Finance Tax Time

QUESTION:
I have been contacted by my local city government to say that my business is scheduled to be audited to determine if I owe any sales tax from items purchased on the Internet. Can they really make me pay this tax? I thought you could buy things online tax free? — Katie R.

ANSWER:
I hate to burst your internet bubble, Katie, but they are within their rights to audit your business and demand payment of sales tax on items purchased on the Web.

Internet sales taxation has been a topic of contention even before Amazon sold its first book and Priceline booked its first flight.

One of the more controversial points is that no one, including our own government, seems to have a clue how to implement a fair and logical Internet taxation process.

With over 7,500 different local, county and state taxation systems in the United States, you can understand the controversy.
In 1998, Congress did what it usually does when faced with a potentially explosive issue like Internet tax collection — it decided to put off making a decision. Congress enacted a three-year moratorium on the collection of taxes to give an appointed advisory board time to come up with an acceptable solution.

That moratorium ended last year and opened the door for municipalities to begin collecting sales tax on their own.

Here in Alabama the sales tax collection department is airing radio spots asking Alabamians to step up to - and toss dollars into - the proverbial collection plate. The commercial kindly suggests that if I have purchased anything from an online retailer, I am honor-bound to proclaim such purchases and submit the appropriate sales tax to the collection department right away. They thank me in advance for my cooperation.

So, Katie, when the auditor shows up at your door the best thing you can do is smile politely and be totally forthcoming.
The sales tax that you pay is a small price for the convenience of shopping online.

Now where did I put all those Amazon.com receipts?

Small Business Q&A is written by veteran entrepreneur
and syndicated columnist, Tim Knox.
Tim’s latest books include “Small Business Success Secrets”
and “The 30 Day Blueprint For Success!”
Related Links:
http://www.smallbusinessqa.com
http://www.dropshipwholesale.net

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Is your business missing out on valuable tax deductions you can take for the use of your personal vehicle for business purposes?If you haven’t done so already, you should definitely beat a path to the door of your local office supply store and pick up a notebook for logging the mileage you drive to conduct businessand be sure to log the miles you drove to buy it!

Not taking the trouble to do this is like letting your pricey gasoline flow onto the pavement instead of into your tank!

Even if you work at home most of the time, miles you’ve driven to purchase office supplies, buy stamps or mail packages, and other errands for your business can translate into big tax deductions. With fuel costs soaring, you are literally throwing money down the drain if you are not keeping track of this mileage and taking the deductions for it to which you’re entitled as a business owner. And the first entry you need to make is the beginning mileage on the odometer as of January. You’ll also want to make sure that you keep track of all your automobile expenses associated with that personal vehicle that you’re using for business. (See why below…)

The dramatic surge in fuel costs has not been lost on the IRS. Of course, gasoline prices began to edge up shortly after the beginning of the war in Iraq; but the devastation wrought by Hurricane Katrina prompted the IRS to offer a valuable money-saving solution for business owners. (If you live outside the U.S.A. you should check your tax authority’s website for similar provisions.)

Last year,for 2005, the IRS increased the standard mileage rate for the use of a vehicle (car, van, or truck) by 3 cents a mile, to 40.5 cents a mile for all business miles driven. However, in the wake of Katrina, that rate was increased further to 48.5 cents a mile for the business miles driven in the months of September, October, November, and December, 2005.

This increased mileage rate ended with the end of 2005. The new mileage rate for 2006, effective January 1, is now 44.5 cents per business mile driven. You can maximize this deduction if you’re careful to consolidate business and personal errands. For example, I wait until I need to go to the post office to ship a package for my business to stop to at the drug store and supermarket right next door to pick up groceries. What would have been “dead” mileage becomes a deductible business trip, as long as you’ve logged your business purpose in your mileage logbook.

In addition, for both 2005 and 2006, the IRS also encouraged
Katrina-related charitable relief activities by granting
higher rates for miles deductible and miles reimbursable driven for such activities.

Of course, the use of these mileage allowances can be rather complicated. For example, you cannot take additional
deductions for business use of an automobile to which you
have already applied the Modified Accelerated Cost Recovery
System (MACRS), after claiming a Section 179 deduction for
that vehicle that your business purchased directly.

And if you’re using a personal vehicle for your business,
don’t forget to calculate the percentage of total miles for
the year that you travel for business purposes. At the end of 2006, you’ll note the year-end odometer reading in your mileage logbook and subtract from it the odometer reading that you recorded this month. Then you’ll add up all miles driven for your business that you have recorded and divide it by that total mileage to calculate the percentage of total miles you used for your business. If it turns out that 30% of your total mileage on that personal vehicle was for business purposes, you can deduct 30% of *all* your expenses for maintaining that vehicle: not only fuel, but all trips to the garage for routine maintenance or special repairs as part of your business expenses for the year.

The devil is in the details, as always, of course. You will want to consult your tax accountant on how best to apply the rules to your situation. If you prepare your tax returns yourself, you can get the details directly from the IRS website:

http://www.irs.gov/pub/irs-drop/rp-04-64.pdf. Examine the fine print closely: You’ll find that there are limits on what percentage of business use can be claimed for a personal vehicle, no matter what your actual numbers might be; so if your actual business mileage is greater than 75 per cent of your total mileage, you might be better off purchasing a separate vehicle dedicated to business use. If you’ve taken the care to structure your business correctly–using a corporation, limited liability company, or other stand alone entity–you and your business will benefit from even greater deductions.

(C) Copyright 2006 Azur Pacific Associates.
All formats and media, known and unknown.
All Rights Reserved.

Germaine A. Hoston, Ph.D. is a political economist, consultant and President of Azur Pacific Associates. She specializes in helping small business owners (those with fewer than 500 employees) maximize their bottom line by using business entities as alternatives to the popular but risky single proprietor/general partnership to minimize taxes and protect
personal and business assets. She is Editor of Azur
Pacific Associates’ free monthly WealthStrategies 202.com eNewsletter http://www.wealthstrategies202.comand an authorized reseller of the Secret Millionaire Asset Protection System http://www.wealthstrategies202.com/secretmillionairenopopup.html

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If you have employees, you are responsible for paying a variety of taxes at the federal, state, and local levels. You must also withhold certain taxes from the paychecks of your employees. So, what are employment taxes?

Employment taxes include the following.

1. Federal income tax withholding

2. Social Security and Medicare taxes

3. Federal unemployment tax (FUTA).

Federal Income Taxes/Social Security and Medicare Taxes

You generally must withhold federal income tax from wages paid to an employee. Form W-4 is used to determine the specific amount, although most payroll services or your accountant will do this for you.

Social security and Medicare taxes pay for benefits that workers and families receive under the Federal Insurance Contributions Act (FICA). Social security tax pays for benefits for the retired, survivors, and disability insurance distribution provisions of FICA. Medicare tax pays for benefits under the medical care provisions of FICA. As an employer, you must withhold a percentage of these taxes from employee and match the withholding amount.

In general, you must deposit these taxes by check or cash to an authorized financial institution, typically your bank. Check with your tax professional to make sure you are not required to use the Electronic Federal Tax Deposit System (EFTPS). Regardless of the payment method, you will then report them on Form 941, the Employer’s Quarterly Federal Tax Return

Federal Unemployment Tax (FUTA)

FUTA is a combined federal and state program that provides unemployment compensation to the unemployed. As a business owner, you are solely responsible for paying this tax, to wit, nothing is withheld from the paychecks of your employees. FUTA is determined by using Form 940, but you are encouraged to use a tax professional to determine payment amounts.

Employment taxes can be frustrating for a small business owner. They are, unfortunately, a necessary evil as your business grows.

Richard Chapo is CEO of http://www.businesstaxrecovery.com - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

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