What is the best way to deprec. tractor trailer so that i deduct less this year and more in future years when I have more income? vehicle or bus. asset? 50% 100% or 179?

[rpm1967]

I'm an owner operator. Bought the tractor in December. Lease the Trailer. Only had a month's worth of business income. What is the best way to depreciate the tractor? As a vehicle? As a business asset? What is the difference between 50% and 100% Special depreciation and 179? I would rather deduct less this year due to lack of income and deduct more over the next few years when my income is higher. The tractor will be paid off in 3 years. I do not plan to resell it. Cost of tractor $53000. Blue book is $102,000.

[MichaelMc]

The tractor, by IRS rule, has a 3 - 5 year useful life. You will want to depreciate it over 5 years.

Entering your information in TurboTax, treat it as a business asset, so the depreciation calculations are activated. Do not select any of the options for special depreciation or Sec. 179.

You are presented with four asset-type choices, none of which appear to describe your tractor, but select "trailers," which will set the appropriate 5 year useful life. The default in TurboTax is set to the 200DB depreciation method, with a mid-quarter convention, which is perfect for your circumstances. This will, in the 2018 tax year, deduct depreciation expense as if the asset was put in service November 15, the middle of the last quarter of the year. This will leave most of the value to be depreciated in the following years, when you will be using the tractor to create more income.

[rpm1967]

I put the tractor in as a business asset....the software is saying that I need to enter the cost under car & truck expenses....if I do that then it will depreciate the truck twice...if I remove the truck as a vehicle, I will not be able to deduct all of the truck expenses (Mileage, fuel etc)....what do i do now?

[MichaelMc]

Leave the truck in business assets to depreciate it. Use the car and truck expenses only for your expenses: gas, oil, tires, maintenance, etc.

[nycpiper]

Why not use bonus depreciation or 179?

[Critter]

FIRST ... nothing for the  big rig is entered in the vehicle expenses section ... only your personal car would go there if you used it for business.    A tractor trailer is entered as an asset and depreciated ... to extend the depreciation choose the longer 5 year period instead of 3 years.  Also you do not want to take the bonus dep or 179 deduction since you do not want to take a lot of expenses the first year.   AND  the actual expenses for the fuel, oil, repairs, etc for  the rig are entered in the expenses section ... you can either choose a preset category or make your own at the end of that section.

If you are new to being self employed and  acting as your own bookkeeper and tax preparer you need to get educated ....  

If you have net self employment income of $400 or more you have to file a schedule C in your personal 1040 return for self employment business income. You may get a 1099-Misc for some of your income but you need to report all your income.  So you need to keep your own good records. Here is some reading material……

IRS information on Self Employment….
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center 

Publication 334, Tax Guide for Small Business
http://www.irs.gov/pub/irs-pdf/p334.pdf 

Publication 535 Business Expenses
http://www.irs.gov/pub/irs-pdf/p535.pdf 

Home Office Expenses … Business Use of the Home

https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction

https://www.irs.gov/pub/irs-pdf/p587.pdf

          

There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Self Employed return and will help you keep up in your bookkeeping all year along with calculating the estimated payments needed ....
http://quickbooks.intuit.com/self-employed

Self Employment tax (Scheduled SE) is generated if a person has $400 or more of net profit from self-employment on Schedule C.  You pay 15.3% for 2017 SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  You do get to take off the 50% ER portion of the SE tax as an adjustment on line 27 of the 1040.  The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 line 57.  The SE tax is in addition to your regular income tax on the net profit.
 


PAYING ESTIMATES
For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% for 2017  SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.

You must make quarterly estimated tax payments for the current tax year (or next year) if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits. 
 
- 2. You expect your withholding and credits to be less than the smaller of: 
    90% of the tax to be shown on your current year’s tax return, or 
  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)

To prepare estimates for next year, You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.

OR Go to….
Federal Taxes or Personal (H&B version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button

[Trucker-Gal]

Well written, very detailed, information here.  Perfectly laid out for the owner/operator. 

[mariarlv]

I'm having an issue with having the truck (rig / semi) depreciate over 3-5 years. As an asset category, I chose "General purpose tools, machinery and equipment". If 2 steps later I choose "I'll spread the deduction over several years", the details on the next screen show that it will take 7  years to fully depreciate it with 200DB depreciation method. What is the right way to make it work?

[IsabellaG]

You need to enter this in two different places.

The over-the-road truck tractor is actually 3-year property, and should be entered in the Vehicle Expense section. Choose Truck tractor for over-the-road use  for the type of vehicle, and make sure that you indicate that you've kept track of your business and personal mileage (I'm assuming that you didn't use the truck for personal purposes), 

For the trailer, enter it as an asset, under Trailers and trailer-mounted containers. This will ensure that it's depreciated as 5 year property.

See IRS Publication 946 page 99, for the chart which shows that tractor units for over the road use are 3 year property.

[mariarlv]

Thank you, Isabella, for your response. We only have a power unit (tractor truck / semi / rig), no trailer. Originally, after reading several posts on this website, I put the tractor as an asset but didn't feel comfortable assigning it to the category of a trailer (like some people suggested). So today, I did put it under Vehicles and then checked into forms and saw that it was using 3 years for depreciation, which is what I wanted to do. Then, there seemed to be several glitches in Turbotax (in totally different areas) and I decided not to take a chance and filed an extension to check with an accountant. I saw your response after I filed it, but I really do appreciate your time; hopefully, it will help someone else! 🙂

[summitlog1]

How do claim a trailer that is being leased? The Asset section is asking for a price paid and not lease paid monthly    

[DaveF1006]

It depends!! You normally cannot depreciate a leased piece of equipment unless it is part of a conditional sales contract. According to the IRS, a conditional sales contract must contain the following elements to be considered a contract. One or more conditions may apply.

1. The agreement designates part of each payment towards an equity interest that you'll receive in the property.
2. You get title to the property upon the payment of a stated amount of "rental" payments required under the agreement.
3. The amount you must pay to use the property for a short time is an inordinately large part of the amount you would pay to get title to the property.
4. You pay much more than the current fair rental value for the property.
5. You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. Determine this value when you enter into the agreement.
6. You have an option to buy the property for a small amount compared to the total amount you have to pay under the agreement.
7. The agreement designates some part of the payments as interest, or parts of the payments are easy to recognize as interest.

If your lease agreement is not a sales contract, you may deduct lease payments as rent expenses in your business. Please review this IRS source for further information.