Last week, I shared how I buy a shock each April 15th by the quantity of phone calls my workplace gets from the general public looking for help with filing an extension. This April fifteenth didn't disappoint!
Several of the callers knew they required a federal extension, but they weren't invariably certain about the state extension. Of course, the callers knew if they required to file an extension for the state they lived in, but my team also asked them about different states and therefore the response was usually silence.
This part of April fifteenth does not shock me as a result of I'm constantly asking prospects and new shoppers regarding their state tax obligations and the response is often uncertainty.
A lot of Than Just State Income Tax - State taxes typically come in 3 forms:
Property tax
Sales tax
Income tax
Many business house owners (and real estate investors!) get into trouble by not even realizing they are not complying with the state tax laws. Here is a very common scenario I see time and time again.
A couple has been investing in rental land in their home state for many years. They branch out and buy a pair of new rental properties in a neighboring state. The couple knows they need to pay property taxes within the neighboring state and that they have to file a state income tax come back within the neighboring state. The couple thinks they have their state taxes covered.
Not so. Primarily based on the higher than list, the couple has covered the property tax and income tax, however not the sales tax. And yes, several states have a sales tax on rental receipts. This couple was in one of these states.
The Scariest Part of State Taxes - The scariest half of state taxes is the huge accumulating expense that comes with non-compliance.
With this couple, the 2 new properties were during a state that had a 5% sales tax on rental receipts. The couple never knew regarding it, so they never collected it from their tenants. The state caught up with them 3 years later and required them to file sales tax returns for the past three years.
Here's how it added up: The monthly rents for the 2 properties averaged $three,000. At 5%, the monthly sales tax due was $150. This totaled to $one,800 every year, thus for the three years, the couple owed $five,400. And with penalties and interest the grand total was over $vi,500!
The great thing about sales tax is it can be capable to your customer (or tenant), so you are allowed to collect it from your client and remit it to the state. But, if you do not know you are suppose to gather it and don't collect it, it does not mean you're off the hook. In this example, you have to return up with the money yourself.
This couple had an unexpected sales tax bill of over $6,500. Fortunately, they had the funds to pay the bill but it significantly hampered their ability to continue their real estate investing as they planned.
The Answer - The answer for this couple is very simple. Collect the sales tax from their tenants and remit it timely. It will be a rich lesson to be told and I see too many folks learn it the laborious way.
I get a shock each April fifteenth by the quantity of phone calls my workplace gets from the general public wanting for facilitate with filing an extension. This April fifteenth did not disappoint!
Author Resource:
Riley Jones has been writing articles online for nearly 2 years now. Not only does this author specialize in Taxes Income, you can also check out his latest website about:
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