Sales Tax

[HannahGR]

I'll be selling products online.

My two main questions are:

1) Do I have to file state tax returns with every state that I sell to? For example, I live in CA. If I sell a product to someone in CO, do I have to file a state tax return in CO (depending on the amount at the end of the year)? 

2) Is it better to form an LLC? Or what are my best options for that in CA?

Thank you!

Hannah 

[DashonnonH · Accepted solution]

Hi, states may require you to file tax returns based on two situations. 1. If you live in that state (residency). 2. If you earn money/receive passive money sourced from that state (source of income) 

If your business is not located in CO or you do not physically go to CO to sell product during the year, then you would not be subject to CO income taxes.

If you did have business income sourced from CO, and you are required to file a federal tax return, you would be required to file a CO return regardless of how much income was sourced from CO. (each state has its own individual filing requirement) 

An LLC is formed to protect an individuals personal assets from being lost due to business debt. If your business activity has risk of being sued or large debt, then an LLC could be beneficial in any of those events. Businesses that are not likely to be sued or have debt would not necessarily need an LLC. But you could create the LLC as a safety net. 

CA LLC 

Every LLC that is doing business or organized in California must pay an annual tax of $800.

This yearly tax will be due, even if you are not conducting business, until you cancel your LLC.

• You have until the 15th day of the 4th month from the date you file with the SOS to pay your first-year annual tax.
  • Example: You form a new LLC and register with SOS on June 18, 2020. Your annual LLC tax will be due on September 15, 2020 (15th day of the 4th month)
• Your subsequent annual tax payments will continue to be due on the 15th day of the 4th month of your taxable year.

The annual tax payment is due with LLC Tax Voucher (FTB 3522).

Exceptions to the first year annual tax

For tax years beginning on or after January 1, 2021, and before January 1, 2024, LLCs that organize, register, or file with the Secretary of State to do business in California are not subject to the annual tax of $800 for their first tax year.

Thank you for joining us today!

[HannahGR]

Thank you so much for your answer! 

What would be an alternative for the LLC then when it comes to filing taxes? Can I just file based on my SSN? 

[DashonnonH]

You may have to collect sales tax for products sold online for a particular state. I wanted to point out that sales tax is different from Income tax. You would have to check each state requirement to know if you are required to collect sales tax for online sales.

[DashonnonH · Accepted solution]

Below are the types of business entities available. You would not form a partnership because a partnership requires at least two individuals. 

• Sole proprietorships
• Partnerships
• Corporations
• S corporations
• Limited liability company (LLC) 

The link below provided more info on each entity. 

https://ttlc.intuit.com/turbotax-support/en-us/help-article/sole-proprietorship/type-entity-business...

https://www.irs.gov/businesses/small-businesses-self-employed/business-structures

The business entity and the identifying number are two separate things to consider. 

Yes, you can use your social security number to file your self-employed income as long as your are not a Partnership, S-corp, C-corp. If you would like to have a identifying number for your business other than your social security number, you would apply for an EIN with the IRS. Although you have an EIN, you would still your report your business income and expenses one Schedule C with your Individual Tax Return.

You can apply for an EIN for free on IRS website.

https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-n...

[HannahGR]

Ah, ok. Where would I go to find that information on the various states?? That's what I'm most concerned about. I don't want to get all kinds of state returns at the end of the year and not be prepared. 

[DashonnonH]

Ah, ok. Where would I go to find that information on the various states?? That's what I'm most concerned about. I don't want to get all kinds of state returns at the end of the year and not be prepared. 

Are you wondering where to find info on requirement for collecting sales taxes when selling products online for a particular state?

[DashonnonH]

Ah, ok. Where would I go to find that information on the various states?? That's what I'm most concerned about. I don't want to get all kinds of state returns at the end of the year and not be prepared.