(All advice and opinions expressed in this post are my own and based on my own experiences.
I am not a CPA or tax advisor. Be sure to consultant your tax preparer or accountant for your own business)
Today’s Question comes from Jessica ,who writes:
“At what point do I need to start paying taxes on what I sell? Will it effect my year-end taxes?”
That’s an excellent question Jessica, and one that I get very frequently once people know my story.
First let me say that I am NOT a tax preparer, CPA, accountant or anything of the like and I can only advise you based on my own experiences, but I do think that its a topic worth covering, and often one of the scariest when beginning your new business.
I have been working from home for over ten years now, which seems hard to believe. Though it’s not always been Abby Maddy, I have had a retail business to operate, organize and report at the end of each year and I am proud to say that I have always, always, always, kept up with my taxes and reported whatever earnings, however small, as required by the state and federal government.
I tell you this not to boast, but to express just how important your taxes really are.
Second only to filing your business name, I consider it to be the most important thing you can do to keep yourself and your business above board and out of trouble.
Personally, my theory is this; while I may not be making any ground breaking profits right now in the eyes of the IRS, I have big plans for Abby Maddy and one day, I hope to turn those little profits into something to write home about. And when that happens I want to have a clean and honest record.
Plain and simple.
But….there’s two other reasons why you need a Tax ID# – tax exemption and wholesale!
If you’re running a business, it behooves you to be purchasing wholesale and most true wholesalers require you to place a Tax Id # on file so that you are exempt from paying sales tax. Even if you’re not buying at a discount, you may still qualify for tax free status, provided you are purchasing for re-sale.
The good news is that the process is fairly easy.
You can apply for a EIN with the IRS by clicking here.
It’s an online form and at the end you’ll have your Tax Id#
This is the number you’ll use for tax exemption
and will set you up for reporting your business when tax time rolls around.
You’ll also want to contact the Department of Revenue for the state that you reside in.
They will set you up with a state sales tax number, as well as place you on a monthly, quarterly, or yearly filing status, depending on the amount of sales tax you actually collect.
This is where you will actually pay your state sales tax.
And just a tip: brush up on the Interstate Commerce Act. If you are strictly an online business, this means you will only charge and collect sales tax for the state you’re in (with a few exceptions).
All of this info can be found with just a quick google and a little reading so do your homework, don’t just take my word for it. But by all means, if you’re running a business, get your sales tax straight!
It’s a simple thing you can do right now to save yourself a lot of trouble later.