If you’re a new business owner, you may wonder what you need to know about sales taxes. A lack of knowledge is costly. If you wrongly think you don’t owe the tax and don’t collect, or if you correct too little, you could have to pay big fines and penalties. In fact, there are several scenarios which could cause your local state government to come after you regarding sales taxes. Here are some things you need to know.
Reasons Your State Government Would Come After Your Small Business
What Can the Penalty Be if My Business Doesn’t Collect and Pay Sales Taxes Correctly?
An audit can cost a business a lot of money, with online estimates ranging from a minimum of $5,000 to $100,000. Despite this, many businesses today calculate and resolve tax issues manually, despite how complicated the tax system is, and how inefficient the method is. Whatever the cost is, a small business owner would be wise to avoid it.
In addition, the IRS is more likely to audit certain types of business: Medical or dental, retail, hospitality, construction, manufacturing, and distribution services. Some businesses even set money aside in case of an audit. Besides an audit, the IRS can charge a business that didn’t pay sales taxes correctly with fraud.
Other ways not paying your taxes correctly causes problems is for the possible future sale of your business and if you want to sell through a large distribution channel, such as Walmart.
Some Sales Are Exempt From Sales Tax
Some sales are exempt from sales tax. For example, non-profit agencies don’t have to collect or pay sales tax. Some states allow a tax exemption for computers and accessories used in business operations. An accountant could tell you if this applies in your case. A manufacturer that processes a product and resells it in a different form is tax exempt on anything used in the manufacturing process in most states. Some services are tax exempt, and an accountant would be able to tell you if this applies in your case.
For more information, feel free to contact us.