Category: Business

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Sales and Use Tax for the Little People

I have operated or help operate a few small businesses over the years.  Many people turn a hobby they love into a business or discover there is a need to be met using a skill they have.  Most of the time they want to do the thing they set out to do, organize homes, write, sew products, etc and don’t want to take the time to learn how to “run a business”.  That’s all fine until you are a success and realize that the State would like a little part of what you have been doing.  About this time, the accountant is called and the process or sorting it all out begins.

To help those who are just getting into it, there are a few things you can do to make it a little easier on your accountant at that time.

  1. Keep all your purchases for your business separate.  You don’t need a separate account, though that is best, but you need to keep reciepts to know what went out.
  2. Keep a record of your sales.  This can be anything from handwritten invoices to spreadsheet downloads from sites like Etsy or Paypal.  
  3. Be as detailed as you can.  If you sell widgets and ship them and offer discounts all of that is important information.  Where you are performing the serivce or mailing products is also important since you have to pay taxes to the state where this happens.  The giggler here is that the amount you charge to ship items is also taxable.
  4. If there is even the slightest chance this will be a business, just get a dba (Doing Business As) if you have a separate name and request a tax number from the state.  It is low cost (under$20) and will same you a few headaches in the future if things take off.
  5. File your reports.  The state does not care that you are doing well, just what you are doing that they can tax.  Even if you have no sales, you need to files a Sales and Use tax short form each quarter letting the state know.
  6. If you have employees, you’ll need a federal ID number and you’ll want to get some professional help at that point as there are MANY rules the small proprietor will have trouble knowing about.  There are also lots of fun new forms and taxes to pay.
That’s the short version.  Just make sure if the state comes calling, to be prompt and poilte especially if you have to go to the locale office and talk to someone.  They are just doing their jobs and like most of us will help those who are nice to them.
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1099: The New Queen of Forms

“New law. For payments made after Dec. 31, 2011, notwithstanding any IRS reg issued before Mar. 23, 2010, for information reporting purposes, “person” includes any corporation that is not exempt from tax under Code Sec. 501(a) . ( Code Sec. 6041(h) , as amended by Health Care Act Sec. 9006(a)) Thus, a business must file an information return for all payments aggregating $600 or more in a calendar year to a single payee (other than a payee that is a tax-exempt corporation), notwithstanding any reg promulgated before Mar. 23, 2010.
This information-reporting provision will increase the amount of paperwork by businesses and farms. It looks like the days of doing your bookkeeping by hand is coming to an end after 12/31/2011. Unless, you want to track payments to each vendor by hand…”
It appears businesses will be having to report a lot more to the IRS.  I just hope our new software is up to the task.