Question: State Sales Tax Paid

[Dr Batsen D Belfry]

All,

This is probably a very stupid question, but here is the scenario.

Suppose you have a Sub S Corp consisting of two owners, each holding 50% of the company, and one 1099 employee. Suppose the 1099 employee has genrated $50,000 in sales for the company, the company has paid $25,000 in COGS, and has paid $21,500 to the 1099 for COS, and has paid $3,500 to the state for sales tax collected. This leaves no money in the company.

Is there a $3,500 profit that has to be paid to the owners at this point, or is the state sales tax paid somehow deductible from the gross profits? If it is deductible, how?

Thanks,
DBDB

[F.Gordon]

1. It's not a stupid question

Sales tax is included in your Gross receipts...your Gross Income. It's included in your gross profits but deducted as a tax expense. It's a wash.

One thing. Be very careful with your 1099er (if this isn't a hypothetical question). They are not an employee. You should have a sub-contractor agreement with him/her. Intuit has some legal templates that you can use that won't cost you much and you don't have to hire an attorney.

You could be opening up a huge can of bad ass worms if you don't shield your S-Corp from the 1099er. My suggestion? Hire a CPA. Even if it's just to do your quarterly reports.

[Dr Batsen D Belfry]

2. Thanks for the advice

I have a CPA handling the accounting for our filing. My friend and I own the company, and we are running my wife's business (totally unrelated to ours) through our S-Corp paying her as a 1099. I am using Quikbooks and have everything separated into different sales and COGS categories to keep the two businesses separate. My wife only gets paid off her sales, and we get paid off ours.

We are spinning her business out into a separate S-Corp the first of the year, since she is making money hand over fist and my friend and I are not doing a damn thing in terms of sales with our business. We suck.

I went back and created an expense account for State Sales Tax Paid, and changed the category for the three checks cut to the state to that new account. Everything looks much much better B-)

Of course my accountant will tell me for sure.

Thanks,
DBDB

[F.Gordon]

3. Quickbooks has a default category for Sales Tax

Click on Vendors / Sales Tax / Pay Sales Tax. Have been using Quickbooks since it first came out in DOS form. Currently using Pro 2003.

You should setup a Sales Tax Item(s) in Quickbooks so the percentage is automatically calculated when you generate an Invoice. That way it's a no-brainer....just click on, as I've pointed out above when you pay your sales tax.

How come you think you "suck" at sales? Are you selling B to B? To the end user? Contract sales?

[Dr Batsen D Belfry]

4. Quickbooks, etc.

Thanks. We are using Quickbooks online. I have the sales tax taken care of in the invoice. I have the separate account for Sales Tax and it shows me right away what I owe. It works really well for what we do. My problem was that I wrote the check (in QB) and assigned ot to the wrong category so it wasn't being removed from Gross Profit. Now that I reassigned it, life is good.

We are using QB Online because I want to be able to work from anywhere, my business partner lives about 25 miles from here, and more importantly, I don't want the responsibility of running and backing up business critical stuff on my network. I know that last part sounds weird, but I am a full time software developer and part-time entrepreneur, and as such, I have to open my server up to clients. Don't want the business stuff on there.

As for sucking at sales, I used to be in sales and HATED it. With a PASSION. I am much more analytical and have had better success with software, business operations, etc than I have at marketing and sales. Our suckiness is mostly due to not having the time and energy to define and market our business.

DBDB