Mistakes in filing sales tax both in domestic and international ventures lay you directly under the awful glare of taxation penalties. Timely filing your sales tax with utmost accuracy will help you keep aside minor to monstrous legal and monetary troubles.
There are certain mistakes that we see common among individuals as well as businesses while claiming their sales tax returns. There is a sharp 5% increase in the tax return claims in the IRS in 2024 requiring you to make your claims today without an error. Here is a note on the common mistakes for you to avoid.
The Common Mistakes You Must Avoid While Applying For Sales Tax Returns
Errors are human and bound to occur at any point in your tax-paying years. But knowing about them is wise to avoid them completely. Here is the list of mistakes you must avoid while applying for your sales tax returns.
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Confusing Between Taxable and Non-taxable Products
The most common mistake in sales tax calculation occurs when you confuse and miscalculate between taxable and non-taxable goods. Their misclassification will either lead you to taxation audits or a bad reputation in front of your customers. To avoid this research well or consult with a tax professional.
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Incorrectly Calculating and Showing Your Sales Tax
People often miscalculate tax rates on different goods. This leads to incorrect tax payments and their disclosure. You can avoid this mistake by double-checking your calculations after ensuring that you put the correct tax rates.
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Failing to Register Under Necessary Jurisdictions
If you are operating in multiple states in multiple countries your sales tax claims will also reflect that. Failing to register to each jurisdiction under which you are operating will surely lead you towards penalties, back taxes and interest charges. Therefore, avoid it by identifying your tax nexus and staying up-to-date about their sales tax law changes and modifications.
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Neglecting the Calculation of Online Sales Tax
Sales tax is equally applicable to online sales. But many businesses often neglect this tax obligation especially when they sell across the state lines. This incorrect tax collection then hampers their proper claims for return. Therefore, you need to give equal importance to understanding the online sales tax laws and implementing them in your transactions from now on.
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Wrongful Claiming of Input Tax Credit
Taxpayers often put ineligible input tax credits which often leads them to greater problems like penalties and interests. You can avoid this mistake by going through the sales tax laws of your jurisdiction thoroughly. You will have secure in-detain understanding and verify if your claims are legitimate according to the law or not.
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Failing to Keep Exact Records
Business owners if fail to keep an accurate record of their sales tax collection get directly under the alerts of the audit officer. To minimise this issue you can digitalise your documentation using a digital storage system. Along with keeping records, their time-to-time maintenance and reviewing are equally essential to correct any possible error in time.
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Tripping Up on Taxable Dates
Another major mistake that businesses with multiple operating areas make is missing out on the taxable dates. Different jurisdictions have different taxation, submission, and tax-claiming rules which can get confusing at times. Taking the help of a financial expert along with digital record keeping with timely reminders will help you avoid this mistake.
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Lacking in Implicating Proper Tax Exemptions
Every jurisdiction offers some sort of exemption facilities on the sales of their taxable goods and services. While claiming a tax return you will need to properly exempt the amounts and have a legal certificate to justify your exemptions. Failing to do so will make you liable for a penalty. Therefore, know about tax exemption transactions, collect certificates around them and review them timely.
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Overlooking The Use Tax Obligations
Use tax is a substitutional tax which imposed when you fail to collect sales tax from your consumers. But often businesses fail to showcase this use of tax obligations leading them to unwanted legal liabilities. To avoid it you must familiarise yourself with the use tax rules and regulations of your operational area. Also setting up an internal account for keeping records of use tax separately will help you to claim it.
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Failure to File NIL Returns
You may assume that no business activity means no NIL filling. But in reality, even if your business does not make a transaction in a financial period or year, it still requires you to file NIL returns. Upon failing to do so, you will face the consequences of non-compliance. So, file your NIL returns even if there are no transactions on your behalf.
Conclusion
These are the common sales tax return mistakes even seasoned taxpayers often make. Pay attention to these mistakes and the measures to avoid them. Understand your tax nexus, and differences in taxation rules to accurately classify your taxable items. All of these together will save you from paying costly penalties while maintaining good relations with both the consumers and the taxation authorities.
Also, Read – Steps to Register for a Sales Tax Permits for Your Business
FAQs
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What are sales tax returns?
A sales tax return is nothing but the tax amount that your company pays to the respective government under whom you are running your business. Here you have to gather this tax on behalf of the government and submit it at times to the government as its revenue.
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What is the main difference between sales tax and GST?
Sales tax typically falls on the shoulders of products while selling them. But GST as its name suggests levies both on goods as well as services. India implemented GST in 2017 to establish a uniform tax structure across the country.
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What is the sales tax rate in India?
The sales tax or basically GST rate in India differs and is categorised in different slabs. For essential items, the rate is 0%, a 5% rate on basic necessities. Whereas you will pay 12% GST on standard goods, 18% on consumer products, and 28% on luxury goods.
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Who pays sales tax in India?
Any citizen of India who is purchasing a taxable good is directly liable to pay this tax. It is an indirect tax that the seller collects from the buyer and pays back to the government. Both central and state governments have their separate sales tax rates.
