For most people, taxes are a once-a-year ordeal. April rolls around, they spend a weekend pulling their hair out, and then they’re done until next year.
To online sellers, this is more than a little unfair. Why? Because to them, taxes are almost a constant factor in their lives. April is just yet another month filled with paperwork and madness.
If you’re new to ecommerce, you may not have realized what you’ve gotten yourself into. We thought we’d take a second and go over the major taxes you’ll be dealing with on an almost constant basis.
What is sales tax? It’s a (usually small) tax added onto a purchase that gets paid to the local governments (state, city, county). The payback intervals vary, as do the tax rates.
Online sellers have to pay sales tax in any states where they have “nexus” (i.e. a physical presence.) If you’re a one-person shop working out of your home, then the only state you have to worry about is your own. For more about sales tax and your state, check out Outright’s Sales Tax Resources for Online Sellers in Every State.
Quarterly Estimated Taxes
Quarterly estimated taxes, or QETs, are taxes you pay into the government in lieu of having any taxes taken out of your pay. When you have a salaried or waged job, the various taxes you owe to the government are automatically deducted and paid by your employer. When April rolls around, you figure out if you paid enough or too much and file accordingly.
As an online seller, these automatic deductions just don’t happen. When you make a sale, you get the money, and that’s it. No taxes are taken out and paid to the IRS. As a result, you have to file it yourself every quarter, hence the name.
So every April, June, September, and January, it’s time to figure out how much you pay out. While you may not have the exact numbers, you can always send in an estimate and justify it in April. Click here for more details on quarterly estimated taxes.
Speaking of this month, this is the big dance for everyone, including online sellers! On top of dealing with QETs this month, you also have to figure out if you’ve paid in enough over the year.
Luckily, since you’ve been dealing with taxes the whole year, you may be more prepared than anyone else to finish on time. Staying organized is the key: keep all your paperwork in order and don’t let anything get behind.
Another thing: the 1099-K is a tax form that may be sent to you if you make over $20,000 with more than 200 transactions through one online payment processor. Rather than try and mess you up, the 1099-K will let you know how much you made through online sales. This can make your taxes much easier to do, especially if everything adds up and you just have to put it all into your 1040 forms.
This guest post is brought to you by Outright.com, the alternative to Mint for business and the easiest way to handle your small business taxes online. Sign up today to make tax time less taxing!