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Hi Victor and welcome to our site,
- if we are talking about income tax - you are correct - you will include $5 into your gross income,
then - you deduct all costs - including $2 purchase cost and all costs you paid for materials and labor cost you paid to others - assuming $1.8,
then - you will have net business profit $1.2 - and THAT amount will be included into your net self-employment income - subject to income tax and self-employment tax.
Do not deduct the value of your personal labor as you do not actually pay yourself.
For SALES tax purposes - we need to use the sale price - and you charge customers $5 plus sales tax as a percentage of the sale price.
Sales taxes are paid by the buyer - and are based on the total sale price.
None of your expenses are considered.
If you are selling to the customer for $5.75 - the sale tax is calculated based on THAT amount.
When you sell goods - the sales tax is based on teh SALE PRICE - regardless how you come-up to this amount.
You will be required to collect the sale tax from customer sand remit to taxing authorities/
When you buy blank t-shirts - you should provide the re-seller certificate - and should not pay sales tax.
That makes NO difference HOW you structure you fee and how your fee is reflected in your invoice.Sales tax are applied to TOTAL sale price - that includes all your charges.By breaking down your sale price - you would not be able to avoid or reduce the sales tax amount.
Many sellers believe there is a general exemption from sales tax for labor charges. However, in California many types of labor charges are subject to tax. Tax applies to charges for producing, fabricating, or processing tangible personal property for your customers.
Sorry if you expected differently.
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