Internet Tax
Internet taxes - Have you started an online business? Do you work at home? Many people today have joined the online workforce and are generating a decent income online. One thing to keep in mind as you rake in the profits...your income is taxable.
If you are working for an online business you should be familiar with a 1099 form. You should receive a 1099 every year. If you are working for yourself or you are contracted, you are probably receiving your income before taxes.
As a rule of thumb, an internet business is subject to the same taxes as any other brick and mortar business. When calculating your net income, you are allowed deductions similar to those of brick and mortar businesses.
For example, you probably qualify for expenses/deductions related to inventory (if applicable), legal, website maintenance, advertising, etc... There are several additional deductions that you may also qualify for. A tax professional will be able to guide you in the right direction base upon the nature of your business.
It is your responsibility to make sure that the income received from your online business is reported in a timely manner. You alone are responsible for withholding the proper amount of taxes from your internet income.
Here are a few things to keep in mind:
The most important rule when it comes to internet tax...consult with your accountant or tax attorney. Tax laws are changing all the time so it is important that you have up to date information. A tax professional will be able to provide you with the latest information.
Next, make sure that you keep all of your receipts. Your financial documents should be labeled and stored in safe place. You could be audited up to six years later so it is imperative that you create great working files for later use. You won't remember which expenses were which 6 years later so let's get your filing system in order today.
Sales Tax on the Internet
Everyone loves tax free shopping. However on the internet, sometimes I am charged the sales tax and sometimes I am not. What is the deal, is there an exemption?
Let's briefly talk about taxes on the internet to see where things really stand.
The Internet Tax Freedom Act
Signed into law by President Bill Clinton, October 21, 1998 The Internet Tax Freedom Act was created to preserve the commercial and informational status of the internet. What this law essentially did was bar the states and federal government from creating bandwidth, email and Internet only and electronic commerce taxes.
Now don't get too happy just yet. This law does not exempt us from Internet sales tax and it does not repeal any use taxes. A use tax is simply one that consumers are required to pay directly to the states.
The Internet Tax Freedom Act has been extended three times by Congress. The moratorium has been extended in 2001, 2004 and 2007. The last was signed into law November 1, 2007, by George W. Bush. This extension will expire November 1, 2014.
The Tax Freedom Act - Internet tax deterrent?
Many people believe that the Internet tax Freedom act is the one thing saving us from full blow internet taxes.
So what is holding back the dam you might ask?
A 1992 ruling by the U.S. Supreme Court (Quill v. North Dakota). In this ruling the courts stated that states could not force retailers to collect taxes under certain circumstances. Specifically, states could not force retailers to collect taxes in states where the retailer did not have a physical presence.
However, there is nothing in this ruling that prevents the states from requesting the sales tax from buyers. In fact a careful examination of a New York state tax return should reveal a section requesting calculations on Internet, mail order, or out-of-state purchases.
States Strike Back
Never assume that the States have given up on this additional revenue. States have quietly begun flexing their muscle and legal authority. Although it is only those retailers that actually have a presence or a "nexus" in a state that must collect sales tax, the States have the authority (Quill v. North Dakota) to determine what constitutes a nexus.
Stores have maintained local chains all over the country in the past and yet remained exempt of taxes, times have changed.
States have now adopted laws that specify...stores having websites which are extensions of the larger brick and mortars are considered to have presence or "nexus". These stores must now collect and pay sales tax even if in the past they were exempt.
The Big Apple (NY) has led the way in this battle for online taxes. In the year 2008, it extended the definition of nexus to include retailers such as Amazon. Amazon had traditionally been considered solely and internet company. The bill passed in NY broadened the definition of nexus to included retailers with affiliates generating more than $10,000 in revenue, total.
Add all of this together and it is now easy to explain why, more often than not, you are charged sales internet tax.
Don't let any of this scare you, it is just good information to have.
Don't just make a website, build a business!
