The tax laws are complicated. Even though you may have a great accountant, it can be difficult to keep up with all of the changes each year and you’ll need sales tax help. One way to make sure that your business is not overpaying sales taxes is to look for signs that indicate this might be happening. Here are six ways you can tell if your small business might be paying too much in sales taxes:
Your Business has a High Gross Margin
If your business has a high gross margin, you are more likely to overpay sales taxes. This is because businesses with a high gross margin can afford to pay more in sales taxes and still profit. Businesses with low margins tend to have trouble turning a profit because of the amount they owe in sales taxes.
You Have an Inventory of More Than $10,000
When you have an inventory of more than $10,000, you must pay sales tax on that inventory when it is sold. If you have a lot of inventory, it can be easy to forget about the sales tax on that inventory when it’s time to pay your taxes. This can lead to your business overpaying sales taxes. This can lead to businesses paying more in sales taxes than necessary.
You Make More Than 200 Transactions Per Year
If your small business makes more than 200 transactions per year, you are considered a “vendor” by the IRS and are therefore obligated to collect and pay sales tax on the products or services that you sell. This means that you need to keep track of how much sales tax you collect and pay each year. If you do not, your business can easily overpay sales tax.
More Than 50% of Your Revenue is From Out-of-State Customers
If more than half of your revenue comes from customers outside your state, you are required to collect sales tax for those transactions. If the customer lives in a different state, they may be paying too much sales tax on goods or services that they buy from your business.
Your Business Is Registered in One State and Does Business in Another State or Country
Businesses with locations registered in two states – even if just one location conducts business there – must charge sales taxes based on where their primary place of business is located. If this isn’t done correctly, it can lead to businesses overpaying because each transaction should have been taxed differently depending on which office conducted the transaction.
You Do Not Use Tax Exemptions to Lessen the Amount You Owe in Sales Taxes
If your small business does not use tax exemptions, you may be overpaying sales taxes on items that are exempt from state and local tax laws. This can help a great deal with keeping your costs down, so it is important to understand which goods or services are exempt from taxation throughout the year.
If you’re a small business owner, it’s important to understand the rules that apply in your state when determining how much sales tax you owe. This article will tell you everything you need to know about what qualifies as taxable and nontaxable transactions so that you can avoid making costly mistakes in your taxes.