I die a slow death every April 15th. I'd rather go on a one-way tour of the wreckage of the Titanic in a minisub that has a slow leak than do my taxes. Even if my mother-in-law was at the wheel and my rear end was on fire, I'd still rather take that ride than to try and muddle through the latest assortment of forms and attachments from the IRS. (I'm warning you, you're going to need Indiana Jones to decypher all the new tax code). I'm especially wary of the IRS this year because it was recently reported that the majority of Americans audited in the last few years have been poor, white southerners. Like tornadoes, it seems living in a trailer home attracts the Tax Man, too.
My dread of tax season stems from the belief that no matter what I do, no matter how honest I try to be (and I really do try to be honest), I will somehow end up owing the government a gazillion dollars more than I actually earned. I have my own little IRS representative in my head and she speaks to me whenever I get too near the edge of reportable sanity.
"But I didn't even make a gazillion dollars last year!" I cry.
"That doesn't matter, sir," the voice says. "You incorrectly calculated the accrued interest and long term capital gains from the sale of that certain property from the party of the first part to the party of the second part, which resulted in a $3.12 profit on your part that was not reported to the IRS on forum 1099FU. The penalty for not submitting the required form and the $3.12 to the IRS within the allotted amount of time is a gazillion dollars PLUS interest. Have a nice day."
Then there's the question of exactly what qualifies as a dependent. This one always gets me because in my mind, if something depends on me for its existence and I have to take time out of my day to tend to it, it's a dependent.
"I'm sorry, sir, even though it would probably die if you didn't feed it and give it water everyday, your dog does not qualify as a dependent."
"What kind of logic is that? Do you have any idea how much I spend on that dog? Now I'm not so sad about letting all my plants die over the winter! With stupid rules like that it's no wonder people cheat on their taxes!"
"Did you say something about cheating, sir?"
"Me? Cheating? No, of course not. That wouldn't be right."
Surveys (not conducted by the IRS) have shown that even the most honest, God-fearing Americans have thought about cheating on their taxes at one time or another. It's a natural reflex, like opening your mouth to breath when you're six fathoms underwater. In truth, I think God created taxes as the ultimate test of human faith.
"Hmm," God thought one fine April day. "That apple thing was just too easy. How can I really test man's ability to resist temptation? I know, I'll create taxes! And what shall I call the entity I create to collect these taxes? Hmm, I've already used the name, Hell... I know, I'll call it ?The INFERNAL REVENUE SERVICE!? No, wait a second, ?The INTERNAL Revenue Service? is even scarier! And for those who can not resist the temptation to cheat, I will create THE IRS AUDIT!"
Most Americans would rather go down a buffet line with Jeffrey Dahmer than have to sit through an IRS audit. Being audited is like going to the dentist even though there's nothing wrong with your teeth. "Yes, I'm here to have my gums scraped with a rusty ice pick. No, ma'am, there's nothing wrong with my gums, but the dentist sent me this notice to come in, so here I am..."
Why do we fear the IRS, even though the majority of Americans have never and would never cheat on their taxes? Maybe it's because of all the horror stories that came out during last year's congressional probe of the agency. It was reported that both Jimmy Hoffa and Amelia Earheart were on their way to IRS audits when they disappeared. It was also revealed that three out of five people audited wet their pants during the process. This came to light only after the IRS sent the General Accounting Office a bill for $324,000 for plastic chair covers and potpourri air fresheners. Scary stuff, my friends. Very scary stuff.
"Internal Revenue Service. How may I help you today?"
"I have a question about the new tax code."
"Yes, sir?"
"I don't get it."
"Don't get what, sir?"
"I don't get any of it. I don't understand it."
"You're not supposed to understand it, sir. That's why we call it code."
"But that's the dumbest thing I've ever heard."
"I'm sorry, sir, but that's just the way it is. Is there anything else I can help you with today, Mr...Knox?"
"How'd you know my name?"
"We're the IRS, sir. We know everything. Do you have a problem with that?"
"Problem? Nope, not me. I think you folks do a great job! In fact, I was just about to mail you a check for a gazillion dollars!"
"Thank you, sir. The IRS appreciates your patronage. And Mr. Knox?"
"Yes, ma'am..."
"You have a nice day."
A: Sorry, but your local municipality is well within its rights to audit your business to identify items purchased online. The city can also demand payment of sales tax on those items if sales tax was not previously paid. Don't be surprised if the auditor asks for access to your books and to see purchase receipts and invoices for at least the past year.
One of my companies recently underwent such an audit and it really was not as painful as you might think. Being a software company, the majority of our online purchases were for computer equipment, technical manuals, and software development tools. Since we purchase computers from a large supplier who collects sales tax at the point of sale (ditto for the development tools), the only sales tax we ended up owing was for an inordinate number of technical manuals and books purchased at Amazon.com.
If your small business is like most, the majority of your large purchases are made locally from companies that already collect sales tax. Furniture and computer equipment are typically the largest ticket items a small business buys, so unless you bought your desks and computers off of Ebay (which is highly possible these days) you should be OK.
Internet sales taxation has been a topic of contention even before Amazon sold its first book and Priceline booked its first flight. One of the more controversial points is that no one, including our own government, seems to have a clue how to implement a fair and logical Internet taxation process. With over 7,500 different local, county and state taxation systems in the United States, you can understand the controversy.
In 1998, Congress did what it usually does when faced with a potentially explosive issue like Internet tax collection -- it decided to put off making a decision. Congress enacted a three-year moratorium on the collection of taxes to give an appointed advisory board time to come up with an acceptable solution. That moratorium ended in 2002 and opened the door for municipalities to begin collecting sales tax on their own.
Here in Alabama the state sales tax collection department has aired radio spots asking Alabamians to step up to - and toss dollars into - the proverbial collection plate. The commercial kindly suggests that if I have purchased anything from an online retailer, I am honor-bound to proclaim such purchases and submit the appropriate sales tax to the collection department right away. They thank me in advance for my cooperation.
So, Charlie, when the auditor shows up at your door the best thing you can do is smile politely and be totally forthcoming. The sales tax that you pay is a small price for the convenience of shopping online.
Or at least that's what you should tell yourself as you write the auditor a check
Both Timknox & Tim-knox are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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