IRS Offers Free State Sales Tax Deduction Calculator

If you itemize your deductions, you may be in for a windfall on this years tax. Yep, Congress has renewed the optional sales tax deduction. Of course, you have to figure it out.

If you itemize your tax deductions, you already know that you can claim a deduction for the total state income taxes you paid during the year. Depending on your state, that can be a very large tax deduction. But what if you live in a state that doesn’t collect income taxes? For the last couple of years, you could claim a deduction for the total state and local sales tax you paid on your purchases. In fact, you can do this regardless of whether you live in a state that collects income tax or not.

The state sales tax deduction was set to expire at the end of the fiscal 2005 year. At the last minute, Congress renewed it. All and all, this is great news. One problem does exist, however. You need to figure out which deduction is going to be bigger, you state income tax or sales tax deduction. Well, the IRS is here to offer a bit of help.

The IRS has an excellent website. Yes, I am shocked to. Regardless, the agency is offering a free sales tax deduction calculator on the site. The beauty of the calculator is it already has the state and local sales tax rates built into the database. As a result, you don’t have to go hunt and peck for them.

People are often leery whenever the IRS offers anything free. In truth, the IRS has become much friendlier the last few years, just don’t ask someone being audited. Regardless, you can use the sales tax calculator without fear. All information is anonymous. The IRS records nothing regarding your personal information. They don’t even ask for it. In short, using it will not come back to haunt you!

If you itemize, it is in your best interest to determine whether the sales or income tax deduction will save you more money. Now you can use the free calculator provided by the IRS to make the determination quicker.

How Are Online Sales Taxed?

Sales and use tax rates can be confusing concepts for new and growing merchants on the internet, especially if they are on their very first e-commerce venture. But here is what you need to know: while no-tax shopping has become one of the major lures of online retailers, some Internet sales are subject to sales tax. Familiarize yourself with this topic, and learn reliable and effective Web-based tools like a sales tax calculator (or lookup) to be compliant and better equipped in computing and filing these taxes.

If an online merchant has an actual physical store, business office, or warehouse, sales tax must be collected from its customers in its particular state. A 1992 Supreme Court decision provides the basis for this: it ruled that mail-order merchants no longer need to collect sales taxes for sales into states where they have not established physical presence.

Now, here is the thing you have to understand about these rates. On the consumers’ front, those who live in a state that collects sales tax are technically required to pay tax even when an Internet-based merchant does not collect it. It is instead referred to as use tax when consumers are required to pay tax directly to the state. The only difference between the two is who’s going to pay to the state: the seller or the buyer.

In theory, use taxes are merely a backup plan, so to speak, to make sure that the state collects revenue on every taxable item purchased within its territory. But since it is too much work to collect use tax on small purchases, states have attempted to collect them only on “big-ticket” items or valuable purchases like boats and cars. This may soon be changing, though – a reevaluation of use tax collection is on its way for many US states.

Innovative, regularly updated Web services on sales and use tax lookup can be used and integrated with websites and online applications, serving as an instant calculator for every tax jurisdiction in the United States and Canada. Availing yourself of these tools saves you time and resources, and offloads having to keep up with state tax and postal code changes. Accuracy and reliability is also enhanced, with standardized addresses that translate to more precise calculations.

As for more information on sales and use tax rates, visit the Sales Tax Institute and the Streamlined Sales Tax Governing Board for better insights.

Paying Online Sales Tax Doesn’t Have to Cost a Fortune

Almost all tax payers would say that the process of paying taxes is one of the most tedious and less-liked activities that they can imagine and paying sales tax for an online business is not exempted from the common misconception. When the issue pertaining to taxes and your online business arise, you usually take it negatively which would in turn end up in a negative note. However, if you decide to change the way you think and turn your negative approach to a positive one, then you would surely realize that paying online sales tax is not a taxing job at all.

Online business owners or e-tailers are commonly complaining about online sales tax primarily because they don’t clearly understand and grasp the meaning, scope and limitations of the law and regulation that pertains to it. If you want your online business to boom and prosper, you should have the initiative to gain as much knowledge as you can about taxes and online businesses.

Be Aware Of Taxability And Exemptions

You should be aware that not all services or products are taxable or taxed in the same way as other services and products are. Furthermore, the taxability of some products also differ from state to state. There are also exemptions based on how the product is used as well as who uses them. An example to this would be schools and non-profit organizations – these kinds of institutions may not be required to pay sales tax if they avail any of your products or services.

Take note that exemptions require clear and concise documentation.

Consider State Sourcing Rules and Validate Addresses

There are more or less 12,500 tax regions in the United States and for you to come up with an accurate sales tax calculation, you have to identify and validate the “roof top address” and then apply it to the exact set of sales tax rates of that certain transaction. You must remember that the rate of the sales tax applied to a sale or purchase may be made up of a country sales tax, a state sales tax, a city sales tax and other special taxing jurisdictions.

The so-called “roof top address” is very important is because it serves as a warning that one household in a neighborhood can have a different sales tax rate that its neighbor, if it is located physically in a different zone already.

Use Tax

Consumer use tax or use tax is a kind of tax that pertains to the using, consuming, storing and sometimes distribution of personal tangible property. Aside from that, it can also be applied to services which are taxable. For short, you will need to pay use tax in a state where that “usage” occurs. A clear example for this would be: you bought a pair of shoes over the Internet and you did not pay any tax to the seller. However, you used those pair of shoes in your state, so you are subject to pay your state the use tax.

As an online business merchant, the above mentioned tips and guidelines are just few of the other tips and guidelines that you need to learn. Taxes and your online business should work together, if you want you business to become successful.

How to Quickly Calculate Sales Tax

In the store, you will often see people pull out a calculator as they try to determine what the sales tax will be on an item. However, if you do not have a calculator or wish that you could calculate sales tax manually, I am going to show you how to figure sales tax in your head very quickly.

I recall being out at an appliance store with my friend Mary a few months ago as she was looking into buying a new refrigerator. Her goal was to buy a refrigerator under $1,000 dollars. At the store she spotted a beautiful model that I had not seen before but the price was $950 dollars.

Mary, excitedly, said, “This is it. This is the one that I am going to go with.”

“But,” I protested, “this refrigerator will cost you over a thousand dollars with the sales tax.”

Mary, like many of us in this situation, was not factoring in the tax on the item. And obviously, the bigger the price of the item, the larger the sales tax is going to be. So, how can we teach Mary and others to quickly calculate this taxes in their head?

Well, it is rather easy to determine the tax manually if we use what I will call the “rule of 10 percents”.

The “rule of 10 percents” allows us to quickly estimate sales tax without the need for a calculator. We can use this rule to easily come up with a number that will be very close to the actually tax of an item. And, if we want to be very precise, we can use this rule to get the number almost exactly.

Let’s have a look at how this system to quickly determine what the final coast will be. When Mary and I went out to buy the refrigerator, we were in California which has the highest state tax at 8.25%. With our 10% rule, we can quickly estimate that 10% of the $950 refrigerator would be $95 simply by moving the decimal point over one spot to the left. To get more specific, since California is at 8.25%, we can attain the value of each 1% simply by taking 10% of the 10%, which would be $9 (we won’t factor cents in this equation as it makes it easier).

Thus, we now know that 10% of the refrigerator is $95 and 2% of the refrigerator is $18. If we subtract $18 from $95, we arrive at $77, which represents an 8% total.

If we want to go further and calculate to a near exact amount (the.25%), we can say that 10% of the 1% would be 90 cents. If we multiply that by 2.5, we arrive at a figure of $2.25. Now, let’s add that to the 8% amount of $77 and we arrive at a total of $79.25.

When we use a calculator to figure the tax on this item, we can see that our manual sales tax calculation brings us to within $1 of the actual sales tax of $78.38.

So, the next time that you do not have a calculator, do not fear. Simply use this “rule of the 10%” to quickly calculate sales tax manually.

As a footnote, Mary bought the refrigerator anyway.