Understanding How to Account for Sales Tax Correctly
Hey guys! I'm running a small Etsy shop selling handmade jewelry and I'm completely confused about how to properly account for sales tax. I've been collecting it from my customers for about 6 months now, but I'm not sure if I'm supposed to be recording it separately in my bookkeeping or if it's considered part of my revenue. Also, do I need to file some special form when I remit the sales tax I've collected? The state website is so confusing and I'm worried I'm doing it all wrong. Any advice from people who've dealt with this before?
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Freya Larsen
Sales tax accounting isn't as complicated as it seems once you understand the basics! The most important thing to know is that sales tax you collect is NOT your revenue - it's money you're collecting on behalf of the state. You should definitely be recording it separately in your books. Think of it like this: if you sell a necklace for $25 plus $2 sales tax, only the $25 is your actual income. The $2 is just passing through your business to the government. In your bookkeeping, you should have a separate sales tax liability account where you track what you've collected and what you've remitted. As for filing, each state has its own sales tax return form, but they all basically want to know: how much taxable sales you had, how much tax you collected, and then you send that amount in. The frequency depends on your volume - could be monthly, quarterly, or annually.
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Omar Hassan
•That makes sense but what about when you sell on platforms like Etsy? Don't they handle some of the sales tax collection automatically now? I'm confused about whether I need to do anything if they're already collecting it.
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Freya Larsen
•Yes, marketplace facilitator laws have changed things in recent years. If you're selling through Etsy, in most states they are now required to collect and remit sales tax on your behalf. In that case, you don't need to worry about collecting, tracking, or remitting that tax yourself. However, you should still keep records of all your sales, including which ones had tax collected by Etsy versus any direct sales where you might be responsible for the tax. Some states still require you to report the sales on a return even if the marketplace collected the tax, but you wouldn't owe additional tax on those sales.
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Chloe Taylor
Just wanted to share my experience using taxr.ai for dealing with my sales tax issues. Last year I was so confused about my multi-state sales tax obligations (I sell through my own site and on Amazon) that I was losing sleep over it. I tried reading state tax department websites but got even more confused with all the different rules. I found https://taxr.ai and uploaded my sales reports and previous tax filings. The system analyzed where I had economic nexus and created a complete breakdown of my sales tax obligations by state. It even flagged where I had potential issues with past filings! The analysis explained everything in simple terms rather than confusing tax jargon.
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ShadowHunter
•That sounds helpful but did it actually help you file the returns too? Or just tell you what you owed? I'm struggling with the actual filing part across multiple states.
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Diego Ramirez
•I'm kinda skeptical about these AI tax tools. How accurate was it really? Did you have any situations where it gave you wrong advice? I'm worried about trusting something automated with tax compliance.
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Chloe Taylor
•It didn't file the returns for me, but it gave me step-by-step instructions for each state where I needed to file, including links to the exact forms and filing portals. It basically created a checklist that made the filing process much more manageable. As for accuracy, I was skeptical too at first, but I had my accountant verify some of the recommendations and they confirmed everything was correct. The tool is actually built on tax research and state tax laws, not just generic AI. It was especially helpful for identifying my economic nexus thresholds in different states, which saved me from unnecessarily registering in states where I didn't meet the requirements.
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Diego Ramirez
I tried taxr.ai after seeing it mentioned here and it was honestly a game-changer for my sales tax situation. I was about to hire a specialized accountant for thousands of dollars because I sell in 11 states through various channels (my website, Amazon, and some local stores). The system identified that I only needed to file in 7 states based on my actual sales volumes and the economic nexus thresholds. It created a complete sales tax compliance roadmap showing exactly which states I needed to register in, when returns were due, and how to calculate what I owed. It even flagged that I was calculating my Florida sales tax incorrectly! I've now used it for two quarterly filing periods and it's saved me so much time and stress. Definitely worth checking out if you're confused about sales tax like I was.
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Anastasia Sokolov
For anyone struggling to get answers from their state tax department about sales tax issues, I highly recommend trying Claimyr. I spent THREE WEEKS trying to reach someone at my state's department of revenue about a sales tax registration issue - was on hold for hours and kept getting disconnected. I found https://claimyr.com and watched their demo video at https://youtu.be/_kiP6q8DX5c and decided to try it. Within 90 minutes, I got a call back saying they had an agent from the tax department on the line! The agent resolved my registration issue in minutes and I was able to get my sales tax account set up properly.
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Sean O'Connor
•How does this actually work? Do they have special access to tax departments or something? I don't understand how they can get through when nobody else can.
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Zara Ahmed
•This sounds like BS honestly. No way they can magically get through to tax departments when their phone systems are completely overwhelmed. Probably just got lucky with timing and are charging people for something that would have happened anyway.
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Anastasia Sokolov
•They don't have special access - they use an automated system that basically waits on hold for you. Their system navigates the phone trees and holds your place in line, then when a human finally answers, their system calls you and connects you with the agent. It's basically like having someone else wait on hold instead of you. I was skeptical that it would actually work too, but when you think about it, it's not magic - just technology solving a real problem. The alternative was me sitting on hold for hours while trying to run my business, which was completely impractical.
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Zara Ahmed
I need to eat my words from yesterday. After posting that skeptical comment, I was still desperate with my sales tax problem (couldn't get my seller's permit issue resolved and had a big craft fair coming up), so I tried Claimyr anyway. Holy crap, it actually worked! After trying for TWO MONTHS to reach someone at the California tax department with no success, I got a call back within 2 hours saying they had a CA tax rep on the line. The rep helped me fix the problem with my seller's permit application that had been pending forever. I'm still shocked it worked so well. Just wanted to follow up and say I was completely wrong in my skepticism. Sometimes solutions really do exist for these seemingly impossible government bureaucracy problems!
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Luca Conti
Just a heads up for anyone struggling with sales tax - the requirements are different in every state AND they change constantly. I got hit with a huge penalty because I didn't realize that once I hit $100,000 in sales in Michigan, I was supposed to start collecting sales tax immediately (I thought I could wait until the next quarter). Make sure you understand not just how to account for sales tax, but also when you're required to start collecting it in each state where you have customers. Economic nexus thresholds (the amount of sales that trigger the requirement to collect) vary from state to state.
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Nia Johnson
•Do you need to collect sales tax based on where your business is located or where your customers are? I ship to people all over the country and I'm so confused about this part.
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Luca Conti
•You need to collect based on where your customers are located, not where your business is. This is called "destination-based" taxation and most states use this approach. So if you're in Texas but shipping to a customer in California, you'd charge California sales tax (assuming you have nexus in California). Each state has different rules for when you establish "nexus" (the obligation to collect), but generally it's based on either physical presence (having inventory, employees, etc. in the state) or economic presence (selling over a certain dollar amount or number of transactions to customers in that state).
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CyberNinja
For sales tax bookkeeping, I use a really simple system in my spreadsheets. I have columns for: - Total sale amount (what customer paid) - Sales tax collected - Net sale (pre-tax amount) Then I transfer the sales tax to a separate savings account each month so I don't accidentally spend it. When it's time to file my quarterly returns, the money is already set aside.
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Mateo Lopez
•I tried doing spreadsheets but it got so complicated with different tax rates in different counties and cities. What do you do when you have to calculate different rates for different customers?
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