You have probably heard people argue about the need to comply with federal tax laws.  You, or someone you know, may even believe that filing taxes is voluntary or that the federal tax laws are unconstitutional.  Of course, people can hold any belief that they want, and they can choose to file or not file according to those beliefs.  The truth is, however, that the IRS does not listen to any of these arguments.  They have even published a document called “The Truth About Frivolous Tax Arguments”.  If you have questions about whether or not we are required to file, this document will address all of them.

Some of the arguments that the document addresses are:

• The filing of a tax return is voluntary
• Payment of taxes is voluntary
• Only foreign income is taxable
• Taxpayers can refuse to pay taxes due to religious or moral grounds
• The IRS is not an agency of the United States
• Federal Reserve Notes are not income

“The Truth About Frivolous Tax Arguments” can be found here.

Daniel Stoica Accounting Professional

Internet sales tax has become commonplace for online retail businesses, but it hasn’t always existed. When online sales first began, there were no taxes on purchases made to online retailers. There weren’t many regulations for making purchases online and consumers didn’t worry about the extra charge on their purchases. Because of this, more and more people would shop online rather than going to traditional stores, especially during the holidays.

But, somehow, we all knew that freedom from being taxed wouldn’t last forever. Many states are making it a requirement for online retailers to calculate sales tax on all purchases. They claim their states are losing billions of dollars in revenue from the lack of sales tax, and that it is necessary to enforce this in order for the states to thrive. Traditional and online retailers alike are asking for a reform for online taxes due to the fact that brick and mortar stores feel that online retails have an advantage over them because they don’t have to charge sales tax.

All states now require that online retailers must collect sales tax for customers who reside in the same state as the physical state of the business. Some of these states have harsher rules that include merchant accounts, distributors, warehouses, drop shippers, and sales representative locations. The tax regulations must be understood and followed in order to claim the correct figures at tax time. If the sales taxes aren’t paid, there will be penalties that can potentially hurt your business. As well as paying the amount that is owed on those sales taxes, there will also be penalties and interest incurred for each year the sales taxes are not paid.

If you follow this check-list, you should be in good shape:

1. Check each state your business works in to find out if you have to collect sales tax from the customers in that state.
2. You have to register to collect online sales tax in the states you do business in.
3. You can collect sales tax automatically with e-commerce or shopping cart calculations.
4. You must file your tax return in the correct state(s) where you do business and send the taxes with your returns.

 There are many things to look at when choosing an e-commerce solution that allows you to automatically collect internet sales tax. They are:

-An easy sales tax calculator that is built into your website.

-A tool that automatically calculates the tax at check-out.

-An easy-to-set up program for state, county, postcode, or country tax percentage

-The ability to mark down non-taxable products

-The ability to tax Canadian customers

-The ability to choose if tax should be applied before or after discounts

-The ability to determine if certain groups should be exempt from sales tax

To make sure you have no issues on your tax return, make sure you have good sales tax software on your website. It should be able to accurately calculate and record all of your internet sales taxes. Many e-commerce solutions have this feature, which is easy to set up and all you have to do is enter the required information and the program will do the rest.

Daniel Stoica Accounting Professional

People often  hold on to many myths when it comes to taxes.  Below is a list of those myths and how you can save money by separating fact from fiction.

Students are exempt.
A lot people think there’s an exemption for students, but students must pay taxes on all of their income, no matter how many credits they are taking or whether they are a full-time student.

There are special credits for students, though, such as, the Lifetime Learning Credit and the new American Opportunity Credit. Distributions from a 529 Plan are tax-free, but the income is taxed.

Students who during the summer check the “exempt” box on their W-4′s, but if they didn’t have any taxable income last year and don’t expect to have any this year, then they have nothing to claim.

I can’t claim my working child as a dependent.
If you are providing more than half your child’s support, they qualify as your dependent, and you can deduct any costs you paid for that child. Support is what’s spent, not what’s earned.

You can also qualify for an exemption if your child doesn’t earn more than the value of the exemption.

A child qualifies as a full-time student if he or she is a full-time student for at least five months during the tax year.

I can sell my house tax-free because I’m over age 55
The old law was that if you were older than 55, you could eliminate as much as $125,000 in gains from taxes, but you could only do that once. The new rules are even better.

Under the current law, age doesn’t matter. If you sold property that was your principal residence for at least two out of the last five years, you can exclude as much as $250,000 in gains, and $500,000 on a joint return. You can take the gain exclusion every two years if you qualify.

I can deduct my sales taxes too
If you file a Form 1040 and itemize your deductions on Schedule A, you can claim either state and local income taxes OR state and local sales taxes, but you cannot claim both.  If you decide to claim your sales taxes, you have to make sure that you save your sales receipts throughout the year so that you can add up the total amount of sales taxes you paid. 

If you were not very good about saving all of your receipts, you can choose to claim your state and local sales taxes instead.  One other option would be to fill out the worksheet and use the general sales tax tables found in the Instructions for Schedule A (Form 1040), but you can also use the IRS Sales Tax Deduction Calculator. 

I have to file a joint return if I’m married
If you’re married, you can always file married filing separately. You will pay more in taxes by doing so, but in some situations, this can be to your advantage.

If you’re married, you can’t file as single or head of household. However, if you’re separated and you have a child there are provisions that will let you file as head of household. Speak with a tax professional to get the most accurate information.

The tax codes are complicated and can change regularly. If you aren’t sure of the new rules, again, seek the advice of a tax professional.

Daniel Stoica Accounting Professional