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How Do I Report the Sales Tax I’m Collecting? And More Free Tax Advice – Ask the Tax Pros 10/18/12

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On Thursdays, CPA and Vice President of Corporate Tax Network, Gary Milkwick and his team, answer tax questions for free on the LegalZoom Facebook Page. Did you miss the last Ask the Tax Pro? Don’t worry. We’ve got it all right here.

Julian: Hello! I am an independent musician and I sell CDs on the Internet and at shows. I am collecting the appropriate sales tax on these purchases and I plan on paying it. Question is, how should I report it? Thanks for your time!

Corporate Tax Network: Hi Julian, depending on the state you are conducting your business in, you are required to register as a vendor/retailer/reseller (some states use a different name) with your state’s Department of Revenue. Once you register, the state will issue a sales tax license to you, which needs to be displayed where your customers see it. Also, the state will tell you how often you need to file sales tax reports and when. This would be where you report your sales and remit the taxes you collect to the state. Depending on the state and on your sales volume, these reports might be due either monthly, quarterly or annually.

Elliot: Q:Diana Shaginya – Do you need to collect sales tax for out-of-state online orders? I understand that you only need to collect sales tax from customers who order and receive in the State that you have nexus in? Is that true? Thanks, Diana.

Corporate Tax Network: Hi Elliot, you are correct, you only need to collect sales tax from the customers who get delivery of your product in the state(s) where you have nexus. Please understand that if you deliver your products to other states using your own trucks then it constitutes a nexus. However, if you are shipping items to other states where you have no nexus using a common carrier, then you are not required to collect sales tax from those customers. Instead, those customers would have to pay what’s called “Use Tax” to their own state but this would not be your responsibility. However, you are allowed to register in other states as a vendor and collect sales taxes from your customers in those states for their convenience, so that they won’t be burdened with use tax filing obligations. Please bear in mind that if you do register in other states, you will be issued a filing schedule by those states that you will have to comply with, regardless if you had any sales within those states or not. In addition, if you will be using drop-shippers or warehoses for storage in the state of California please visit the following state website to determine whether you will have a requirement to collect and remit sales tax. California has special requirements for sales tax, unlike most other states. http://www.boe.ca.gov/sutax/sutprograms.htm

Gilbert: ok i hired some one to take care of my kids im paying her whats the best way to do her taxes

Corporate Tax Network: Hi Gilbert, If you have a nanny or frequent babysitter for your child, you need to understand the nanny tax. The IRS requires anyone with household help, such as a babysitter or housekeeper, to pay Social Security and Medicare taxes, if annual pay crosses a set threshold, which is $1,800 for 2012.

You will be required to fill out forms W2 and W-3 for her. Please visit the IRS website for further instructions. http://www.irs.gov/instructions/iw2w3/index.html In addition, you will have to decide whether you are going to pay your nanny’s share of Social Security and Medicare taxes, or deduct it from her pay ( the option is yours).

When filing your individual income tax return, Form 1040, you will have to attach schedule H in order to report the taxes you paid as the employer.

Meredith: If you have legal custody of your children how do you stop the other parent from claiming them on their taxes?

Corporate Tax Network: Hi Meredith, a child who receives more than half of his support from his parents during the year and is in the custody of one of both of them for more than half of the year is the dependent of the custodial parent. In order for a non-custodial parent to treat the child as his or her dependent, the custodial parent signs a written declaration that he or she will not claim the exemption for the child (IRS form 8332, and the non-custodial parent attaches the form their tax return.

Meredith: So there is no way of having proof of custody on file with IRS so other parent can’t claim?? It’s been an on going issue with my child’s father trying to claim them and they solely live with me.

Corporate Tax Network: Meredith, the filing will be a year-by-year item. If you expect this to be an on-going problem, you should paper file your return each year. Enclose a cover letter with your return stating that you are the custodial parent. Include a statement of facts summarizing the matter. Add that “the statements in your letter are true facts under the penalty of perjury”. Be sure to mark your social security number on all pages of your letter. Enclose copies of court documents assigning you custody. I trust that this would help resolve the matter.

Ann: If you are on Permanent Social Security Disability, are you exempt from certain home owner taxes?

Corporate Tax Network: Hi Ann, many states and municipalities have certain exemptions or reduced property tax rates for disabled taxpayers. You should check with your local tax department to see if you qualify.

Carolyn Sue: 1. My son died and had not filed taxes in three years or so. I would like to give my grandson any money owed him but more than likely if there is any it would go to the tax preparer.

Corporate Tax Network: Carolyn, I am sorry to hear about your son’s death. The executor of the estate can typically file the returns that have not previously been filed by your son.

Carolyn Sue: There is not an executor.
so would I be able to file?

Corporate Tax Network: Carolyn, you can still file all of the outstanding tax returns and claim any refund that your late son is still entitled to. This is done with the help of IRS Form 1310

Julia: If I had my taxes done by a tax company., and gave them all my tax forms that was required to do my taxes. Two years later the IRS tells me it the form was completed incorrectly and I owe them money back. Do I have to pay them back or the company that completed my taxes should pay them back since it was there mess up?

Corporate Tax Network: Hi Julia, if you owe additional taxes because of income which was previously not reported, you would be responsible for the additional income tax. Unfortunately, you would also be responsible for the penalties and interest, however if the tax company was at fault, you should contact them and ask them to cover the cost of the interest and penalties.

Jeff: I was audited for 2010 by the IRS for $3000 for claiming my 12 year old daughter. She lives up north with her mom (custodial parent) and stepdad..I see her once a month..I pay $400 a month child support and all of her monthly travel expenses (approx $400).my daughter goes to public school, so there are no huge bills she incure, therefore I would consider myself the sole provider ..there is no cou
rt order who can claim her……I have been consistantly claiming her since birth and it has never been a problem. What caused this situation is that the step dad tried to claim her as well for 2010. The irs reviewed the case and stated that automatically the custodial parent has all the claiming rights.???? Anything I can do?

Corporate Tax Network: Jeff, because of the residency test, the IRS considers a child of divorced parents as the qualifying child of the custodial parent. However, the child will be treated as the qualifying child of the noncustodial parent if the child received over half of his or her support for the year from the non-custodial parent. The noncustodial parent attaches a Form 8332, or similar statement containing the same information required by the form, to his or her return. The form must be signed by the custodial parent, (See special rules in Publication 17 for a pre-1985 or post-1984 and pre-2009 divorce decree or separation agreement.), so if you have been able to claim your child in the past, I assume that your ex-wife is okay with this arrangement. If you have a duly-signed Form 8832, you can send this to the IRS along with a letter explaining the situation. Good luck!

LegalZoom: The Tax Pros will be back next Thursday to answer more of your tax questions! http://zoo.mn/AskTheTaxPros

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October 22nd, 2012 at 5:49 am