We caught up with six major retailers to get their tips on successfully keeping the IRS out of their lives and make dealing with taxes as easy and inexpensive as possible.
J.G. Mazzotta – Co-owner Satellite Boardshop, Boulder, CO
We use an accountant and a bookkeeper. The bookkeeper is a younger student so she uses the accountant for major questions and/or concerns. This cuts down on major accountant costs.
I have been audited for sales/use tax twice, but as long as you run a legit business it is not that bad. Keep your invoices, pay your taxes and you will come out fine. If you are sloppy and unorganized it could be a nightmare. The auditor will select invoices from months in each quarter of the past 3 years to make sure there is consistency and that taxes paid are correct for each of those months, matching invoices to daily sales receipts, taxable sales, etc. Additionally, make sure to watch your auditor. If I would have paid what my auditor said was due I would have overpaid by $15,000. Instead after calling in her supervisor and showing both my auditors error, I was found to have overpaid my taxes by a little.
– It seems like a no brainer, but make sure to work your expected monthly tax liability into your cash flow projections. Set that tax money aside and don’t touch it. For me, this is especially important around the first of the year when cash flow swings dramatically. December is a monster sales month, but things slow down in January and February. You don’t want to get caught with your pants down when it’s time to pony up December sales tax and the first round of payroll taxes.
– Before you open a location, find out if the city/town collects inventory taxes. The owner of my first shop didn’t check into this beforehand and ultimately, we faced a ridiculously high inventory tax. We got behind almost immediately and the interest/penalties were through the roof. The town ended up suing us and it took years to pay it down.
– Pay on time, every time. Those penalties and compounded interest can bury you.
We have an accountant do both our personal and business returns, and all I can say is, it’s well worth it. We always file for an extension, which I think is smart given our selling season is pretty much just ending as taxes would be due. Just one more thing to not have to worry about, you know?
My biggest tip is to take the time to be organized and prepared. Years ago we got audited by the State Board of Equalization. Our paperwork wasn't organized and we had screwed up one payment, which resulted in some penalties and fines and a lot of time getting through the audit. Since then I have tried to have our office run so that if we get audited we are ready. We did get audited again a few years ago and it was a breeze.
Something else we do to keep as up to date as possible with sales tax payments is maintain a savings account that is solely devoted to sales tax deposits. That way, when you make your monthly prepayments and quarterly payments to the BOE, you can catch inaccuracies quickly by just looking at your sale tax account balance.