P O W E R H O U S E A C C O U N T I N G – B L O G

Sales Tax: When do sellers need to collect taxes?

You paid sales tax on sales that are made within your state; the state in which your business is located or where it is a nexus. For example, Amazon has facilities in most states and pays taxes to different states based on the nexus these facilities created. As a small business, most likely you have one location, and you will pay taxes in the state the business is located.

Registering and Collecting Sales Tax:

After you’ve determined that you have nexus in a state and have a taxable product, the process to start collecting sales tax is surprisingly straightforward. Here are three simple steps for complying with US sales tax.

  1. Register for a sales tax permit in that state. You must register for each state’s tax system individually where you have nexus.
  • Charge sales tax to customers in that state. If your sales are online through a service like Shopify, for example there are plugins or apps that are created specifically for this purpose. The amount of sales tax you charge includes the overall state tax rate, plus any county or district taxes that apply. Not every state has local-level taxes, though. Typically, the tax rate levied will be based on where the customer is located.  This is called a destination-based tax. Several states have origin-based taxes, meaning you charge tax according to wherever your business is based.
  • File sales tax returns in that state. When you register, each state will assign you a filing frequency. It could be once a month, once a quarter, or once a year. Be sure to note your deadlines and pay on time to avoid penalties. Again, check the individual states’ official websites for specific information on how to file.

When we talked about registering your business with the authorities it was previously explained that if you conduct business, have an office, have an employee, a warehouse, or any kind of physical presence in another state, then you’ll have to register your business as an entity in the state or states in which you have a physical presence. This is called having a physical presence nexus.

If you have nexus in a certain state, you are responsible for collecting sales tax there. If you sell to customers in another state, you do not necessarily need to collect sales tax because you do not have nexus. However, there are other ways you can have nexus in a state, such as making sales to customers who live in other states, beyond a minimum threshold.

We’ll go through different types of nexuses below to help you determine what may apply to your business. 

Sales Tax Nexus:

  • Economic Nexus is the economy activity
  • Physical Nexus is the people (contractors) and property 
  • You are a marketplace

Online Sales Tax is a pain based on the following:

  • States have different rules and regulations. For example, an item may have sales tax in one state, but they do not have the same tax regulation in another state. The structure of the sales tax is different from each state, and this makes sales tax complicated.
  • Sales tax rules and rates are changing constantly. 
  • Time Consuming 

You want to focus more on your business. A sales tax app is the solution; it will help you to save time and concentrate in your business.

Why to use a Sales Tax App:

  • Accurate rates and collections
  • Adjust to changing rules and regulations
  • Timely filing
  • Integration with sales channels and accounting software

Don’t stress out about sales tax. Powerhouse Accounting Services can help you out with your sales tax.

Accounting for Ecommerce/Chart of Accounts:

Managing your e-commerce QuickBooks online will not be more complicated, but rather an opportunity to have greater precision about the financial performance of your company in online sales.

Do you want to have a record of each purchase that your client makes in a product and post it correctly in the books? What is the income you get from it? Are the expenses you make for the sale of your products adequate? Is the money invested for the operation of your page adequate to continue growing?

The returns of your purchases / chargebacks, the inventory management of your items, the financial statements of your ecommerce can be evaluated by a professional in the accounting area.

If you don’t know where to start, one option is to find an accountant to set up your QuickBooks online chart of accounts. Excellent financial statements are based on a well-designed chart of accounts (COA)

A chart of accounts is a list of all the accounts that a company must have to divide and identify all the activities of its business.

Before setting up a chart of accounts, you should know that there are five main accounts: assets, liabilities, equity, income, and expenses.

Remember that the chart of accounts must be clean, consistent, and clear, and you will achieve that if you have a well-designed chart of accounts.

Do you need to set up a chart of accounts for your eCommerce store?

To book an appointment

Third-Party Payments (Form 1099-K):

Do you sell on eBay, or do you own a business that accepts payments via credit cards, debit cards, or third-party networks such as PayPal? If you answered yes to any of these questions, then you will receive a form 1099-K.

What is the 1099-K?

Form 1099-K is used to report transactions made through payment settlement entities. For example, if you use a service (Venmo, PayPal, Stripe, Square, etc.) to process debit or credit card transactions, this is a payment settlement entity and the total amount of these transactions for the calendar year must be reported on the 1099-K form.

When is form 1099-k Issued?

Starting in 2022, the IRS will require reporting of payment transactions for good and services sold that meets or exceeds $600 in a calendar year regardless of the number of individual payments or transactions. This requirement is for payments of goods and services and does not apply to payments from friends and family.

Prior to 2022, you would receive a 1099-k form:

  • From payment card transactions (for example, debit, credit, or stored-value cards)
  • When the third-party service processed more than $20,000 worth of payments, and the service processed more than 200 individual payments/transactions.

Make sure to mark payments for services or products so that the third-party payment processor knows that it is a business transaction. In addition, make sure you are tracking the income vs expenses throughout the year, so you do not miss any deductions to offset the 1099-k form.

The Recently Extended Retention Credit

The Employee Retention Credit initiative was created because of the pandemic. It was to ensure that employers retained their employees during the pandemic. If you are not already aware of the significance of the Employee Retention Credit, then you are at the right place. We are going to talk about everything you need to know about the newly issued Employee Retention Credit.

What is the Employee Retention Credit?

The Employee Retention Credit (ERC) is a refundable credit available for businesses. It allows businesses to claim wages which can include health insurance costs for employees. This initiative started in March 2020 because of the pandemic, and it is said to continue until December 2021.

The ERC was made to encourage employers to retain their employees on the payroll even if they were not working because of the pandemic. It was included in the Coronavirus Aid, Relief and Economic Security (CARES) Act. It is only eligible for businesses that retain their employees during the pandemic.

Things to Know

Even though the ERC is meant to help businesses, it does not mean every business is eligible. The following are some of the ways a business owner can be eligible for a tax credit.

An employer is not eligible for the ERC if they receive a Small Business Interruption Loan which is under the Paycheck Protection Program (PPP), also under the CARES Act.

Before an employer can claim the new Employee Retention Credit, they have to submit a report of their total qualified wages as well as the related health insurance costs for every quarter available on their quarterly employment tax returns.

What are qualified wages?

Qualified wages are dependent on the number of employees an employer has in their business. They are the wages paid to employees who are not working or providing services because they had to suspend their activities because of the pandemic. The employer is supposed to count only the wages that the employee was supposed to receive when they were working. The qualified wages per employee is maxed out at $10,000 per calendar quarter.

How can one qualify as an eligible employer?

Before you enjoy the Employee Retention Credit, you must be an eligible employer. So how does one become an eligible employer?

  • The first thing is that you must have carried a trade or business during the period of March 13, 2020, to date.
  • You must have also been partially or fully suspended because of the effects of COVID-19.
  • Your business must have received a significant decline in gross receipts. Meaning it is less than 50% of gross receipts for the calendar quarter as compared to the previous year.
  • If you are a government of state entity, you are not eligible for the ERC.
  • If you were also self-employed, you are not eligible.

How to get the ERC for wages paid 

First, calculate the amount of your credit for the calendar quarter and reduce your Form 941, Employer’s Quarterly Federal Tax Return deposit by the same amount. This method can still be used to date if you still want to get the ERC for wages paid in 2021.:

To read more  https://www.irs.gov/newsroom/treasury-irs-provide-additional-guidance-to-employers-claiming-the-employee-retention-credit-including-for-the-third-and-fourth-quarters-of-2021

Payroll Tips for Small Businesses

Payroll can be one of the most confusing things to do especially if you are a small business owner with no financial background. It can also be time-consuming when you find your way around doing it. One thing to note is that when payroll is not done properly, it is easy to underpay or overpay an employee without detecting it. As a small business owner, you must take your payrolls seriously. The following are some of the tips to follow when doing payrolls for your business. 

Set your budget

Having a budget helps you to determine how much you are spending on your business. You must include employee wages in your budget to make it easier to detect whether you are underpaying or overpaying an employee. As an employer, you are required to pay for your employee’s Medicare as well as their Social Security. You must include everything in your budget.  

Classify all your workers

Classifying things into groups makes it easier to identify things when you are looking for them. When you classify your workers according to the role their playing for your business such as independent contractors and full-time employees. It is easier to identify how much you are paying in terms of wages, taxes, and other expenses. Many classification guidelines can help you classify your employees depending on where you live. When you classify your employees, find a way of implementing it into your payroll system so that nothing is missed.

Get a payment structure

A payment structure determines when you pay your employees and how often you are going to pay them. Some laws allow you to pay your employees on a weekly, bi-weekly, or monthly basis. Depending on the laws, make sure you comply with federal and state laws, you must identify the payment structure that best fits your business and make sure you are consistent with each payment, and never pay late.

Set up a payroll system

This is probably the most important tip to note. A payroll system helps you to calculate and manage the paychecks of your employees. There are many ways you can do depending on the resources you have available.  

There is a manual method which is done by hand. This method is one of the cost-effective ways of managing the paychecks of your employees. The manual method requires you spend a lot of time checking your calculations to ensure no mistakes are made. Rushing using this method can easily lead to errors. 

Another method is using software available on the market. Technology has made it easier to do many things and calculating and managing paychecks is one of them. There is much software that provides features to help you manage your paychecks which helps you to save time and further resources. 

If you have enough resources, you can hire qualified personnel to do your payroll for your business. When you are considering all these methods, you also must consider the number of employees you have in your business. For example, if you have only two employees you can use the manual method, but when you have many employees it is advisable to use the software method, or you hire a professional. 

Payroll Management Tips for Small Business- Brief Summary

Creating an internal payroll policy that all employees consult your organization makes the workflow of your organization more transparent. A small business must address payment details before issuing the first check payment to the employee. This will avoid errors, discrepancies, and misunderstandings.

Everyone in the organization should know how payroll works. Other variables, such as paid vacations, salary ranges, and other more detailed benefits, should be included in your policy. Communicate the policy to everyone in the company. Whatever the job function and position they occupy, they should be familiar with the payroll policy.

In conclusion, the payroll process is stressful but setting up your payroll properly from the beginning can reduce the pain later. As a small business, it is quite difficult to comply with everything you need to keep your payroll system smooth and in compliance with federal and state laws. But with the tips mentioned above, you can avoid problems in the future.



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