One thing is for certain, no one looks forward to paying more in taxes than they need to. If you are a savvy online shopper, you may look at internet bargains as a way to help your pocketbook, but there may be hidden taxes lurking if you aren’t careful.
The tax code treats all purchases equally when it comes to assessing sales tax, whether you made your purchase at a local store, across state lines, or via phone, catalog or computer. If you live in a US state with a sales tax (anywhere except Alaska, Delaware, Montana, New Hampshire or Oregon) and weren’t taxed at the time of your purchase, your savings may be short-lived.
The current tax code makes no special regulations for online purchases. That’s because it predates e-commerce. Instead, online shopping falls under the rules established for national catalogs. As a result, retailers are only responsible for collecting sales tax if they do over $1 million in sales per year, and only for orders to customers who live in a state where the business has a physical location. All other customers are responsible for reporting their own purchases and paying the truant sales taxes at the end of the year.
That is a big responsibility for the casual shopper, but the IRS and local tax agencies aren’t too concerned about collecting pennies in use tax. Instead, they are looking for big ticket items like boats, cars, and furniture that may have been purchased across state lines. If you fall under this umbrella, working with an accountant or even paying for the souped up version of Turbo Tax may be a wise investment and help you avoid a tax audit after your taxes are filed. It’s important to report and purchases accurately, and balance those against allowed deductions to get your tax bill on the right footing.
If you spent the last year making smart online purchases, don’t worry, the fun doesn’t have to end! Get your financial records in order to make sure you don’t have any tax liability, because your outfit should be outstanding, not your taxes.