Good Morning it’s Monday May 11th and I wanted to talk to you today about the collection and enforcement efforts that are ramping up across the country with the IRS and the state of California so I’ve spent a lot of time talking with collection agents and with auditors over the last few weeks and although there’s a moratorium on collection and examination activity through the middle of July it’s going to be open season after that let me explain why so the federal government gave away three trillion dollars in fonts and we all know nobody in their right mind is goin to raise taxes this year given the coronavirus climate so the government just gave away a lot of money they aren’t going to raise taxes so the natural conclusion is they’re going to get it back through enforcement and specifically they’re going to go after businesses so I want to share a couple of things that businesses can do now to protect themselves in the current coronavirus climate so the first thing that a business can do to protect itself is to get its finances in order and to come up with a projection for how the rest of the year is going to lock I realize that we’re dealing with a lot of uncertainty right now a lot of us are either stay at home orders we don’t know exactly when the lights are going to go back on but using a reasonable projection you should be able to track kind of what your revenue is going to be for the rest of the year and if you’ve got up you need funding or if you’ve got idle funding how that’s going to impact your decision to carry your business so the very first thing you need to do whenever you’re in a hole is you need to stop digging and figure out where you’re at having a longer projection at least through the end of the year is going to let you know number one how much cash is gonna come in number two what you project your expenses are and number three how much you’re gonna have left over a profit to devote to any back liabilities whether they be taxes or other obligations so you can get your arms around the situation the second thing you’re going to do is you’re going to stop being so not all liabilities are created equal so for example if you accrue payroll tax liability or sales tax liability in particular those are deemed as trust fund taxes those are money is that you hold in trust for somebody else so when you run a coffee shop and you sell a cup of coffee and you collect the sales tax that is your customer paying sales tax on a product you are holding that money in place for the state and you are remitting those funds so you are not allowed to spend that money and if you spend that money and you both with that tax liability later the government will come after you personally for those liabilities so you need to draw a line between the liability is that you could be held personally responsible ie trust fund taxes and other liabilities that your business only may be liable for and then you need to start prioritizing those liabilities based on who gets paid first but the important part about this is don’t spend money right now that’s not yours and the final thing that you need to do is build a plan so you’ve got your revenue projection you’ve got your expenses going out you know what you’re gonna owe in terms of liability and even if you’ve had cash challenges a lot of businesses have been really hurting by this we’ve had businesses that basically disappeared overnight even if you’re a million or a couple million dollars in debt right now there is a way out of this situation but what it’s gonna take is it’s going to take planning lights are gonna come back on in the IRS to the state as of July 15th so you could take the next three months particularly three months where you’re gonna be out of business and really build your financial situation 2% an offer to the IRS IRS collection agents are basically going to throw people into two buckets there’s the bucket of people that they can’t do anything with and there’s a bucket of people where there’s some meat on the bone they’re going to go after so the more that you can present yourself like bucket one and really minimize yourself as a target for the government that’s the way things are going to go so it’s about building a plan about minimizing your exposure on the collection side and then on the audit side you need to make sure your house is in order it’s finding.
Brotman Law
I Think I May Have Tax Liability in Multiple States, What Are the First Things I Should Do?
I talk to where somebody has reached out to state Collections officer.
I Got a Notice in the Mail From California Asking Me to File a Tax Return. What Should I Do?
The state of California at least not yet the very first thing you want to do.
I’ve Registered for Sales Tax or I’ve Registered for a Sellers Permit in a Particular State.
A multi-state tax strategy and a filing strategy that’s appropriate to that and when we’ve done this for different businesses.
What is Dropshipping and What Are the Tax Consequences?
A dropshipping transaction involves a situation where a seller is selling a product to a buyer but shipping that product to the buyer’s customer which may or may not be located in a different state.
Dropshipping is an incredibly complicated thing from a tax perspective because you may have one party or multiple parties in multiple jurisdictions. You could have a California seller, you could have a Florida buyer or you could have a customer in New York where the product is ultimately going to.
So the biggest challenge for tax professionals in this situation is where do you pay the tax to? With customers in different states, this is really important because there are a variety of issues around which state has jurisdiction to collect the tax revenue that make this incredibly complicated.
In a dropshipping transaction, you want to make sure you understand the different types of situations that your company faces and then create a plan around how to address those from a tax filing perspective. Then in your sales process, you want to ensure that you’re collecting the appropriate documentation and you’re doing what you can to mitigate your own risk in this situation.
The problem with a lot of dropshipping transactions is many companies assume that because product is going to one place or because their customer is located outside their state that they’re not obligated to collect tax, and unfortunately the way that most state sales tax laws are written, particularly surrounding dropshipping transactions, is it puts the online business on the hook for liability unless they’re collecting resale certificates from that particular state or they’re taking other appropriate measures to mitigate their risk. So there are a lot of tax consequences to dropshipping.
How Do I Determine What Tax I Owe for Sales Over the Internet?
The amount of tax that you owe because each state kind of has similar rules.
I Sell Products Through Amazon or a Marketplace Facilitator. Do I Owe Tax
California is the jurisdiction that I’m in and it’s one of the more aggressive States towards businesses.
What Are Common Problems for Multi-State Businesses?
The depending on your level of sophistication you may rely on a CPA for tax advice.
What Types of Collection Actions Can California Take Against Me If I Am in Another State?
This is a common question we get from prospective clients. I get a lot of clients who are on the East Coast for example and they’re in New York or North Carolina or Florida or any one of those Atlantic states and they say “well I’m all the way over here, I’ve never been to California, I don’t like to travel to California, I don’t plan on going to California so if I owe money in California for state sales tax, for state income tax liability, what can they really do to me?” And the answer to that is they can do a whole lot to you. The reason for that is while you may not have contact with California and you may not step foot in California, probably the people that you do business with or the banking institutions that you use or the third parties that you use have some sort of nexus with California. For example, if you live on the East Coast and you use Bank of America, we have Bank of America branches in California.
What Is Residency? Can I Be a Resident of More Than One State?
I live perspective and start thinking about it from a tax perspective and that’s where a lot of people get into trouble you.