Do you sell products either virtually or locally? Being a new entrepreneur can be confusing, especially when it comes to doing your taxes. What is deductible? What isn’t? How does sales tax work if people are purchasing from other states? What is economic nexus? These are all things you need to know in order to properly bookkeep and file taxes each year. Filing a schedule C may seem daunting, but once you get the hang of it, it gets much easier (whether you do your own taxes or hire someone to do them for you).
What is Sales Tax
Since most products are taxable, you are required by law to collect sales tax from your buyers. Even providing certain services requires collecting sales taxes. While local sales from one location only make it much easier, online sales require a little more forethought. You likely have to collect the proper sales tax from purchasers located in states that you have sales tax nexus. You will require a sales tax permit, which you then are required to file sales tax on a monthly, quarterly, or yearly basis (depending on profits). While there isn’t a federal sales tax law in the US, 45 states collect state sales tax and 38 states collect local sales tax.
Nexus
Be aware of your economic nexus. Nexus is considered where your business is connected. For many people, it’s the state their business resides, but this law can be different state to state, and you want to check out an updated economic nexus guide to be sure you’re following the proper sales tax laws for your state. Some examples of businesses that may have nexus in more than one state include businesses with a physical location in more than one state, drop shipping, affiliate sales, and a large amount of online sales volume.
Sales Tax Permits
Make sure you register your business for a sales tax permit before you begin online sales. This is done with your state’s Department of Revenue. (One perk to having a sales tax license is you are often tax exempt for business supplies, so look into this option in your state.)
Sales Tax Returns
Make sure you file a sales tax return on time, even if you didn’t collect sales tax during that tax period. If your business goes inactive for a period of time, for whatever reason, it can still raise a red flag, causing your license to be revoked or a penalty fee. Check with your state to see if you qualify for a discount if you file your taxes on time and paying your sales tax in full.
Don’t Overpay
Most wholesale products are tax exempt. You can see what your local resale certificate requirements are, to make sure you don’t pay taxes on the product twice (if it’s not tax exempt for whatever reason).
Filing taxes can be daunting and stressful, even for basic taxes. It is overwhelming at first, but once you’ve filed a few times, it gets easier. Consider consulting someone on your taxes to at least show you the ropes if you decide to file on your own.
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