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REMINDER ABOUT THE NEW HOURS-OF-SERVICE RULES, DRIVER LOGS, AND... Q: When do the new hours-of-service rules take effect and what are the penalties? A: All drivers and carriers are required to operate under the new rules as of January 4, 2004. Drivers and/or carriers who violate the hours-of-service rules face serious penalties: 1) Drivers may be placed out-of-service (shut down) at the roadside until they accumulate enough off-duty time to be back in compliance; 2) State and local enforcement officials may assess fines; 3) The FMCSA may levy civil penalties on you or your carrier, ranging from $550 to $11,000 per violation, depending on the severity; 4) The carrier’s safety rating can be downgraded for a pattern of violation; and 5) Federal criminal penalties can be brought against carriers who knowingly and willfully allow or require hours-of-service violations. Don’t forget to turn in a copy of your log, within 13 days, to your motor carrier. Further, you, as a driver, are required to keep a copy of any day’s logs for a period of seven (7) days. During this time period, the copy must be in your possession while you're on duty. RUN YOUR
BUSINESS A driver who chooses to start his own business would go to the top of any motor carrier’s list if he presents himself or herself as a corporation. Incorporating yourself presents a strong case for independent contractor status. When possible, a motor carrier would always choose drivers that are incorporated over those that are not. While it is technically possible for an IRS or State Auditor to reclassify an incorporated driver, in practice, that rarely happens. When presented with an incorporated driver, 99% of the time the IRS or State auditor will not disturb independent contractor treatment, so long as the motor carrier had nothing to do with the incorporation by the driver. There are several reasons why a motor carrier would want to give preference to an incorporated driver over another in the slow or lean periods. A corporation is a separate legal entity, and as such, a corporation operates only through its officer or officers. Corporate officers are always employees of their own corporation. As an employee, the owner (driver) will receive a W-2 from his or her own corporation. There is little or no reason, therefore, for an auditor to determine that the motor carrier should have issued a W-2 to the driver when the driver is already a W-2 employee of the corporation. The driver’s corporation has also, presumably, paid all the applicable employment taxes. An incorporated driver is technically the same as General Motors, Microsoft or AT&T. Corporations function like individuals, but with some compelling advantages - most importantly, there is no liability to an individual business owner who is incorporated. Shareholders are generally not liable for the obligations of the corporation either. Creditors of a corporation may seek payment from the assets of a corporation, but not the assets of the shareholders. This means that business owners may engage in business without risking their homes or other personal property. Corporations are also very flexible in their operation. It is easy to admit new owners (shareholders) by transferring shares. In addition, the corporate business structure allows you to more easily raise money from investors and gives you the choice of offering equity incentives for employees. Before forming a corporation, I strongly recommend that you acquire the necessary facts and then talk about it with your tax advisor and/or attorney. You can easily acquire this information, for free, by going to the NTA website (www.ntassoc.com) and clicking on the “My Corporation” link (at the bottom of the home page). Then, look for the “Learn More” button and click away. One disadvantage of corporations can be double taxation. That is because corporations pay tax on their earnings and profits, and shareholders also pay tax on distributions received from the corporation. However, there are many methods to reduce or eliminate the double taxation. A corporation may make a Subchapter S election, which disregards the corporation as a separate taxpayer. As a result, shareholders pay tax on the corporation’s earnings, whether or not profits are distributed to the shareholders. Alternatively, corporations may pay bonuses or fringe benefits to its owners, which reduces the profits of the corporation. Now that you have reached this point, you have to choose where to incorporate. Delaware? Nevada? Your home state? Few people know that the law does not require a company to incorporate in its “home” state. In fact, an entity can choose from any of the 50 states or District of Columbia. Some states have a much greater number of corporate formations due to their liberal incorporation laws and favorable tax policies. The most “incorporation friendly” states are Delaware and Nevada. Both states are very good, but for different reasons. Delaware has more written legal precedent to rely upon whereas Nevada has some very good privacy statutes. Further, Nevada does not trade information with the IRS. Nevada allows its corporations to use bearer stock certificates, which make it virtually impossible to prove ownership of a Nevada corporation. Delaware is generally less expensive than most other states. The initial charge for incorporating in Delaware can be as low as $89.00. There is no corporate income tax for corporations formed in Delaware, so long as they do not transact business in the state. So, you now all have some homework to do. Be sure to check out the free information that is available on the NTA website. Overall, incorporating is one of the best ways for a business owner to protect his or her personal assets. Be smart with your business - be like the big boys - incorporate. If you have any questions, call me at (562) 279-0557. Until next month, “Drive Safe - Drive Smart!” |