For an income tax return, should the sales tax collected be shown as income and the sale tax turned over to the taxing authority shown as an expense? Or should they not show up on the income tax return at all?
Same question re the business's Profit and Loss statement.
Thanks.
Check the instructions for Form 1040 Schedule C, line 23, you'll find the answer there. In sum, it depends primarily on whether the sales taxes are imposed on you or the buyer, which I imagine varies from state to state.
I've done it either way depending on how the client maintains his records...so that the return can be easily reconciled to said records...what a concept! :-)
So if the client simply totals up "deposits" as his income, with no breakout of collected sales tax (technique known as "tax in gross" in my state), then that's the way I report it on the tax return, and the related tax payments are deducted in full. I've never had a problem with either the IRS or the state sales tax people when doing it this way.
MTW
I completely agree with Mark. You must look to state law to see on whom the tax is imposed. I believe that most states impose a consumer sales tax and the seller merely acts as an agent to collect the tax.
Here in New Mexico we have a gross receipts tax (GRT) that is imposed on the seller (who typically passes it on to the buyer). The seller includes the tax in gross income and can deduct the tax paid to the state. So.. on a $100 item and a GRT of 8%, the seller (assuming he passes it on to the buyer) would report $108 in income and then deduct $8 of gross receipts tax to get to net income of $100. If the seller fails to pass it on, it is the seller who is legally obligated to remit the tax to the state.
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