Have Fun Shopping But Don’t Forget The Taxman

Holiday shopping is almost over for many of us.  Okay, some may not have started.  As I listened to the news yesterday morning they continued to talk about shipping options to get your gifts to their destinations on time.  With the huge spike in online purchases this year shippers are quite busy.  I must say being relatively new to online retail it is darn hassle free.

In fact, I jumped on Amazon just last Wednesday and ordered a 25-foot printer cable for the office and got an email that it was delivered Saturday.  Wow, that was quick.  My computer guy said online may be the place to go to save some big bucks on that type of purchase.  Whoa!!  It is true I did same some funds on that purchase online.  BUT don’t forget you may owe Use Tax on your purchase.

Use Tax is a tax on purchases, it is a fancy name for sales tax.  So, on my $20 printer cable shipped to Lincoln (the point of delivery) I owe 7.25% Use Tax.  This is for businesses and for individuals.

As a business if you are subject to sales tax already it is included and calculated on form 10 for the state of Nebraska.  For an individual, it is put on form 1040N.

So, watch your purchases online, see if you are being charged Sales Tax.  If you are, you are likely okay.  If not, you will likely owe use tax on a taxable purchase.  While I agree currently this area is largely unregulated, as states struggle with revenue short falls it is certainly going to be an area of focus.

Typically, if the state you live in believes you have purchased items online and decides to audit you they will request bank record for up to 3 years and charge tax on everything they think should be taxed.  Sales and Use tax audits for a business are one of the more painful types of audits in my opinion, so I recommend avoiding them.

If you have questions about Use Tax please feel free to contact us at moneysmartsinc@gmail.com.

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