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Old 01-03-2012, 08:43 PM   #1
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Default Charging taxes to the customer

So I had to talk with my accountant today for a quick question, and somewhere in the middle of my question he stops me and tells me Ive been charging taxes wrong to my customers. Whoops! Truth is I haven't been charging them taxes, I've been paying the taxes on all the materials and just charging the customers an inflated price. He tells me its not a big deal because at least one of us has been paying the taxes, but its not supposed to be me. Ok, minor problem, ill start charging them taxes...just as soon as I figure out how. Obviuosly my materials are bid at more than I expect to pay, and I seldom get my supplies at the supply houses, usually Lowes where I just pay the taxes like everyone else. How do you guys charge taxes? My bill is never 598.68$ its always 600$ or 450$ or whatever is closer to this and easy for the customer and I to remember (and preferably divisable by 20 so the customer can easily pick it up at an atm if need be). What are you guys doing?

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Old 01-03-2012, 09:09 PM   #2
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Obviously, you need to get back and talk to your accountant. Each state may vary.

I pay sales tax upfront on my materials. I do not charge taxes to my customers. If you charge a TAX, you must submit that TAX to the appropriate agency. I roll the costs of the sales tax into my material costs.

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Old 01-03-2012, 09:16 PM   #3
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Quote:
Originally Posted by MHElectric
So I had to talk with my accountant today for a quick question, and somewhere in the middle of my question he stops me and tells me Ive been charging taxes wrong to my customers. Whoops! Truth is I haven't been charging them taxes, I've been paying the taxes on all the materials and just charging the customers an inflated price. He tells me its not a big deal because at least one of us has been paying the taxes, but its not supposed to be me. Ok, minor problem, ill start charging them taxes...just as soon as I figure out how. Obviuosly my materials are bid at more than I expect to pay, and I seldom get my supplies at the supply houses, usually Lowes where I just pay the taxes like everyone else. How do you guys charge taxes? My bill is never 598.68$ its always 600$ or 450$ or whatever is closer to this and easy for the customer and I to remember (and preferably divisable by 20 so the customer can easily pick it up at an atm if need be). What are you guys doing?
Go to your states tax website they should have information on how and when.

I follow my states policy and all my bills appear as though they are capital improvements so as to avoid charging sales tax on labor. Material is marked up and sales tax is included so I don't charge tax again.
Seems simple but it's not. My wife is an accountant so she gets pretty pissed when I don't keep recents.

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Old 01-03-2012, 09:16 PM   #4
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So I had to talk with my accountant today for a quick question, and somewhere in the middle of my question he stops me and tells me Ive been charging taxes wrong to my customers. Whoops! Truth is I haven't been charging them taxes, I've been paying the taxes on all the materials and just charging the customers an inflated price. He tells me its not a big deal because at least one of us has been paying the taxes, but its not supposed to be me. Ok, minor problem, ill start charging them taxes...just as soon as I figure out how. Obviuosly my materials are bid at more than I expect to pay, and I seldom get my supplies at the supply houses, usually Lowes where I just pay the taxes like everyone else. How do you guys charge taxes? My bill is never 598.68$ its always 600$ or 450$ or whatever is closer to this and easy for the customer and I to remember (and preferably divisable by 20 so the customer can easily pick it up at an atm if need be). What are you guys doing?
He thinks that you are attracting an audit by not charging in dollars and cents for example $501.03 instead of $520.00 or $500 whether it is a myth or not the fact is you will be punished with an IRS audit sooner or later no matter how you do it because you have the nerve to run your own business "How Dare you"

I always round up to the nearest $20 ,When i get a bill that is $501.03 i fell like i am being nickled and dimed walking around with a pocket full of change because every time you buy a cup of coffee you get 97 cents in change is just annoying and i hate doing that to customers.,.

Unless your state requires you to collect sales tax on the grand total of your bill then just round up and keep the change..
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Old 01-03-2012, 09:23 PM   #5
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Go to your states tax website they should have information on how and when.

I follow my states policy and all my bills appear as though they are capital improvements so as to avoid charging sales tax on labor. Material is marked up and sales tax is included so I don't charge tax again.
Seems simple but it's not. My wife is an accountant so she gets pretty pissed when I don't keep recents.

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Every receipt you get for stock and tools should be going right into The job folder for the job you are charging it to.
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Old 01-03-2012, 09:26 PM   #6
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He thinks that you are attracting an audit by not charging in dollars and cents for example $501.03 instead of $520.00 or $500 whether it is a myth or not the fact is you will be punished with an IRS audit sooner or later no matter how you do it because you have the nerve to run your own business "How Dare you"

I always round up to the nearest $20 ,When i get a bill that is $501.03 i fell like i am being nickled and dimed walking around with a pocket full of change because every time you buy a cup of coffee you get 97 cents in change is just annoying and i hate doing that to customers.,.

Unless your state requires you to collect sales tax on the grand total of your bill then just round up and keep the change..
Do you think this should cause an audit? He didn't really act upset, just annoyed that I didn't already know this. It seems petty to me, cause im still paying the taxes.
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Old 01-03-2012, 09:49 PM   #7
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Every receipt you get for stock and tools should be going right into The job folder for the job you are charging it to.
I'll keep that in mind.

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Old 01-03-2012, 10:12 PM   #8
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It has always been my understanding that if you are selling a service, then you are allowed to pay the taxes when purchasing the materials to provide the service.

If you are selling parts/materials, then you must collect sales tax from the purchaser and remit it to the state. Then you need to provide a tax exempt form to the seller (to you) of materials so that sales tax does not get charged twice.

That's one reason I really don't like to itemize my invoice, because someone could make the argument that I'm selling parts separate from labor and that I should be charging sales tax on the materials (and of course remitting to the state).

Now, I think there is the issue of the markup on materials not being taxed (when you pay the tax on materials when you buy them).
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Old 01-03-2012, 10:17 PM   #9
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Let's say sales tax is 5 %. If you go to home depot and buy something for 1.00 you pay 1.05 at the point of purchase. You cannot charge the customer any more that 1.05. If you decide to then you have to collect sales tax on the mark up. This is why it is a good idea to get a sales and use tax certificate, you can set up a contractor account at home depot or lowes even Costco. They will not charge you sales tax on your purchases. Now you are free to mark up the product and collect the sales tax from the customer. You have to remember the government will always get their piece.
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Old 01-03-2012, 10:19 PM   #10
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Every receipt you get for stock and tools should be going right into The job folder for the job you are charging it to.

This is what I do. Glad I'm on the right track.
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Old 01-03-2012, 10:26 PM   #11
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Let's say sales tax is 5 %. If you go to home depot and buy something for 1.00 you pay 1.05 at the point of purchase. You cannot charge the customer any more that 1.05. If you decide to then you have to collect sales tax on the mark up. This is why it is a good idea to get a sales and use tax certificate, you can set up a contractor account at home depot or lowes even Costco. They will not charge you sales tax on your purchases. Now you are free to mark up the product and collect the sales tax from the customer. You have to remember the government will always get their piece.
So the issue is not how the taxes ate being paid by the contractor, its them wanting to take a cut of my inflated pricing?!? How do I get around this?
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Old 01-03-2012, 10:29 PM   #12
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Exactly, they want their money. Better to give it to them the right way than have them tell you you owe them x amount in back sales tax collections and here is your fine.
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Old 01-03-2012, 10:32 PM   #13
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There are 2 choices, charge the customer what you paid for the parts and make up the profit in your labor number, labor for resi customers is non taxable, come to think of it your labor is taxable on commercial projects. If commercial work is in your portfolio you should have the certificate.
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Old 01-03-2012, 10:33 PM   #14
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Exactly, they want their money. Better to give it to them the right way than have them tell you you owe them x amount in back sales tax collections and here is your fine.
Man thats some crap right there!

I gotta find a legal way around this!
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Old 01-03-2012, 10:40 PM   #15
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Exactly, they want their money. Better to give it to them the right way than have them tell you you owe them x amount in back sales tax collections and here is your fine.
Not in Minnesota, lets say you pay $1.05 total with tax. You charge $1.25, the 20 cents is considered a handling charge and is not subject to sales tax. If you charge sales tax on your invoice, then you will have to send it to the state. This comes off the states web site.
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Old 01-03-2012, 10:41 PM   #16
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Let's say sales tax is 5 %. If you go to home depot and buy something for 1.00 you pay 1.05 at the point of purchase. You cannot charge the customer any more that 1.05. If you decide to then you have to collect sales tax on the mark up. This is why it is a good idea to get a sales and use tax certificate, you can set up a contractor account at home depot or lowes even Costco. They will not charge you sales tax on your purchases. Now you are free to mark up the product and collect the sales tax from the customer. You have to remember the government will always get their piece.
I disagree my invoice is a grand total it includes a description of the work done that is all you are required to do.

For example you do one job inside of one year and the grand total is $2,000 stock and expediences add up to $400 $1,600 is taxed as income.

You do not need to show the state what you charged for stock .
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Old 01-03-2012, 10:44 PM   #17
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He thinks that you are attracting an audit by not charging in dollars and cents for example $501.03 instead of $520.00 or $500 whether it is a myth or not the fact is you will be punished with an IRS audit sooner or later....

The IRS has nothing to do with State sales taxes....
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Old 01-03-2012, 10:45 PM   #18
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I disagree my invoice is a grand total it includes a description of the work done that is all you are required to do.

For example you do one job inside of one year and the grand total is $2,000 stock and expediences add up to $400 $1,600 is taxed as income.

You do not need to show the state what you charged for stock .
We, my friend live in Taxachusetts and this is exactly how it works here, I have spent countless hours slamming my head into the wall, er I mean on the phone with the mass department of revenue trying to sort this out. Connecticut does it the same way, that is where I learned a valuable business lesson. This is a sales tax lesson not an income tax one......
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Old 01-03-2012, 11:03 PM   #19
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In Minnesota, go to Sales Tax Fact Sheet 128
http://taxes.state.mn.us/sales/Docum...AT_1100087.pdf
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Old 01-03-2012, 11:17 PM   #20
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The IRS has nothing to do with State sales taxes....
IRS DOR same thing..

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