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How to charge tax for your online business

by RollSolo
9 replies
Hi all,

My long time friend and now business partner has started a marketing agency. We've been in business for a little over 6 months now. We were curious how we would charge tax for our clients for packages that we sell. We live in NY state and plan to conduct business here and around the united states, and world as we expand.

For now we do not have an official LLC. That is in the works. Do we just not charge tax? We've been meeting clients, have all our paper work, business plan, packages/ services completed. We're just concerned about tax because we really don't want to sell ourselves short, nor overcharge.

All help appreciated.
#business #charge #online #tax
  • Profile picture of the author Sid Hale
    You didn't say, explicitly, but it sounds like you are selling business-to-business (B2B) rather than business-to-consumer (B2C).

    If so, 1) collect a Tax ID from each of your customers, and 2) charge no sales/use tax
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  • Profile picture of the author Christyjohnson Johnson
    As you said you are expanding the business all over the world, In other countries If you sell any item the tax have to pay by the customer.
    eg, If you selling any product in online ( Physical or Digital ) the customer have to pay tax to the government when he swipe the credit card or PayPal account.
    eg, the item price is $40 customer have to pay $3 extra for tax total = $43



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    • Profile picture of the author Sid Hale
      Originally Posted by Christyjohnson Johnson View Post

      In other countries If you sell any item the tax have to pay by the customer.
      Just not true. As a U.S. based company, you are registered to collect/remit sales/use taxes ONLY in the jurisdiction where you have nexus (physical presence i.e. in your case, probably NY). Not only are you NOT liable for taxes on product/services sold in Ohio (or any other state), you are also NOT liable for taxes for sales in foreign countries.

      When you sell to a customer outside the US,
      eg, If you selling any product in online ( Physical or Digital ) the customer have to pay tax to the government when he swipe the credit card or PayPal account.
      eg, the item price is $40 customer have to pay $3 extra for tax total = $43
      This is generally also not true. The European Union has recently ruled that businesses are liable for taxes due in the buyer's country (rather than the seller's country), but it's questionable whether the EU has the ability to legally enforce that ruling in a non-EU country.
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  • Profile picture of the author Rose Anderson
    I know you don't want to hear this -- but the safest thing you can do is talk to an accountant.

    Sales tax is not required for many services.

    HOWEVER, this varies from state to state and even within counties and cities.

    Talking to a professional might save you a lot of money and anguish in the future.

    Rose
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  • Profile picture of the author Wile E Coyote
    I know you came here for quick advice or to curb a concern you both may or may not have so you can rest easy... BUT...

    Most Warriors here don't have a clue about tax law, and tax law varies from state to state. If you're not a legal business entity, or even in a legal partnership, you should seek legal advice from an attorney.

    It's going to cost you, but you're going to have to have all of these things in place, especially if you're doing any kind of volume or business with other businesses where any disputes could pop up.

    However, basic tax follows this formula: (Income - Expenses = Taxable Income)

    So, let's say you collect the fee of $5,000 for a client. There is no additional expense for the services you provide. You split the fee with your partner 50-50.

    You will be taxed in the amount of $2,500 ($5,000 - $2,500) and your partner will be taxed in the amount of $2,500 ($2,500 - $0).

    The issue is ultimately going to be if you're doing bigger amounts, this stuff probably isn't going to fly in an audit situation
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    • Profile picture of the author rhealy29
      Originally Posted by Wile E Coyote View Post

      I know you came here for quick advice or to curb a concern you both may or may not have so you can rest easy... BUT...

      Most Warriors here don't have a clue about tax law, and tax law varies from state to state. If you're not a legal business entity, or even in a legal partnership, you should seek legal advice from an attorney.

      It's going to cost you, but you're going to have to have all of these things in place, especially if you're doing any kind of volume or business with other businesses where any disputes could pop up.

      However, basic tax follows this formula: (Income - Expenses = Taxable Income)

      So, let's say you collect the fee of $5,000 for a client. There is no additional expense for the services you provide. You split the fee with your partner 50-50.

      You will be taxed in the amount of $2,500 ($5,000 - $2,500) and your partner will be taxed in the amount of $2,500 ($2,500 - $0).

      The issue is ultimately going to be if you're doing bigger amounts, this stuff probably isn't going to fly in an audit situation
      I believe the OPs question was about collecting taxes from his customers, not on taxation of his own income.

      OP, the correct answer, as some above have said, is that you should talk to an accountant and find out exactly what you need to collect. It'll cover your own ass in the long run.
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  • Profile picture of the author Kay King
    It is amazing to me that people in other countries would try to answer a question about taxes in the US.

    Do you need to build post count that badly???
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    • Profile picture of the author Sid Hale
      Originally Posted by Kay King View Post

      It is amazing to me that people in other countries would try to answer a question about taxes in the US.

      Do you need to build post count that badly???
      No...

      What she really needs is to have the paid banner in her sig file seen, which means she feels compelled to supply an answer on every post she can so that her replies are always found in the recent posts.
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      • Profile picture of the author pawandave
        Banned
        Yeah, it is as per law the country you live in. Try to contact fellow country marketer who is already paying tax or contact some CA or tax consultant
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