Have a Tax Question? Ask a Tax Expert
Hi. My name is ***** ***** I will be happy to help you.
Unless you plan to resale items or other inventory subject to sales tax in your state, you normally do not need to charge sales tax or get the ID. But every state has its own rules and laws so I would suggest to call your state department of revenue business department to check what's your state's requirements. Generally, you don't need to charge sales tax on sale discount cards.
Now, regarding tax reporting. If you run your business as sole proprietor or create single member LLC, you will report business income and expenses on your personal tax return, Schedule C. You will report the entire proceeds from the sale as your income and than you will claim deduction for the portion of the sale you pay back to business. You will only be taxed on NET profit.
Every business has some general expenses like travel, legal fees, business permits, supplies, business use of home and such and many business has unique expenses associate only with this type of business. You want to do some research online or talk to people in your business to find out about some expenses you may not think about.
Here's link to Schedule C, form you will be using to file your tax return. The most common business expenses are already listed, all other expenses will be listed in the "other Expenses" section.
Can you be more specific about the question? You asked about the sales tax and how to file claim it on your tax return.
Ok. Your question is posted in Tax category. I addressed the sales tax portion of the question and I addressed the reporting of income and how to account for the discount you pay back. What else I didn't answer?
What kind of taxes are you talking about? Sales tax or income tax?
Generally, there's no sales tax when you purchase discount card for resale, however sales tax is regulated by every state individually. You have to check with your state tax department business division what permits you need in your state for resale and if you need to pay sales tax in your particular case.
In most state you are not required to charge sales tax if you sale financial products or equivalents like gift cards discount cards.
For reporting your income, you will use Schedule C. Schedule C is your "profit and loss" statement for your tax reporting. You will have to report ALL money you received and than you can deduct what you paid back to businesses along with your other deductions. I am going to copy what I said in my previous post:
Sale - expenses = taxable NET profit.
CPA can help you with accounting issue and some tax issues but a good tax professional are usually more helpful when it comes to tax reporting.
CPAs usually don't have time to sit down with a client and dig for additional deductions while a good tax pro will ask you lots of questions to find every possible deduction you are entitled to.
The least expensive way is to do it as sole proprietor, if you need additional protection from creditors, you can consider single member LLC. Good record keeping is essential. The biggest problems most small business clients have that they don't keep good records of income and expenses. Make sure you have a separate bank account and/or credit card for business. It doesn't have to be under business name, it can be under your name. Make sure you keep your personal and business expenses separate.
There are some excellent books for small business owners with lots legal and tax information. I particularly like this one: http://www.amazon.com/Savvy-Small-Business-Frederick-Daily/dp/141331760X
and here's another good one: http://www.amazon.com/Deduct-It-Lower-Small-Business/dp/1413319211/ref=pd_sim_14_1?ie=UTF8&dpID=51oHUHE2Q2L&dpSrc=sims&preST=_AC_UL160_SR124%2C160_&refRID=080R1YX6HA5M53BSK49T
I personally own both of them.
On your initial return you will be able to deduct star up expenses up to $5000 for licenses, permits and other start up costs.
If you pay percentage of sale back to the company the transaction is not considered a SALE. The company may use different names for it but it is sort of royalty or commission. There's no sales tax on commission or royalties.
You can deduct all taxes you paid, except federal income tax.
Since you will purchase the cards for resale, you will treat is as inventory. You will have to separate the cost of the cards (cost of goods sold) and sales tax and deduct it separately. All reasonable expenses, including legal expenses and taxes are deductible.
Any questions? Is there anything else I can help you with today?