Results 1 to 4 of 4
  1. Collapse Details
    Internet Business?
    I just created a website and formed an "S" corp for the website. My wife is the CEO, PRES. and Secretary. I have my own storefront business. Does anyone have any knowledge of what is involved for the website do I have to pay all the taxes...

    i.e. i was told that you don't have to charge out of state customers taxes but the business pays all the taxes..

    Can one please help figure this out before i get the I.R.S on my back

    thanks

    Sean


    Share on facebook


    Reply With Quote
     

  2. Collapse Details
    Re: Internet Business?
    Hi,

    I'm getting ready to embark on starting my own corporation and e-commerce website as well.

    From what I have read elsewhere, your corporation will have to pay 3 different kinds of taxes.

    Three types of taxes must be paid:

    1. Federal payroll taxes**** paid to the IRS with monthly deposits, filed quarterly
    2. Federal income taxes**** paid to the IRS with quarterly deposits, filed annually
    3. State sales taxes**** paid to the State monthly, filed monthly

    I think there is generally a lot of confusion out there about all this.

    For #1

    If you have employees or if you and your wife will be employees of your corporation, then you will need to worry about payroll taxes. This means you must withhold payroll taxes from employee paychecks and then forward those taxes straight to the IRS on a monthly basis with forms 941 and 1096. You will need to get W-4 and 1099's from all employees and independent contractors in order to do so.

    The corporation simply deducts the employee's income tax, social security tax and medicare tax right from the employee's paycheck. However, the corporation must also pay from its own pocket additional social security tax and medicare tax for each employee. The total amount of withholdings is currently 15.4% for social security and medicare, in which the employer and employee split half and half. Your company is responsible for chipping in and paying 7.7% and the employee pays the other 7.7% straight from their paycheck (plus their usual income tax withholdings).

    You must get an EIN, federal employer identification number.

    See the IRS website for more details at http://www.irs.gov/businesses/small/index.html

    For #2

    If your company makes profits (which I hope it will!) it will have to pay income taxes to the IRS. The corporation should fill out form 1120 (and schedule K for your stockholders) when filing the corporate annual tax return. However, you are required by law to make income tax deposits every three months with form 941.

    Income taxes are based on the company's:

    - gross receipts or sales, minus returns or allowances
    - cost of goods sold (this is the cost of buying or making your inventory)

    The difference between those two numbers is your Gross Profit (or Loss if you did not make enough sales to cover your cost of goods sold). For example, if you bought $30,000 of product and you sold it for $70,000, then your Gross Profit is $40,000. For corporations, stocks purchased and dividends paid will also be included in Gross Profit.

    From the Gross Profit amount, the company will deduct most qualified business expenses, such as:

    - payroll
    - office supplies
    - repairs and maintenance
    - rent and utilities
    - advertising
    - travel and entertainment
    - depreciation of capital or fixed assets
    - and many other qualified deductions

    Let's use the previous example where Gross Profit was $40,000. If the total deductions for business expenses is $10,000 then you are left with $30,000. This is call your Taxable Income.

    The Taxable Income is the amount that the IRS wants you to pay taxes on. If the corporate tax rate is 15% then in this example you must pay the IRS $4,500 in income taxes. Remember, you must use 1120-w to estimate your taxes and send in quarterly deposits of $1125 using form 941 every three months.

    You must get an EIN.

    See the IRS website for more details at http://www.irs.gov/businesses/small/index.html

    For #3

    If your company is selling taxable "goods" it is subject to state and local sales taxes. The sales tax is paid by the customer who purchased the item -- it is added onto the total on their receipt. Then your company will forward the sales tax money to the State's office of the Comptroller for Public Accounts using the appropriate form on a monthly basis.

    The State will tell you what the total sales tax rate is for the location of your company and you will apply that amount to all customer purchases.

    You are correct that if a product is sold on the internet then you do not charge the customer sales tax -- unless that customer is a resident of the same state as your company, in which case you must charge them sales tax. As a reseller of goods, you should be able to buy your inventory tax-exempt because you plan to resell it and apply the sales tax to the customer.

    You must get a sales tax permit or ID number through your State.

    See your State's website for more details.

    Hope this helps.

    http://www.cluemein.net/smallbusiness


    Share on facebook


    Reply With Quote
     

  3. Collapse Details
    Re: Internet Business?
    #3
    Join Date
    May 2006
    Location
    Pacific NorthWest
    Posts
    19
    Hi,

    On Item # 3, one addition:

    If you have a physical presence in WI and a warehouse in another state (i.e. NY) and you sell over the internet to two different customers (one in WI and one in NY) then you will have to charge the customers appropriate sales tax and remit to both WI and NY states, one sale in WI and one sale in NY.

    There are agreements which are in place that effect ecommerce between certain states and require you as the business owner to be aware of them and submit taxes accordingly. That means, you may have to charge sales tax on some out of state customers depending on where you live and where they live.

    And of course there is one more item that goes hand in hand with above, many states now have a "use tax" on the books. Once listed as a state statute, it's law. For instance if you buy anything online, over the telephone, or via mail order catalog, in the State of Idaho it is law that you as a buyer living in that state submit the sales tax on the items you purchased if they were not collected by the seller. Same goes for the State of Colarado, with harsher penalties to the seller who does not collect sales tax (up to 150% of the value).

    Of course I haven't seen a rush of people downloading the forms to submit sales taxes, as a matter of fact I see many ecommerce sellers brazenly yelling "TAX FREE" on their ecommerce sites, which is very misleading in many cases. In some it is not.

    Listen, there are more than 7500 different authorities at the State and local level collecting sales taxes, almost all of them have different rules. No one has the whole thing figured out, but your particular instance is best viewed by a Certified Public Accountant (CPA) who is familiar with tax law in several states including your own.

    Err on the side of caution, or don't be surprised if you get dinged with an audit, which is about as much fun as a cold toilet seat.

    Two more quick items:

    Don't go hog wild on deductions. There are certain frivilous deductions that if your accountant lets go through or if your doing your own taxes, will in fact flag the IRS to dig deeper...again check with a really good CPA on what you can legitimately claim and what isn't even worth claiming because of the red flags associated with them. Remember, if you go into business just for a tax write off without showing real business activity, then you're going to get into trouble. I know, its common sense, but there are some things that just have to be said over and over.

    Someone has to pay the sales tax somewhere along the line. I get asked all the time about delivery to another state on the $70K item I deal with and if I could not charge them sales tax. It's usually at that point I let the customer know that we will not charge them sales tax but that they may still have to pay it in their own state, and it is up to them to find out. I leave it at that. No big deal and I can sleep at night knowing that I informed the customer of what they need to do, whether they do it or not is completely up to them.

    Legal Corner: Everything above is for educational purposes only, you agree not to hold me or any of my heirs liable for any reason whatsoever. If you use any of the information presented herein, you do so completely at your own risk!


    Share on facebook


    Reply With Quote
     

  4. Collapse Details
    The big beer is really great. They have seen the good stuff and they want this not to stop. - Paul Savramis


    Share on facebook


    Reply With Quote
     

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •