'Net Features : taxes

Amazon Collects Taxes ... for a Price

Pete Prestipino — Tue, 08 Nov 2011 16:00:00 GMT

As the ongoing battle between Amazon and the Taxman continues, the e-commerce giant has finally begun to cater to the demands of government officials looking to help keep brick-and-mortar stores competitive and relevant.

This week, the online retail company announced plans for a service which will collect sales tax for its third-party merchants.

The Amazon program, which will charge merchants a fee for the service equal to 2.9 percent of what it collects in sales tax, is expected to begin in early 2012. The service is optional and will be offered to third-party vendors in all 50 U.S. states.

The Seattle-based company currently collects sales taxes from its own customers in Washington, New York, Kentucky, Kansas and North Dakota, as well as in some foreign countries where it conducts business.

U.S. Internet retail sales topped $176 billion last year and are expected to reach $279 billion by 2015, according to Forrester Research Inc. Online sales currently account for about 9 percent of total retail sales, a share that's projected to triple over the next few decades. State and local governments are determined to force Amazon and others to pay up.

In the Help section for sellers on Amazon.com, Amazon says the tax collection service is available to Marketplace Professionals and operators of Amazon Webstore e-commerce sites. A Marketplace Professional is any business or individual that sells 40 or more items a month on Amazon.com and pays Amazon a monthly selling fee of $39.99 plus other transaction fees. (Smaller sellers not classified as Marketplace Professionals pay Amazon 99 cents per sale plus other transaction fees.) Retailers that sell through their own branded Amazon-hosted Webstore e-commerce sites pay monthly fees starting at $24.99 plus transaction fees.

Clearly, this issue is the first in what will likely be a long, drawn-out discussion about taxes and e-commerce as the majority of consumers begin to drift towards online shopping. Since Amazon is, without a doubt, the biggest kid on the playground, it seems they'll try to smooth out as many of these concerns with the e-commerce industry-leading company as they can.

California Tax Bill Becomes Law

Michael Garrity — Wed, 28 Sep 2011 04:00:00 GMT

It's official in the state of California; Amazon and other Internet retailers are now required to charge a state sales tax on any purchases made by California customers.

Governor Jerry Brown signed the tax collection law in hopes that it will save existing jobs and create new ones in the state.

"[This law will] create tens of thousands of jobs and inject hundreds of millions of dollars back into critical services like education and public safety in future years," says Brown.

The basis of the law comes from economic experts who predict that it will help brick-and-mortar stores with actual sales staffs compete more equally with e-commerce businesses that require far fewer people to fill orders and operate. Those in favor of the legislation claim that Amazon, based out of Seattle, was essentially receiving unfair tax advantages over physical stores because shoppers weren't required to pay a sales tax.

In addition, there are expectations that Amazon will open a distribution center in California that currently hosts about 20 percent of the company's market. Amazon said that they plan to bring approximately 10,000 new jobs to the state, as well as invest $500 million over the next few years.

Initially, the e-commerce giant was planning on presenting a referendum that would ask voters to overturn the sales tax collection law that took effect on July 1, but they eventually compromised with national retail chains like Walmart and Target, as well as local and/or independent stores. Now, though the bill will take immediate effect, collecting sales taxes won't be required until September 15, 2012.

"The new law is a big victory for Main Street retailers that have battled to close a loophole that gives Amazon and other e-tailers special treatment in the tax code," says the Retail Industry Leaders Association, the group that is currently lobbying for similar laws across the country.

I can't help but wonder, though, if Walmart counts as a "Main Street retailer."

Tax Talk for Online Freelancers

Linc Wonham — Fri, 28 Jan 2011 20:30:00 GMT

According to the year-end data from companies such as Elance and oDesk, the freelance Web workforce is stronger today than it’s ever been. This is partly due to an uncertain economy that has pushed many workers into the freelance business, while for thousands of others the decision is based solely on lifestyle preferences.

No matter what the reason, the upcoming tax season will be for many their first experience filing as a member of the self-employed/sole proprietor/freelance community. Below are a few general suggestions to help manage the process over the next two and a half months, as well as some tips for getting a head start on 2011.

Have a check ready
There’s no sense beating around the bush on this one, here’s the bad news first. Perhaps the biggest double-edged sword in the freelancing industry is the fact that your income taxes are not automatically deducted from your earnings by a traditional employer, as most of us are used to. So when tax time rolls around, freelancers generally owe 15.3 percent of their net annual income. If this is the first you’ve heard of this, it’s better to find out now than when the letter from the IRS arrives a few months from now — a letter that, unfortunately, many freelancers before you have been shocked to receive. If you haven’t done so already, start planning today for how you will make that payment in April.

Tips for 2011: Most seasoned freelancers have set up a budgeting system in which roughly 30 percent of their earnings are put away for tax payments – as it’s better to be safe than sorry. Two very wise strategies include putting the money into a savings account where it earns some interest, or the even shrewder move is to start a retirement account which can actually lower the amount you will owe to the IRS the following April. Also, arrange to pay your taxes on a quarterly basis if four smaller payments are more manageable than one larger one.

Know your deductions
If you’re still with us after the last item, here comes the good news. While many freelancers overlook the self-employment tax mentioned above, even more neglect to make the proper deductions they are owed. As sole proprietors, freelancers incur a wide assortment of expenses throughout the year that they can rightfully declare at tax time. If you do all of your work at home, for instance, you are allowed to deduct a percentage of the expenses you put into your home each month such as rent and utilities. Business expenses on software, travel (including mileage on your car for business purposes), books and training, trade shows and networking events, telephone and Internet costs, office supplies, computer supplies, mailing supplies, postage, etc. are all legitimate deductions for a freelancer. However, read the word “legitimate” one more time for good measure, and try to avoid taking deductions for inspirational movies or food and drink that you believe enhances your creativity.

Tips for 2011: If you are not already in the habit, get in the habit of keeping every receipt ever given to you. Regardless of the size or the nature of the expense, this will help condition you so that you don’t find yourself with no credible evidence of the $1,500 investment you made on your business laptop if and when the tax man comes calling. Also, note that the end of the year is a good time for large-scale purchases such as that, especially if you know that you will need something for your work and can acquire it at the end of a year rather than the beginning of the new one.

Get organized
Many freelancers take the previous advice and become diligent receipt-collectors and invoice-takers, only to stuff said materials in random shoeboxes with no rhyme nor reason. If you find yourself in this category, don’t wait until April to try to sort through the piles of papers. Start organizing today, if possible. And if you don’t any have piles of papers because you keep everything on a computer, now is the time to start printing everything and organizing it in an acceptable fashion. Kudos to you, by the way, for trying to limit the amount of paper you use, but if Uncle Sam is anything it’s definitely not green. Paper rules when it comes to dealing with the federal government. Besides, you can keep track of all your printing and ink costs and deduct them on your 2011 returns.

Tips for 2011: There are countless online bookkeeping tools and accounting software available for freelancers today, and it may not be a bad idea to explore some of them if you find that your operation grew at all during 2010. Some of the best ones to consider include Outright, specifically designed for tax accounting, LessAccounting, Shoeboxed and Freshbooks.

Learn your local tax laws
This is not to suggest a second career in law, but it’s always a good idea to do a quick online search into the current laws of your city and state before delving too deeply into your taxes. Some places have very specific rules about income gained through self-employment, and 20 minutes of research on the front end can save you hours of aggravation or even thousands of dollars in cost on the back end. New York City, for example, used to have what it called an unincorporated business tax for freelancers who earned more than a certain amount (I don't know if it still exists), and it behooves you to know those things as soon as possible.

Tips for 2011: If your freelance standing is more than a temporary situation and you consider yourself a sole proprietor for the long haul, perhaps consider something more than the 20 minutes online suggested above. Many community colleges and local public libraries offer fairly in-depth classes and seminars around this time of year for people interested in gaining more than a passable knowledge of their state’s income tax laws.

Embrace the community
Freelancers often feel like they’re detached from the rest of the world when they first enter the industry, but nothing could be further from the truth. The online freelance community is one of the most spirited and loyal groups on the Web, and people are willing to help each other with just about any situation. If you read the first item of this post and are still trying to figure out how to come up with 15 percent of your 2010 freelance income, ask your fellow freelancers what they did in the same situation. There are scores of great blogs devoted to the online freelance industry, and the two companies mentioned in the opening sentence are as good a place to start as any.

Tips for 2011: Aside from your tax questions, most of which will be answered in short order in discussion groups and forums, make this the year that you really embrace the freelance community if you haven’t already. At this time next year, you will find that you not only have a stronger handle on your tax situation, but there’s a good chance that as a result of joining the community you will also have more freelance income to declare.