Common Questions We Hear Often About Taxes & Bookkeeping

Sales tax compliance is a critical aspect of running an ecommerce business. While it may seem daunting, proactive management can prevent costly penalties and ensure smooth operations. This guide outlines essential steps to help you navigate sales tax obligations effectively.

Understanding Your Sales Tax Responsibilities

Not all online sellers need to handle sales tax independently. If you sell exclusively through marketplace facilitators (e.g., Amazon, eBay), they typically act as the retailer and are responsible for collecting and remitting sales tax on your behalf. In such cases, if you've already registered with a state, consider deregistering or requesting a less frequent filing schedule, depending on your situation—consult the state department of revenue for guidance.

However, if you sell through marketplaces and your own website, be aware of these key factors:

• Economic Thresholds Include Marketplace Sales: Sales from all channels count toward a state's economic nexus thresholds.

• Physical Presence via Fulfillment Services: Using services like Amazon FBA or third-party logistics (3PL) providers can create physical nexus if your inventory is stored in a state.

Failure to account for these can lead to unexpected tax liabilities. Follow the three core phases below—Nexus Determination, Registration and Setup, and Collection and Remittance—to achieve compliance.

Phase 1: Determine Nexus (Where You Owe Sales Tax)

Sales tax nexus establishes a business's legal obligation to collect and remit sales tax in a state due to sufficient connections. There are three primary types of nexus:

1. Physical Nexus: Created by a tangible presence in the state, including:

   • People: Employees, partners, contractors, or traveling salespeople.

   • Property: Warehouses, offices, or inventory storage locations (e.g., FBA or 3PL facilities).

2. Economic Nexus: Triggered when your sales exceed a state's thresholds, typically based on annual revenue (e.g., $100,000) or transaction volume (e.g., 200 sales). Marketplace sales must be included in these calculations.

   • Sales prior to crossing the threshold are not retroactively taxable.

3. Marketplace Nexus: Applies if marketplaces collect tax on your behalf, but you may still have obligations for direct sales.

Conducting a Nexus Analysis

A thorough nexus analysis identifies where you owe taxes, potential exposure, and associated risks (e.g., fines, penalties as a percentage of unpaid tax, and interest on late payments). Follow these steps:

1. Assess Physical Nexus: Map out all locations of people and property.

2. Evaluate Economic Nexus:

   • Generate a sales report for the past 12 months.

   • Summarize sales by state, including revenue and transaction counts.

   • Compare against each state's thresholds.

3. Account for Tax-Exempt Sales:

   • Exclude exempt products or customers (e.g., resale certificates, nonprofits).

   • Calculate liability based on taxable sales only: Multiply taxable sales by the applicable tax rate to estimate exposure.

4. Develop a Compliance Strategy:

   • Prioritize registration in high-risk states.

   • Remember: Sales tax is not an out-of-pocket cost if collected from customers—non-compliance risks audits and personal expenses.

   • Budget for compliance: Approximately $1,000 per state per year for setup and maintenance.

Phase 2: Register and Set Up Tax Collection

Once nexus is established, register with the relevant states and configure your systems.

Step 1: Register with State Departments of Revenue

• Required Information:

  • Federal Employer Identification Number (FEIN).

  • Social Security Numbers (SSNs) of owners.

  • Business address.

  • NAICS code.

  • Product types.

  • Vendor details (required in some states like California).

  • Home state registration info.

• Where to Register: Visit the state's Department of Revenue (DOR) website.

• Processing Time: Expect 10-15 business days. Follow up by phone after three weeks if needed.

Note: It is illegal to collect sales tax before official registration.

Step 2: Configure Tax Collection on Sales Channels

• For Your Website: Enable tax settings in your platform (e.g., Shopify, WooCommerce). Apply rates based on the ship-to address, including tax on shipping where applicable. Verify rates for accuracy.

• For Marketplaces: Ensure facilitators handle their portion; focus on your direct sales.

Phase 3: Collect and Remit Sales Tax

Step 1: Determine Remittance Amounts

• Pull detailed reports from your sales channels, breaking down gross sales, exemptions, and deductions.

• Apply the correct tax rates (use tools like Avalara, TaxJar, or Taxify for automated accuracy based on shipping addresses).

Step 2: File Returns and Remit Payments

• Frequency and Due Dates: States assign filing schedules (monthly or quarterly) upon registration. Check your approval letter.

• Payment Tips: Use ACH, but account for processing delays to avoid penalties.

• Key Elements for Filing:

  • Gross sales.

  • Deductions and exemptions.

  • Applicable tax rates.

  • Penalties, interest, or credits (some states offer discounts for timely payments).

Accounting Best Practices

• Record as a Liability: Treat collected sales tax as a balance sheet item (not income statement revenue).

• Track Journal Entries: Log all sales tax activities to maintain accurate financial statements.

By following these steps, you can minimize risks and maintain compliance. For personalized advice, consult a tax professional. Staying ahead of sales tax obligations protects your business and supports long-term growth.

• Yes, due to the possible tax incentives it is important to have an employment agreement outlining the job description.

Gross income minus adjustments to gross income equals your adjusted gross income (AGI). Modified adjusted gross income (MAGI) is your AGI without certain adjustments. Both are used to determine eligibility for certain claims & towards figuring out taxable income.

Examples of qualifying adjustments to gross income include:

• Alimony payments for pre-2019 divorces and separation agreements

• Archer Medical Savings Accounts (MSAs) (for accounts set up prior to 2008)

• Attorneys' fees and costs for certain discrimination claims or IRS whistle-blower claims

• Capital loss deductions of up to $3,000

• Educator expenses up to $300

• Fee-basis government officials' expenses

• Foreign housing expenses

• Forfeiture-of-interest penalties because of early withdrawals from certificates of deposit (CDs)

• Health Savings Account (HSA) contributions

• Individual Retirement Account (IRA) deductions

• Jury duty pay turned over to your employer

• Legal fees for unlawful discrimination claims

• Moving expenses of members of the military

• Net operating losses (NOLs) from prior year carry forwards affect to AGI

• Olympic and Paralympic medals and prize money that are nontaxable

• One-half of self-employment tax

• Performing artist's qualifying expenses

• Qualified retirement plan contributions for self-employed individuals

• Rent and royalty expenses

• Repayment of supplemental unemployment benefits required because of the receipt of trade readjustment allowances

• Self-employed health insurance deduction

• Simplified employee pension (SEP) or savings incentive match plan for employees (SIMPLE) contributions for self-employed individuals

• Student loan interest deduction up to $2,500

• Travel expenses to attend National Guard or military reserve meetings more than 100 miles from home

Keep in mind changes occur often and there are more details surrounding the examples*

Yes, there is a waiver that can be filed annually or permanetly on Form 8332 Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent.

There is a dependent care credit available for certain expenses which allow you to work.

interest earned on Series EE and I bonds are tax free when redeemed if used to pay for qualified higher education costs. They can also be used to contribute to your 529 plan or Coverdell education savings account.

The exclusion can only be claimed if certain conditions are met. Plan accordingly.

Login to Treasury Direct to see the value of your bonds today or make a purchase.

Unfortunately, there is no capital loss deduction on assets held primarily for personal purposes.

Planning is essential. When taxable income exceeds certain thresholds the total LTCG will be taxed at 20% instead of 15%.

2025 Taxable Income Triggering 20% Tax Rate

Single - $533,400

HOH - $566,700

MFJ - $600,050

• Ordinary means common or accepted in business. Necessary means appropriate and helpful in developing and maintaining a business.

• All wearables must be exclusively for business use: they must be required and essential for work and cannot be appropriate or used for personal purposes.

• Having your business vehicle owned by your business does not automatically prove business use.

• Keep track of business mileage, purpose of business trips, and note the odometer reading at the beginning and end of the taxable year.

• Choose between standard mileage rate or actual costs (gas, repairs, depreciation).

Detailed records are required for vehicle deductions:

Yes, if you meet the IRS requirements:

• The space must be used regularly and exclusively for business.

• It must be your principal place of business or used for meeting clients or for storage of inventory.

• Deduct either the simplified method ($5 per square foot, up to 300 sq ft) or actual expenses (portion of rent/mortgage, utilities, etc.).

Yes, if you paid $600 or more to non-employees (contractors, freelancers, etc.) for services.

• Issue Form 1099-NEC for nonemployee compensation or 1099-MISC for other payments.

• File with the IRS and provide copies to recipients by January 31, 2027.

• Penalties for non-filing or late filing can reach hundreds or thousands of dollars per form. We handle 1099 preparation and ensure full compliance.

These two rates are often confused but serve different purposes:

• Marginal tax rate: The rate you pay on your next dollar of income.

• Effective tax rate: Your total tax paid divided by total income — usually much lower than your marginal rate.

Deciding between the standard deduction and itemizing depends on your situation:

• The 2026 standard deduction is $16,100 for single filers and $32,200 for married filing jointly.

• Itemize if your qualifying expenses (mortgage interest, state and local taxes up to the SALT cap, charitable contributions, and medical expenses over 7.5% of AGI) exceed the standard amount.

• High-income earners and real estate owners often benefit from itemizing. We run the numbers for you and recommend the option that saves the most on your taxes.

Life changes can have big tax impacts — we help you navigate them:

• Marriage or divorce may change filing status, deductions, and credits.

• Birth or adoption of a child can unlock the Child Tax Credit and dependent care benefits.

• Buying or selling a home affects mortgage interest deductions, capital gains exclusion (up to $250k/$500k), and property taxes.

• Job changes, inheritances, or retirement can alter withholding and estimated payments. We provide personalized guidance so you maximize benefits and avoid surprises.

Personal income taxes and Trust income taxes

• April 15th (October 15th with an extension)

Sub-Chapter S-Corporation income taxes

• March 15th (September 15st with an extension)

Partnership/ LLC income taxes

• March 15th (September 15th with an extension)

Non-Profit income taxes

• May 15th (August 15th with an extension and November 15th with an additional extension)

C-Corporation income taxes based on year end

• December 31st: March 15th (September 15th with an extension)

• January 31st: April 15th (October 15th with an extension)

• February 28th: May 15th (November 15th with an extension)

• March 31st: June 15th (December 15th with an extension)

• April 30th: July 15th (January 15th with an extension)

• May 31st: August 15th (February 15th with an extension)

• June 30th: September 15th (March 15th with an extension)

• July 31st: October 15th (April 15th with an extension)

• August 31st: November 15th (May 15th with an extension)

• September 30th: December 15th (June 15th with an extension)

• October 31st: January 15th (July 15th with an extension)

• November 30th: February 15th (August 15th with an extension)

As a client of Coin Capital Accounting your business is our business. Let us handle paperwork.

Outsourcing with us can:

• Reduce stress

• Improve decision making

• Time savings

• Tax confidence

• Sleep quality

Our fees are completely transparent and based on the actual work needed to get your returns filed accurately and on time while minimizing your tax liability legally. The main factors are:

• Type and complexity of your return (forms & schedules required)

• Your business structure (individual, LLC, S-Corp, etc.)

• Number of states and other jurisdictions

• How organized your records are

• Any extra services

Most of our clients pay a simple flat fee between $500 and $3,000. There are no hidden charges — the quote you receive is the total price.