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payment options from vendors, thereby increasing the accounts payable balance. The result is that some of the prior year deferred net income may become taxable this year.


Paycheck Protection Loan (PPP) – This CARES Act headliner has been a job saving cash infusion for many companies. Contrary to the spirit of the program, current guidance from the IRS dictates that while the forgiveness of the loan is not taxable income, the expenses paid with the proceeds are non-deductible for income tax purposes. Therefore, to calculate taxable income a company must add the amount of PPP forgiveness to their financial statement income. If not properly planed for, this add-back has the potential to cause heartache at tax deadline time.


There are many other examples of book/tax differences that might catch a company off-guard when converting financial statement income to taxable income. For a transportation company, the items above represent the greatest variation and require immediate attention. Taking into account only the aforementioned differences, it would be easily foreseeable to have a taxable income that is vastly in excess of the income shown on your financial statements.


If it has been determined that your company may have a significant taxable income this year, there is still plenty of time to take action. First, you should check into utilizing loss carryforwards to the fullest extent possible, which may require a capital infusion into a related entity. Second, you should revisit your equipment trade cycle and determine whether it makes sense to purchase equipment before the end of the year. Finally, there may be accounting method changes that your company could take advantage of to generate tax deductions. Many of these changes must be filed before the end of the calendar year, but some automatic changes can be filed with your annual tax return.


Regardless of the economic climate, tax planning is a valuable tool that all transportation companies should revisit each year with their accountant. Both short-range and long-term tax projections should be calculated and strategies forged. Sometimes a tax liability cannot be reduced, or in a period of rising tax rates, it might make sense to accelerate taxable income and pay tax today. In those cases, a tax projection offers companies months of advance notice to save for the liability and avoids any tax deadline surprises.


By Troy Hogan, KSM Transport Advisors


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