Archives for October 2011

Sales Tax for Artists, Crafters and other Sellers

Sales tax isn’t a federal tax and each state has it’s own regulations, which makes it difficult to give hard and fast rules.  What I’m giving you are some general guidelines and a list of questions that you need to answer for yourself in regards to your state.  Google your state name and sales tax, and then a good place to look is the FAQ section.

  • What is required for registration?
  • What are the report filing requirements?
  • On what does your state impose sales tax?  Usually this is the sales of tangible property (something you can see, touch, etc.), but sometimes digital property is included.
  • What is the state sales tax rate?  Can there be additional sales tax for cities and/or counties?
  • Which sales are exempt from sales tax?  Commonly, sales of property for resale are exempt as long as you have a proper “resale certificate” from the buyer.
  • Are interstate commerce sales exempt from your state’s sales tax?
  • Does your state require sales tax to be collected on shipping and delivery?
  • Are sales required to be broken down on a receipt between sale price and sales tax?
  • If you have paid sales tax on items used to produce your property sold, do you get a credit?  Can you request a refund of these taxes paid?
  • Is there compensation/reduction for collecting and timely filing?
  • How long does your state require you to keep records?

This is my little “down and dirty” calculation to come up with sales tax from only keeping up with total sales/receipts and with those that are exempt.  Also, exempt might be shipping, if it is not taxable in your state.  If you have numerous smaller sales, it is cumbersome to keep track of each sale.  And sometimes you may sell an item without  collecting sales tax (if it applies, you are still required to pay it even if you didn’t collect it).  There are other ways of doing it, but you’re pretty much stuck with always keeping up with AT LEAST two items.  You are going to need total receipts/sales for other tax reason, so that’s a given.  Some keep up with total receipts and sales tax collected, and back into the other numbers.  The key is to come up with a method that is easy for you,  gets the state it’s due revenue and BE CONSISTENT.

Business vs. Hobby

I’m posting this topic first for two reasons.  One, it is very important in terms of taxes to a small business.  I’ll talk about the tax implications in a later post.  Let me just say that it’s really not good to have your business reclassified as a hobby.  Secondly, is the IRS’s “facts and circumstances” for determination reinforces the importance of setting up your business properly.

Make a profit (income – expenses = profit) three or more years out of five, and the IRS says (most often) — you’re a business!  It’s those pesky losses that are a problem.  Even in good times, it takes several years for a business to be in the black.  Real businesses have losses.  This is where the “facts and circumstances” come into play.

Usually in “facts and circumstances” the IRS has some mighty slippery stuff, but in this area at least some of it makes a lot of good common sense.  These are the things that the IRS looks to when deciding if you are a business.

  • The manner in which you carry on your business (This is a biggie.  Keep business-like records.  Have a separate checking account and credit card.  Obtain proper license, registration, etc.)
  • Your expertise or the advisers you use (research strategies and trends in similar businesses, seek expert advice, and keep a record of what you do)
  • Time and effort your spend in the business (use some sort of log for time spend working in the business, even if it’s just notes on a calendar)
  • Do you expect your assets to appreciate in value
  • Have you done this before with success
  • Your profit and loss history with the business (Develop a business plan and periodically re-evaluate where you are and what you can do better)
  • Amount of occasional profits
  • Your overall financial status (Yes, if you have other resources, then they are more likely to consider what you do as a hobby)
  • Is the activity pleasurable (It’s a shame they don’t think your work could be fun!)

SUMMARY:  If you’re a business — act like one!

I never dreamed. . .

From childhood fairy tales to college philosophy classes, myths have been important to me.  And frankly, if I paid more attention to them, I might avoid some of my troubles.  Myths go beyond our normal boundaries of reality and touch that which is deep within us.  The mermaid represents imagination, and I knew that my first (and more to come) non-family project would involve mermaids.  So, this weekend I created my mermaid. Or, maybe she was already there and I only let her out. When I couldn’t come up with a word or phrase for her, there in the old glued book page were the words, “I never dreamed…”

This has been a big step for me, and I’m now dreaming of even more.  Thank you for letting me share with you, my mermaid.

Golf and Tax — Part I

What do golf and tax have in common?  As the colorful and wise Will Rogers said, “The income tax has made liars out of more Americans than golf.”

It was reported this spring that the IRS paid out upwards of $513 million (that’s $513,000,000 of real money!) in fraudulent claims for the home buyer tax credit.  This is just ONE tax credit; it doesn’t include the notorious earned income credit which is known to be widely abused.  They (US News, Wall Street Journal, Washington Post, etc.) reported that 1,295 prisoners (including 241 serving life sentences!) received $9.1 million.  10,282 taxpayers received credits for homes already claimed by someone else.  If you can imagine, 67 taxpayers claimed the SAME home.  13,448 taxpayers claimed a credit for a home that they “promised” to buy in the future.  This was so easy that even 100 IRS employees received the credit from  fraudulent claims.  I was irate when I read this.  How could the IRS hand out so much money with absolutely no oversight!

I mentioned this to a friend, and he said, “I can’t believe that people would do that.”  People?  People?  What was he talking about?  It had not once occurred to me to blame the people filing the fraudulent claims.  All of my anger was directed at the IRS for being so stupid as to hand out chunks of $8,000 a whack without requiring some serious documentation and a way of policing the procedure.  But who is to blame?  The IRS for offering the easily obtained $8,000?  Or the taxpayer for filing a fraudulent return?  I would love to hear your thoughts on this.