Before talking about a sales tax audit we’d like to give some background information about sales tax in the state of New Jersey.
You are only allowed to collect sales tax when you have registered the business with the state of New Jersey and are authorized to collect sales tax in the state. We will not discuss what are taxable sales and non-taxable sales here, as the determination is heavily based on the industry you are in and the specifics of your services and products; if you are curious about this information, it can be found on the State of New Jersey website.
Once you are registered to collect sales tax in New Jersey, you are required to file sales tax quarterly with the state. You will provide the following information when you file:
(Here is the tricky part - the state of New Jersey wants you to remit the higher of what you collected or what was calculated to be the sales tax.
You don’t get to keep the extra if you over collected, and if you under collected, you still need to pay the calculated amount from your own pocket)
Everything mentioned above is reported in the good faith of the taxpayer. As long as the math works, and the payments made satisfy the tax liability, the taxpayer would be in a good place until they get audited.
If the state of New Jersey is on a mission to audit your sales tax filing, the responsibility is on you, the taxpayer, to provide the documentation that can back up the numbers on the sales tax information filed.
The best way to show corroborate your sales tax filing is the General Ledger. The General Ledger report has all the transactions recorded for a certain period of time. If you have a set of accounting records for your business, you can generate a General Ledger report pretty quickly and easily.
All of your previous transactions recorded as sales will be compared to your gross sales reported in the audit process.
For nontaxable sales, you will need to provide records to show the service or products sold were not subject to sales tax and, therefore, no taxes were collected.
If you don’t have a General Ledger, what can you do to prove your sales to the auditor?
The results are usually not in the taxpayer’s favor.
Good and smart business owners would keep their books current and audit proof. This would entail timely checks that sales and sales tax have been balanced. Some ways to do this are, sales and sales tax collected are reconciled with incoming deposits, and non-sales deposits and non-taxable sales are properly documented.
Do not let the audits catch you off guard. Running a business is already stressful enough and can keep you awake at night. Don’t let an audit ruin your weeks or months.
We have assisted countless business owners with IRS or state audits. A byproduct of our accounting and tax services is audit-proofing your business for tax audits. The accounting records and documentation we process each month can provide solid backup for your tax filings.
If you have a business and are in the process of selecting a tax professional, we recommend you work with a professional with CPA credentials so that you and your business can be protected from losing vital data and overpaying taxes as a result. This happens very frequently and is something we have helped our clients with in the past. If you are looking to make the change but are intimidated by the process you can always reach out to our firm at info@rschwartzcpa.com . We look forward to speaking with you and assisting you as you look to make the right decisions when it comes to your business.
Navigating these legal changes and what it means for your small business in New Jersey can be one of the biggest challenges you face in the coming years. Fortunately, Schwartz & Associates is already familiar with relevant tax laws and regulations you need to comply with, including the impact of the Biden Administration's new tax proposals. The American Families Plan (AFP) and American Jobs Plan (AJP) will bring with them new taxes on businesses in the coming year, and Schwartz is prepared to ensure your South Jersey business is not only in compliance but maximizing its benefits.
Contact us for more insight into what these changes may mean for your business specifically and what we can do to ensure you're getting the most out of your deductions.