Sales tax is a mystery to many sellers – fairly recent developments in tax law have changed the rules of the game when it comes to collecting sales tax. Once you understand how to collect sales tax in your nexus states, how does it affect your annual tax filing?
Two Types of Taxes
When people talk about yearly tax filing, the kind that creeps up on us every April 15th, they’re talking about income tax. Income tax is the IRS’s way of collecting their share of your salary or your business’s profits in a given tax year.
Sales tax is its own beast, and since the 2018 South Dakota v. Wayfair ruling, states can require businesses to remit sales tax even if they don’t have a physical presence in the state. Depending on the volume of sales, states can require a business to remit sales tax annually, quarterly, or even monthly.
Separating Tax from Profit
When accounting for your annual profits, it’s important to separate income from sales tax. Sales tax is not an extra percentage of profit, as it only comes through your bank account on its way to the states where you’re required to remit those taxes. The money you collect for sales tax doesn’t count towards or reflect on your taxable income when you file your taxes in April.
Sellers who sell mostly on Amazon are able to be fairly hands-off with this process; many states have adopted marketplace facilitator laws that require Amazon to collect sales tax in lieu of sellers filing in each state individually.
However, if some percentage of your sales goes through your own Shopify website or another sales channel, the easiest way to deal with sales tax is to invest in a software like TaxJar or Avalara. These services automate the sales tax process so you can focus on things like profitability – and getting your taxes done on time.
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If you’re ready to find out what Seller Accountant can do to clean up your Amazon books, schedule a free discovery call today. For more advice on sales tax, yearly filing, and more, check out more posts on our blog.