Question by No Name: On a small business, do I calculate federal taxes after I pay sales tax?
I own a small business and that’s my only income. I need to know if I can calculate the federal taxes I have to pay by April 15 after deducting sales tax and/or business bills from the gross income.
Best answer:
Answer by Doctor J
You deduct ALL business expenses (including sales tax) first. You then pay income taxes and FICA based on your Net Profits (income).
Best wishes and good luck.
p.s. with self-employment income from a business you need to be making quarterly tax payments.
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Are you talking about the sales tax you pay on purchases or what you collect on sales?
Sales tax on purchases is added to the cost of the purchase and charged to the same account.
i.e. Purchased computer for business $ 1,000.00 add 5% sales tax ($ 50.00) cost of computer = $ 1,050.00
Sales tax, in most states, is charged on the sale price and passed on to the consumer. If this is the case, it is not an expense to you, it is a liability. It does not get included in gross income or as an expense.
In some states, sales tax can be absorbed. This means that the business treats sales tax as a business expense and it is a deductible expense from gross income.
Not all states allow absorption. Massachusetts doses not, but California does.
As with all state matters, check experts in your state.