I know you are not my accountant.
December 4, 2010 3:28 PM Subscribe
As a one-person S-Corp that has only purchased approximately $400 worth of business supplies from Amazon.com throughout 2010, how likely am I to get audited over the sales tax issue?
The $400 worth of office supplies was purchased with my business credit card, as they are (mostly) legitimate office supplies. Maybe a few items (less than $15 worth, total) were added to the cart just to bump it into "free shipping" territory on a couple occasions.
The thing is, I spoke to my accountant, and he made a big deal about getting audited over the fact that amazon doesn't charge sales tax. He says the form for listing sales tax isn't available yet, but that by April, I'll have to list each purchase made on Amazon in 2010 for my business, and pay the sales tax for it, or I have a high risk of being audited.
I said "okay, I bought $400 worth of stuff. You can just put it on the forms, and I'll pay the taxes on it." And he said I'd have to give him the receipts for all of it, and list each item purchased. (!)
I don't really want to go through and to write down all the purchases, (including the five dollar sunglasses case I added to my cart) and admit it wasn't a real business expense. And I don't want to have to fill out tons of forms.
So my question is two part:
1. Is sales tax on $400 (like, forty bucks of taxes tops,) a real risk for an audit, or is my accountant being overly-persnickety? and
2. I'd be willing to just reimburse my company business account with a personal check for the $400, even though the purchases were 98% for business supplies, if it gets me out of this. Would that take care of it?
(Please no snark-- my taxes are otherwise totally on target and honest. I'm just annoyed by this nit-picky stuff, since I'm mystified by how the whole process works anyway.)
The $400 worth of office supplies was purchased with my business credit card, as they are (mostly) legitimate office supplies. Maybe a few items (less than $15 worth, total) were added to the cart just to bump it into "free shipping" territory on a couple occasions.
The thing is, I spoke to my accountant, and he made a big deal about getting audited over the fact that amazon doesn't charge sales tax. He says the form for listing sales tax isn't available yet, but that by April, I'll have to list each purchase made on Amazon in 2010 for my business, and pay the sales tax for it, or I have a high risk of being audited.
I said "okay, I bought $400 worth of stuff. You can just put it on the forms, and I'll pay the taxes on it." And he said I'd have to give him the receipts for all of it, and list each item purchased. (!)
I don't really want to go through and to write down all the purchases, (including the five dollar sunglasses case I added to my cart) and admit it wasn't a real business expense. And I don't want to have to fill out tons of forms.
So my question is two part:
1. Is sales tax on $400 (like, forty bucks of taxes tops,) a real risk for an audit, or is my accountant being overly-persnickety? and
2. I'd be willing to just reimburse my company business account with a personal check for the $400, even though the purchases were 98% for business supplies, if it gets me out of this. Would that take care of it?
(Please no snark-- my taxes are otherwise totally on target and honest. I'm just annoyed by this nit-picky stuff, since I'm mystified by how the whole process works anyway.)
Is sales tax on $400 (like, forty bucks of taxes tops,) a real risk for an audit, or is my accountant being overly-persnickety?
That's the wrong question. It's really: "Is a $400 deduction worth the risk of an audit?"
posted by sbutler at 4:31 PM on December 4, 2010
That's the wrong question. It's really: "Is a $400 deduction worth the risk of an audit?"
posted by sbutler at 4:31 PM on December 4, 2010
You're fine. Office supplies are a legit business expense. You don't have to list on your tax return where you bought them, just the dollar amount. $400 worth of office supplies is not going to raise any eyebrows or set off any alarms.
posted by spilon at 4:35 PM on December 4, 2010 [1 favorite]
posted by spilon at 4:35 PM on December 4, 2010 [1 favorite]
$400 is unlikely to cause any problems. For the folks playing at home, however, I will point out that a business can be charged for failing to pay use tax (use tax is the flip side of sales tax - sellers are obliged to charge sales tax, but if they don't, businesses are obliged to pay use tax).
A friend of mine got audited and they determined she didn't pay use tax on medical equipment (as in, all the stuff she furnished her office with - $100,000+ worth), and sure enough, that turned out to be a lot of tax.
As another nicety here - doing something like this doesn't CAUSE an audit; it just becomes a problem IF you get audited. My friend didn't get tagged on this until 5-7 years after she bought the stuff.
However, another thing about this - Amazon charges me state sales tax when I buy stuff. Are you sure you paid no sales tax?
posted by randomkeystrike at 6:33 PM on December 4, 2010
A friend of mine got audited and they determined she didn't pay use tax on medical equipment (as in, all the stuff she furnished her office with - $100,000+ worth), and sure enough, that turned out to be a lot of tax.
As another nicety here - doing something like this doesn't CAUSE an audit; it just becomes a problem IF you get audited. My friend didn't get tagged on this until 5-7 years after she bought the stuff.
However, another thing about this - Amazon charges me state sales tax when I buy stuff. Are you sure you paid no sales tax?
posted by randomkeystrike at 6:33 PM on December 4, 2010
Amazon lets you go through your old purchases. Just print out the reciepts (or the invoices in your email) and hand them to the accountant. Seems like that's all you need to do.
I really don't understand what the conflict here is.
posted by gjc at 6:54 PM on December 4, 2010
I really don't understand what the conflict here is.
posted by gjc at 6:54 PM on December 4, 2010
People pay for personal stuff through their S-corps on a regular basis. It's okay. You're not supposed to put it in as a business expense, but if it's small, seriously, it's not a big adjustment to make or a material change in your financials or your tax return. And the difference here is $15, not $400. I would give my accountant the stuff from Amazon, have them set the personal stuff up as a receivable, cut a $15 check to the business, have everything right.
That said, you are entitled to a more thorough explanation than you seem to have gotten of how your state handles this, including what kind of form they're going to be filing, how much the compensating tax is (this is the term for it in the state where I've done this, anyway), and so on. Talking about it not happening until April confuses me because so far as I can tell, this is nothing that should touch your personal return. Nobody audits this crap for personal returns so far as I've ever heard. It's just businesses, because businesses are more likely to make very large purchases out of state to get around the state sales taxes, and states want that revenue. (The application to purchases like this is just a side effect.) If your accountant is telling you that they literally cannot file the appropriate paperwork without all of this extra info, I would be questioning what they were telling me, because the state is extremely unlikely to care if you have receipts until they audit. At which point that's your problem, not your accountant's problem.
But since all of this can be handled properly for a $15 transfer into your business account and whatever the compensating tax is on $400ish worth of business supplies, I would just do the right thing. And don't feel bad. Again, lots of people make personal purchases through their businesses, frequently in muuuuch larger quantities.
If you need any clarification of this or your accountant tells you anything else you need to know about, you can feel free to MeMail me. I might not have done it in your state, but I've done comp/sales tax stuff enough to have a good general idea of how it all works.
posted by gracedissolved at 7:12 PM on December 4, 2010 [1 favorite]
That said, you are entitled to a more thorough explanation than you seem to have gotten of how your state handles this, including what kind of form they're going to be filing, how much the compensating tax is (this is the term for it in the state where I've done this, anyway), and so on. Talking about it not happening until April confuses me because so far as I can tell, this is nothing that should touch your personal return. Nobody audits this crap for personal returns so far as I've ever heard. It's just businesses, because businesses are more likely to make very large purchases out of state to get around the state sales taxes, and states want that revenue. (The application to purchases like this is just a side effect.) If your accountant is telling you that they literally cannot file the appropriate paperwork without all of this extra info, I would be questioning what they were telling me, because the state is extremely unlikely to care if you have receipts until they audit. At which point that's your problem, not your accountant's problem.
But since all of this can be handled properly for a $15 transfer into your business account and whatever the compensating tax is on $400ish worth of business supplies, I would just do the right thing. And don't feel bad. Again, lots of people make personal purchases through their businesses, frequently in muuuuch larger quantities.
If you need any clarification of this or your accountant tells you anything else you need to know about, you can feel free to MeMail me. I might not have done it in your state, but I've done comp/sales tax stuff enough to have a good general idea of how it all works.
posted by gracedissolved at 7:12 PM on December 4, 2010 [1 favorite]
GJC has a good point. The nice thing about buying your stuff through Amazon is that it provides a nice traceable listing of purchases. (Of course, this could work against some buyers.)
On the sales tax / use tax issue: Generally, sales tax is charged by sellers who have a place of business in your state. If you buy a widget from a seller in a different state, who has no place of business in your state, you do not owe sales tax on that purchase. To make up the shortfall, many states impose a "use tax" in the same amount on any purchases from out of state sellers.
The difference? The seller is obligated to charge the sales tax and remit it to the state. Use tax is payable by the buyer, who has to report it and pay it. Most often, she doesn't.
posted by megatherium at 7:17 PM on December 4, 2010
On the sales tax / use tax issue: Generally, sales tax is charged by sellers who have a place of business in your state. If you buy a widget from a seller in a different state, who has no place of business in your state, you do not owe sales tax on that purchase. To make up the shortfall, many states impose a "use tax" in the same amount on any purchases from out of state sellers.
The difference? The seller is obligated to charge the sales tax and remit it to the state. Use tax is payable by the buyer, who has to report it and pay it. Most often, she doesn't.
posted by megatherium at 7:17 PM on December 4, 2010
This is really the wrong question.
I used to audit sales and use tax for jurisdictions in Louisiana, and now I'm on the other side of the table. But obviously this is not tax advice.
States are getting really hungry for cash, and they're upping sales tax audits because use tax is a giant hole in compliance that is undertapped.
If you are registered, or even just have an internet presence, it's possible you'll be audited.
By having the proper invoices all ready on hand, use tax paid without prompting, you get a certain amount of goodwill. The Tax Director is less likely to sign off on the audit because you look like small fry. And if an auditor does get a hold of your file, they're likely to see a company that is far ahead of many major corporations, and go about their merry way. Because it looks bad on them to waste a weeks worth of time on an audit with zero findings.
And if the carrot pitch didn't sell you, here is the stick:
You don't want to bother with penalties and interest. While it is usually just a portion of the taxes due, many jurisidictions have written into their code that the cost of the audit can be billed back to the taxpayer. I've seen bad audits that get passed down from one auditor to another with thousands of dollars in billings, either due to laziness, poor workmanship, or just doing a lot of research to find that no tax is due. They try and sweep it under the rug, so it starts again with another auditor two months after they've left for a better job.
The shenanigans that can happen when you are dealing with a government contractor can become quite embarrassing. And that's partially another story, but also a cautionary tale. Make it clear there are no use tax liabilities and you'll do the best you can to avoid the hazards of a long and sticky process.
posted by politikitty at 10:34 PM on December 4, 2010
I used to audit sales and use tax for jurisdictions in Louisiana, and now I'm on the other side of the table. But obviously this is not tax advice.
States are getting really hungry for cash, and they're upping sales tax audits because use tax is a giant hole in compliance that is undertapped.
If you are registered, or even just have an internet presence, it's possible you'll be audited.
By having the proper invoices all ready on hand, use tax paid without prompting, you get a certain amount of goodwill. The Tax Director is less likely to sign off on the audit because you look like small fry. And if an auditor does get a hold of your file, they're likely to see a company that is far ahead of many major corporations, and go about their merry way. Because it looks bad on them to waste a weeks worth of time on an audit with zero findings.
And if the carrot pitch didn't sell you, here is the stick:
You don't want to bother with penalties and interest. While it is usually just a portion of the taxes due, many jurisidictions have written into their code that the cost of the audit can be billed back to the taxpayer. I've seen bad audits that get passed down from one auditor to another with thousands of dollars in billings, either due to laziness, poor workmanship, or just doing a lot of research to find that no tax is due. They try and sweep it under the rug, so it starts again with another auditor two months after they've left for a better job.
The shenanigans that can happen when you are dealing with a government contractor can become quite embarrassing. And that's partially another story, but also a cautionary tale. Make it clear there are no use tax liabilities and you'll do the best you can to avoid the hazards of a long and sticky process.
posted by politikitty at 10:34 PM on December 4, 2010
Hey OP - I know this is a little old, and a few folks have answered, but some addressed the sales/use tax side while others commented on the federal tax deduction side, and I thought it might help to clarify. You're dealing with two separate issues and tax returns: 1) paying sales/use tax to your state on purchases you bought online, and 2) receiving a deduction that's greater then what you're entitled to on your business's federal tax return since a portion of your purchases were really for personal use.
So my question is two part:
1. Is sales tax on $400 (like, forty bucks of taxes tops,) a real risk for an audit, or is my accountant being overly-persnickety?
Though I'm not YOUR accountant, and not familiar with what state you're operating in, chances are your state charges a sales/use tax on purchases bought online or out of state and then brought back into the state for use. The classic example of this is when someone buys a car or boat in a state without sales tax and then ships it home to a state that DOES have sales tax. When you go to register the vehicle, it would give the state the opportunity to check if the use tax had been remitted. If not, they'd likely bill you for it, plus penalties and interest. I think the chances of the state finding out about your relatively immaterial Amazon purchase and taking the time to pursue the use tax on it is slim to none. Your accountant is being overly-persnickety.
I'd ask why he/she thinks the risk is so high. It could be, as others suggested, that your accountant wants you to comply with this cheap and easy to remit tax so that if you do get audited for something larger you can show that you've been attempting to play by the rules. BUT, if you're paying by the hour, the cost of having the return completed may be more trouble then it's worth.
2. I'd be willing to just reimburse my company business account with a personal check for the $400, even though the purchases were 98% for business supplies, if it gets me out of this. Would that take care of it?
To be clear, even if you reimburse the company for your Amazon purchase, you'd then personally owe the use tax, but, this part of your question deals more with taking a business deduction for something that's partially a personal purchase. If you were running loads of personal meals, electronic purchases, etc. through the business this could raise a red flag, but for the $15 of personal items out of the $400 you purchased? In my book that's close enough for government work...
posted by MediaMer at 7:24 AM on December 11, 2010
So my question is two part:
1. Is sales tax on $400 (like, forty bucks of taxes tops,) a real risk for an audit, or is my accountant being overly-persnickety?
Though I'm not YOUR accountant, and not familiar with what state you're operating in, chances are your state charges a sales/use tax on purchases bought online or out of state and then brought back into the state for use. The classic example of this is when someone buys a car or boat in a state without sales tax and then ships it home to a state that DOES have sales tax. When you go to register the vehicle, it would give the state the opportunity to check if the use tax had been remitted. If not, they'd likely bill you for it, plus penalties and interest. I think the chances of the state finding out about your relatively immaterial Amazon purchase and taking the time to pursue the use tax on it is slim to none. Your accountant is being overly-persnickety.
I'd ask why he/she thinks the risk is so high. It could be, as others suggested, that your accountant wants you to comply with this cheap and easy to remit tax so that if you do get audited for something larger you can show that you've been attempting to play by the rules. BUT, if you're paying by the hour, the cost of having the return completed may be more trouble then it's worth.
2. I'd be willing to just reimburse my company business account with a personal check for the $400, even though the purchases were 98% for business supplies, if it gets me out of this. Would that take care of it?
To be clear, even if you reimburse the company for your Amazon purchase, you'd then personally owe the use tax, but, this part of your question deals more with taking a business deduction for something that's partially a personal purchase. If you were running loads of personal meals, electronic purchases, etc. through the business this could raise a red flag, but for the $15 of personal items out of the $400 you purchased? In my book that's close enough for government work...
posted by MediaMer at 7:24 AM on December 11, 2010
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posted by PhoBWanKenobi at 3:42 PM on December 4, 2010 [1 favorite]