A word about taxes.
When working on your business, make sure that you are
prepared to conduct a lot of administrative tasks to include paying taxes. For
federal taxes, this means filing quarterly estimated taxes. This quarterly
estimated tax depends on your total income all your sources of income including
full time jobs and businesses. This tax is also figuring FICA, Medicare and any
profits your business earns (total sales minus expenses).
Managing taxes is sometimes and easier endeavor when
filing as a sole proprietary entity, especially where state jurisdictions are
concerned. In these cases, tasks will pull you from your primary business roles
to handle mundane but important administration. So, before you decide to form
an LLC or other incorporated entity, do your research up front. For example, I
just recently converted my business into an LLC. Red Bike Publishing, LLC has a
new structure and is expected to maintain that structure according to the
Alabama's State Department. Tax and business entity rules vary according to
where the business is formed as each state has its own requirements. In
Alabama, a business must pay $100 per year, regardless of whether or not the
business makes any money. This is called the business privilege tax (BPT). Yes,
it's a tax as Alabama assessed for allowing my company to perform business
here.
Red Bike Publishing, LLC only has to pay $100 per year
because it does not exceed the multimillion dollar sales threshold. If we did
make that kind of money, we would have to pay $200 per year, at least that's
how the tax office justified it. Also in
Alabama, LLC and incorporated business entities must file sales taxes monthly
or face a penalty, regardless of whether or not the business actually makes
sales in Alabama. File a day late and a $50 penalty is incurred. It is the
business' responsibility to track sales and collect local and state taxes. For
internet businesses like Red Bike Publishing, INC, our sales are out of state,
but we still have to file $0.00 or face penalties and fines.
While maintaining a sole proprietor business, Red Bike
Publishing did not have to worry about the BPT. But as soon as the corporation
was formed, Red Bike Publishing, LLC not only owed the tax, but also owed two
months of late fees since it took two months to get records back from the state
and set up an online tax account. By the time we filed our first $0 sales tax
return, we owed almost $200 in fines. Fortunately the state was understanding
and agreeable to waive the late fees. Another comparison is that LLCs are also
responsible for filing property tax on all office equipment and supplies on
hand; not a requirement for sole proprietorships.
What does this mean for an internet business?
As a publisher, you might be set up to do business in
state and pay the privilege of doing business tax. Even though you might not
have physical store, your responsibility is to collect state and local taxes
from local customers and those located in state. To do this, simply select the
sales tax options on your shopping carts or other payment collection options.
Some software will allow you to charge varying rates based on selected zip
codes. For example, for anyone in my area of zip codes who buys my books
online, I must charge county tax, city and state tax. Anyone from outside of
the local area, but within the state, is only required to pay state tax. Anyone
purchasing from outside of the do not pay these taxes.
When not to pay sales tax
If you plan to order books and provide to book stores
within your state or locality, do not charge sales taxes. These taxes should be
charged by the resellers to their customers. The same logic applies if
providing books to authors for resale. Uniform Sales and Use Tax Certificate
Red Bike Publishing, LLC sells primarily through internet
book stores. These stores are responsible for collecting taxes. We do allow
customers the option to buy from us directly. When we fulfill the orders, we
submit them through our printers and distributors (Lightningsource and
CreateSpace) for print and delivery. The printers charge for the service, print
and deliver to the customer. Recently CreateSpace has charged state sales taxes
on orders shipping to certain states. This is because CreateSpace has
distribution and printing services in states that charge them sales tax. This
sales tax will be charged to the publisher as the customer unless the publisher
files for exemption with CreateSpace. If the books are going for resale, the
cost should be tax exempt. If going to a final customer, you should be aware of
the sales tax and program it into your price for future sales. Again, this can
be done through the shopping cart.
Jeffrey W. Bennett, ISP is the owner of Red Bike Publishing. Jeff is an accomplished writer of non-fiction books, novels and periodicals. He also owns Red bike Publishing. Published books include: "Get Rich in a Niche-Insider's Guide to Self Publishing in a Specialized Industry" and "Commitment-A Novel". Jeff is an expert in security and has written many security books including: "Insider's Guide to Security Clearances" and "DoD Security Clearances and Contracts Guidebook". See Red Bike Publishing for print copies of: Army Leadership The Ranger Handbook The Army Physical Readiness Manual Drill and Ceremonies The ITAR The NISPOM
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