The Secret to Not Overpaying Sales Tax

I don’t know about you but I don’t want to pay more taxes than I have too. Why give more money to the government?

So... when I learned this secret that most business owners don’t know, I stopped overpaying in sales tax.

The secret is this:

You don’t have to pay sales tax on all the sales you make.

Stay with me. I taught this in the Is Your Business Legalproof? class (sign up for the next one here).

See every state has their own sales tax laws or rules. Every state has a list of products or services that must be taxed and those that aren’t taxed.

Up until 2021, Maryland didn’t tax digital products. Only physical products were taxed. So it’s possible that if your state doesn’t tax digital products yet, you could be saving on sales tax.

Now, here’s the the thing:

Just because you make a sale of a taxable product or service doesn’t mean you owe sales tax.

Sales made only in the state are to be taxed. Selling online means your buyer isn’t making the sell in the state, but their state. How many of your sales are out-of-state?

Don’t stop reading yet.

While the above is true, you must understand that states are classified as either an origin or designation based sales state. Meaning sales tax is owed for sales based on where they originated or where the product is being delivered (final destination).

Maryland is a destination-based tax state. So, while digital products to Maryland buyers are taxed, sales to non-Maryland buyers don’t require me to pay Maryland sales tax because that tax is owed to the destination state. I won’t have to pay them until I hit their required number.

However, if Maryland were an origin-based state, I would have to pay them ALL the sales tax for in-state and out-of-state buyers.

This is one secret to not paying too much in sales tax. But, oh the day, to pay another state sales tax because that’s means you made either 200 transactions or at least $100,000 in sales in that one state.

Question: Do you have a sales tax license?

If no, your sales could be illegal!

Find out if any other part of your business isn’t quite legal in my upcoming, Is Your Business Legalproof? class.

Register here for free. Replay only available to registered attendees.

Copyright © 2023. Be Empowered Networks, LLC. All Rights Reserved. You may share only if you include the following credit: Chayla Jackson, Esq., www.iamchaylajackson.com.

Disclaimer: This post is for educational purposes only and is not legal advice. Please consult an attorney.

A Tax Mistake That Can Cost You Your LLC Liability Protection

I asked tax expert, John Drayton, CEO of Drayton Tax Pros, what were the top 3 tax mistakes business owners make.

With the upcoming tax season starting January 23, 2023, I was curious to find out about his experience.

Here is part of his answer (this is only part 1 of 3) that could cost you your LLC liability protection:

The #1 top tax mistake business owners make is:

Not separating their business and personal bank accounts.

John told me that too often he sees business owners who register business accounts in their personal name, don’t have money coming into the business so they use their personal bank account, and have mix use of business and personal charges in their account.

The last one he said causes business owners to lose out on $3,000-5,000 in expenses that could reduce their taxable income.

Life can be busy and sorting through a year’s worth of bank account statements to pull out all your business expenses can be daunting.

But not taking advantage of that $3,000-5,000 in expenses means you’re paying MORE taxes than less.

On a legal note (my 2 cents):

You should never mix personal and business money.

1. It exposes your personal assets (home, IRAs, savings, etc.) to liability for the business.

2. It erases your liability protection because now the business is no longer separate. So, goodbye to your personal  liability protection... Your LLC no longer protects you.

3. It makes it harder to argue whether an expense was the business or personal if were ever audited by the IRS which could mean fines and penalties.

4. If ever in an audit and you don’t have the receipts, you could face civil penalties and fines (hopefully, no jail time for tax fraud or evasion).

On the third one, payment processor companies got an extension on filing 1099-K’s with the IRS for all accounts receiving payments of more than $600 until next year (2024). That means if you made the above tax mistake, fix it quickly because the likelihood of an audit goes way up!

Skip that headache. Get a business bank account and if you need to fund it you can loan the business money (put it in writing) with interest or you can transfer money from your personal to your business (it will be considered a contribution, meaning you can’t write that off your personal taxes). Don’t forget to have an accounting or bookkeeping system to track business expenses. A free and good one is Wave. A popular one is Quickbooks.

Looking for a tax guy for your business, taxes and bookkeeping? Schedule an appointment with Drayton Tax Professionals at www.draytontaxpros.com.

Want to read part 2? Follow me on social media to be notified when it goes live at @buildalegitbiz.

Copyright © 2023. Be Empowered Networks, LLC. All Rights Reserved. You may share only if you include the following credit: Chayla Jackson, Esq., www.iamchaylajackson.com.

Disclaimer: This post is for educational purposes only and is not legal advice. Please consult an attorney.

Tax Day: Business Taxes You May Need To Pay

Today is Tax Day!! Thanks to COVID-19 we got an extension.

Make sure you pay all your taxes as a business owner and file your forms.

Last week I reconciled my books, pulled reports and sent myself a Schedule K-1 so I could file my S-Corp return with the IRS. Last night I made sure I paid $300 for my business’ property taxes and submitted the return. Because in the past, I forgot.  So I took precautions. Yes, your business may have to pay property taxes. It’s an asset and separate person in the eyes of the law.

As business owners, we sometimes wear multiple hats.

So if you don’t have access to legal counsel, make sure you’re legally complaint by filing and paying any and all of the taxes in the photo that apply to your business.

Have you filed your business taxes?