrive at your taxable income. Depending on the size of your fleet, this could be a significant adjustment.
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