Schedule C Unremitted Sales Tax Deduction

[shoook]

I began a small florist sole prop business this year in Texas. I have to remit sales tax quarterly to the state. Can I "deduct" collected sales tax in my Schedule C this year even though I won't actually remit those collected sales tax funds until January of next year?

[koalasfouru]

those taxes should be a pass thru from the customer to your biz to the state. if you don't pay them this year and you're a cash basis taxpayer you can't deduct them though

[Critter · Accepted solution]

There are 2 options on the Sch C ... either are correct HOWEVER you must apply one or the other consistently every tax year :

Option 1 ) All income from ALL sources are entered as income on the Sch C in the year collected and the sales taxes paid are deducted as an expense in the year paid.

Option 2 ) ONLY the net income after deducting the sales taxes are reported on the Sch C in the year collected. No need to report/deduct the sales taxes since they were never included in the income figure to begin with. Due to the Credit Card reporting on a 1099-K form (which includes the sales tax amounts) this may not line up with what the IRS is told is your annual income received in this manner and can cause headaches down the line. Although this is a valid option it is not the favored option by many.

[shoook]

Thank you for the explanation. I think what I am going to do is file and pay sales tax on Dec 31st in order to go with the preferred method and "deduct" in same calendar year.

[Carl]

I think what I am going to do is file and pay sales tax on Dec 31st in order to go with the preferred method and "deduct" in same calendar year.

That's what I would recommend. Just understand that your payment may not be "credited" until Jan 2 of 2020. Since I doubt you'll be open the 31st, you may find it more comforting to submit on the 30th. Then your chances of it being processed and credited in the same tax year paid are much higher.

But it really wouldn't matter per-se. That's because once you pay it online and effectively lose control of that money, it's no longer your money to claim "as yours" when you submit the payment.