Sales and Use Tax - Boston PUG



Sales and Use Tax

My company is filed as a Sole Proprietorship and I am a CASH based business.

Cash makes the most sense in photography related business ue to the nature of the way we take income. Some of this information may or may not apply to you. Check with your CPA.

3. Disclaimer:

A lot of what you’ll hear tonight, you might already know- I’m trying not to dumb it down for anyone whose got a good =handle on Sales tax and money, if it’s too simple or anyone feels “I know this..” just please bare with me. I’m trying to get to a bigger point or get some place that needs basic information. A lot of people might not know it. If you know it- great! If not, and I don’t make it basic enough. ask me, call me or email me. I’m pretty good on email.

4. Cash Vs. Accrual based business.

The accrual method. The accrual method is the more commonly used method of accounting. Under the accrual method, transactions are counted when the order is made, the item is delivered, or the services occur, regardless of when the money for them (receivables) is actually received or paid. In other words, income is counted when the sale occurs, and expenses are counted when you receive the goods or services. You don't have to wait until you see the money, or actually pay money out of your checking account, to record a transaction.

The cash method. Under the cash method, income is not counted until cash (or a check) is actually received, and expenses are not counted until they are actually paid 

SOURCE -

5. What is the the Sales Tax it’s the -price or rental charge of tangible personal property or certain telecommunications services sold or rented in the Commonwealth What is our state rate? 5 percent on all tangible sales. TANGABLE. Once you give a product – you should charge sales tax.

6. Serviced based -Do we as photographers need to collect sales Tax? YES!

Massachusetts doesn’t charge for Service, and we provide a service based “think” why are we talking about this?

Due to the fact that we can sell albums for $1.00 and our Service for $$2999.99

The state changed the law to how it applies to photographers.

Sales tax is paid to vendors (us) for as an addition to the purchase price

It must be a SEPARATE line item.

7. When do we collect it,

Well -Buyer pays vendor at time of purchase of item. We are a vendor, so we are paid sales tax at the time of purchase.

Also- do to the fact that photographers don’t collect the entire balance at once, we do not need to collect all sales tax until ALL the money (the entire balance) is collected. Not before

*rumor.. that we need to collect whether we received payment for full amount or not is simply not true. You collect sales tax when final bill is due. BUT

If you have a client that hasn’t remitted payment for their wedding or portrait and they are past due, Vendors (US) must pay tax on all sales regardless of whether payment is received at the time of sale. This is not the same for partial payment… (we don’t need to collect all sales tax until payment is received in full) if they are THEN late, we must remit sales tax and go after them for collection of it. (BAD DEBT)

As Photographers we don’t need to collect Use tax ever from our CLIENTS, but we do need to pay Use tax to the state from our business if we buy something online.

8. When do we pay it?

Vendors (us) don’t need to pay it until our due date…

You pay

Annual if your Sales are of $100.00 or less

Quarterly if your sales are $101-$1200.00

Monthly if your sales are $1201 or more

The state will tell you when you need to pay your sales tax. They will send you a notice or change your billing due date if you go up or down in the amount of sales tax you are paying.

Remember if you use Pictage for your album service- they are taking care of this for you.

9. What is the penalty for paying late?

Penalty for late payment is one percent of the unpaid tax shown on the return per month (or fraction thereof), up to a maximum of 25 percent.

10. Failure to collect - What do I do if I have never collected sales tax on previous clients?

There are two things you do,

1 – pay it out of pocket

2 – go collect it.

Scenario, you have been in business two years- you just never added the sales tax on because you thought we were service based. You need to go back to all those clients and send a sales tax bill, OR pay it out of pocket.

11. States that do not collect sales Tax… FYI there are only 5.

12. What do you need to do to be complaint:

• Register with the D.O.R.

• Collect 5% on your TANGIBLE items.

• Tax MUST be listed as a separate line charge on all invoices, bills, displays or contracts

• Remit payment to MA

If you use PICTAGE- they should already be collecting sales tax on your proucts online and handling your sales tax. If you sell anything OUTSIDE of pictage, you need to collect sales tax on those items.

USE TAX _-- TRANSITION SLIDE

USE tax is put into effect when sales tax has not been charged. When you drive over to NH to buy a computer you have not paid Mass. Sales tax. As soon as you drive over to Massachusetts you are obligated BY LAW to claim Use Tax on your State Income Tax form at the end of the year. This goes for Cameras purchased online and lens, anything shipped from OUT of state where Mass Sales tax has not been applied.

WHAT IS Use Tax?

Is a percentage of the sales price or rental charge of tangible personal property or certain telecommunications services sold or rented in the Commonwealth on which no sales tax, or a sales tax rate less than the 5 percent Massachusetts rate, was paid and which is to be used, stored or consumed in the Commonwealth. The use tax, unlike the sales tax, generally is paid directly to the Commonwealth by the purchaser

15. How does USE tax effect us?

Think “buying a computer in NH”

16. Who pays Use tax?

Any person who sells, rents or leases personal property. Everyone in this room has probably bought something out of state- that item should have been put on your use tax itemized list on your taxes.

17. Use Tax is Due When:

Goods are purchased for personal use from out-of-state or out-of-country when the sales tax on the items has not been paid. The total purchase price of many imports is subject to "use tax.

Goods are purchased and imported into Massachusetts for personal use, such as jewelry, artwork, antiques, furniture, computers, appliances or household items and sales or use tax has not been paid.

Goods are purchased in another state or country without paying sales tax or the amount paid was lower than Massachusetts' sales tax. The value-added tax (VAT) does not constitute a credit for sales/use tax paid. This includes items shipped, mailed or carried into the state.

Goods are purchased out-of-state or out-of-country from a mail-order catalog, internet company or auction house and sales or use tax has not been paid.

Supplies, furniture, fixtures and equipment are purchased from an out-of-state or out-of-country vendor for business use and sales or use tax has not been paid. Machinery and equipment used in manufacturing operations are not included.

18. Use Tax is Not Due When:

Goods are purchased for resale within the normal course of business.

Goods to be used as an ingredient or component part of an article of tangible personal property produced for sale.

Sales or use tax is paid to another state or territory of the United States on tangible personal property to be used in Massachusetts. A credit of up to 5% is given against the sales tax paid. This credit is allowed for sales or use tax paid to another state only if that state has a corresponding credit similar to the Massachusetts credit.

You are not obligated to tell your clients to pay use tax on your products shipped out of state to them. It’s not your responsibility.

19. Reporting and Paying Use Tax,

Use tax is paid on your tax form at the end of the year. Use tax is paid on Tax Form 1. Taxpayers who prefer, can report and pay using the Form ST-11 / Individual Use Tax Return or for businesses ST-10/ Business Use Tax Return. The return is due with payment on or before April 15 for purchases made in the prior calendar year. Make check payable to the Commonwealth of Massachusetts and send to: Department of Revenue, P.O. Box 7009, Boston, MA 02204.

SALES TAX ACROSS THE BORER – transition slie

21. How do you handle out of state sales. (crossing state lines)

I do not know all the states sales tax laws. I know what I do and how I handle it.

I mostly deal with NH residents, or weddings out of state – but product delivered to state. It gets sticky. It’s confusing and depending WHO you talk to- you’ll get a different answer. You should pay sales tax to the state the PRODUCT was delivered. If you shoot one wedding in one state, You could just let the client claim it on their use tax.

22. Cross state line Breakdown….

Out of State vendors must collect also Ma Sales tax. This does not apply to the Internet. , B&H anything that doesn’t have a physical store front does NOT need to collect sales tax but we are suppose to (as vendors and as customers,) to pay USE TAX. The Use Tax is a box on our state income tax forms.

23. Things that are exempt from sales tax collection in MA

Food and Clothing

Magazines and Newspapers

Ticket Sales

Utilities

Charges for personal or professional services… ***

Sales for out of state delivery!

BOOKKEEPING & Taxes.

25 Individual vs. BookKeeper Vs. Accountat.

• Individual won’t know the laws,

• Bookkeeper will keep your books up to date

• Accountant will help you keep your books up to date, help with your taxes and find deductions. They will also know or should know the laws specific to your industry.

Whichever one you go with is completely up to you

26. Organizing your income

You just need SOMETHING to keep track of money in, money out.

You can use:

- Quickbooks

- Quicken

- Excel

- SMS (Studio Management Services – PPA)

- Accountant or CPA

- Intern

- Paper and Pen.

It’s all up to you.

27. Biggest piece of advice is to - SEPARATE YOUR MONEY!

You should not have your business and personal money touching. If you do, tomorrow sit down , figure out how much money your business has, and put it into a separate account. Have a separate credit card a separate bankcard and separate checking account. It’s tougher to keep track of what your spending on your business. It’s less work to do, less tracking, less “is that personal or business” on the credit card statement.

Writing checks or transfer money out of your personal account for your business account gets really complicated. How much money do you really have? Do you have a good overall picture of where your company stands financially? You have a better idea where your money is going and it’s just a LOT less complicated.

28. How do you pay yourself.

Paying yourself is really easy. You get your checkbook, figure out what you want to pay yourself and write a check. You write that check out of your owner equity “draws” account. You are drawing money out of yourself. The owner equity comes out of an expense account.

29. Moving Money around

30. Slide question… read slide

31. Talk about the way I organize

32. How Does my Bookkeeping? My husband and I have a joint effort to do the bookkeeping. He keeps track of our bank balance and deposits and I keep track of the sales tax and accepting payment from clients.

33. How is the best way to organize finances for taxes?

This is a two part question. – First you have to decide what works for you? Are you a computer person or a old school paper and pencil person. Do you like to be able to push a button and have all your information at your hands, or do you want to have a pile of paper to dig through?

Because I use Quickbooks I can push button and know how much money I’ve made from a 4x6. If I didn’t have Quickbooks I don’t really know how I’d tell you that information.

34. GROSS INCOME Slide (This is pretty basic.)

For your taxes (and I don’t do my own taxes) you need to have a few basic a things organize. How much you break that stuff down is up to you. The government doesn’t need to know that you spent $100.0 on staples, but YOU might want to know that.

The way I break it down is by looking at it in buckets. Its easier for me to digest with this “bucket” model. Your gross income comprises of two buckets. Income & expenses. To find your net income (the amount of money you actually earned for the year) you take your gross income and minus your total expenses.

How detailed you get is up to you. The way I look at it is this = Simplicity.

35. Income and expense – bucket slide (blue boxes)

You have one big bucket which is your gross Income. That is broken down into your income and your expenses and at the end of the year, you’ll need to do a profit loss statement on the income in and the money out.

36. How to break down expenses.

CHART OF ACCOUNTS – How you breakdown your organization is how much you need to know about your business. , I want to be able to know how much money I sell from 4x6s. MSTCA Income, MSPCA Income.

The main categories that are on your tax form.

Advertising, Car expenses (minus luxury car it can not be a luxury car) Contract Labor, Depletion, depreciation, Legal fees (tax preparation counts) Office expenses, Pensions, Repairs, Supplies, Taxes and licenses, Travels Meals and entertainment, Utilities (electricity, phone cell and home)

I do not deduct my home office at all. To deduct a home office you need to figure out the approx. amount of space, and then do the math on how much heat, electricity, water your business will pay. You also need to have a TRUE door to count your home office as a deduction. Home offices are a big red flag to the IRS. They actually do question home offices. We also were told that when we go to sell the house having a home office can actually cause problems, so WE opted not to deduct it. We wouldn’t save that much money. I do pay my

100% Internet and 50% of my cell phone (because my husband is linked to it and he doesn’t do any business on that line) out of house account and then write a check from my business to reimburse my house.

37. Dealing with meals

Travel and Meals should be separated in your expense reporting. Only 50% of meals are deductible. Line 23 a+b of your tax form Schedule C for a Sole Proprietor.

38. Dealing with Non-Profits

I don’t ever handle the money for Non Profits, I have them make the check right out to the charity. That way the money never goes through my hands. If I offer a percentage of print sales I have a separate category (or keep track) of those prints, and I do the math and send them the check.

39. Closing

Things that we can deduct in our business

• Accounting fees

• Advertising

• Bank charges

• Commissions and sales expenses

• Consultation expenses

• Continuing professional education

• Contract labor

• Credit and collection fees

• Delivery charges

• Dues and subscriptions

• Employee benefit programs

• Equipment rentals

• Factory expenses

• Insurance

• Interest paid

• Internet subscriptions, domain names, and hosting

• Laundry

• Legal fees

• Licenses

• Maintenance and repairs

• Office expenses and supplies

• Pension and profit-sharing plans

• Postage

• Print and copy

• Professional development and training

• Professional fees

• Promotion

• Rent

• Salaries, wages, and other compensation

• Security

• Small tools and equipment

• Software

• Supplies

• Taxes

• Telephone

• Trade discounts

• Travel

• Utilities

RESOURCES

PPA has a Studio Management Services (SMS) program that includes a mentor.



Local CPA FINDER



Lawyers

Business intern (someone who had their own business)

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