Today’s complex business practices – for example, internet sales and virtual offices – increase your business tax liability, and a proactive approach is the best way to reduce your risk and fulfill your obligations. Local laws are constantly changing, and even remote sellers can be liable for certain taxes in other states–even without a physical presence in that state. A proactive approach that examines your overall exposure and determines the best ways to protect your company can save you money over the long term, in addition to helping alleviate worry.
State Returns
At DHJJ, we prepare and calculate multistate income taxes for businesses that have filing requirements in many states. With the complexity of state laws, it is very important to have a skilled state and local tax advisor to navigate these tricky laws and prepare these returns accurately on behalf of your business.
With the increase in remote work and being a global economy, more businesses have nexus and a filing requirement from multiple states than ever before. This means that preparing accurate and compliant multi-state income tax returns is becoming increasingly important for businesses.
One of the primary benefits of engaging a CPA for multi-state tax preparation is the peace of mind that comes with knowing that your taxes are being handled correctly by a professional. A CPA can identify any potential issues or risks and help you minimize your tax liability while ensuring compliance with all tax laws.
Local Tax
Local income tax is a tax imposed by many localities and cities on businesses based on their income earned from local sources. This tax is in addition to federal and state income taxes, and the rules and regulations for local income tax can vary depending on the jurisdiction. As a result, local income tax return processing requires the expertise of a CPA who has experience and knowledge in this area.
DHJJ assists our clients in identifying and claiming tax deductions and credits that may be available to them, reducing their tax liability while abiding by local regulations. This is particularly important in local jurisdictions where tax rules and regulations may differ significantly from other regions.
Apportionment
Apportionment in state taxes refers to the division of taxes amongst states based on specific criteria. The apportionment formula varies from state to state but generally includes factors such as sales, property, and payroll in the state.
Apportionment can be a complicated process that requires the assistance of tax professionals. At DHJJ we determine each state’s correct apportionment calculation and the amount of taxes a business owes to each state.
Nexus Studies
The term ‘nexus’ refers to the connection your business has with a particular state that triggers tax obligations in that state. Determining the extent of your nexus can be a complex process given the myriad of rules in all the different states and localities.
Determining your business’s nexus in each state where you operate or have sales is absolutely necessary to ensure compliance with state and local tax laws. Failing to accurately determine and report your nexus can result in significant penalties and interest, as well as the potential for tax audits and legal issues
By conducting a nexus study, you can identify where your business should be filing returns as well as past tax exposure. This will allow you to focus on growing your business without worrying about unexpected liabilities.
Our DHJJ state and local tax experts can assist in determine your business’s filing requirements by performing a nexus study.
What does a nexus study involve?
A nexus study typically involves a thorough review of your business’s activities in each state where it operates or has sales. The study will include:
- An analysis of your business’s physical presence in each state (e.g., employees, property)
- A review of your business’s sales and other transactions in each state
- An analysis of any state-specific rules or exemptions that may impact your nexus determination
Based on the above, a determination of which types of taxes your business may be subject to in a state or locality. Additionally, we can give you an estimate of the amount of tax owed, and even past exposure and the options available to settle past exposure.
In summary, if your business operates in multiple states, a nexus study by DHJJ can provide a valuable tool for minimizing your tax liability and ensuring compliance with state laws.
Registrations
As a business owner, registering for state and local taxes can be an exhausting task. But, failure to register can result in penalties and legal issues.
DHJJ can help businesses with state and local tax registration, ensuring that all necessary forms are completed correctly and on-time. We also advise on which taxes apply to the specific business and provide guidance on any exemptions or deductions that may be available.
State and local tax laws vary by region, adding complexity to the registration process.
Simulated Sales Tax Audits
Sales tax audit simulations are designed to mimic actual sales tax audits conducted by the government. An analysis like this can help businesses better understand the audit process, identify areas where they may be at risk for noncompliance, and prepare for potential audits.
During a sales tax audit simulation, we work with businesses to review the financial records, sales documentation, and other relevant information to determine if the business has properly collected and remitted sales tax to the government.
Additionally, we may identify potential exemptions or discounts that the business may be eligible for, as well as identify any potential errors or overpayments.
By participating in a sales tax audit simulation, businesses can proactively identify areas where they may need to improve their sales tax compliance practices. This can help them avoid costly penalties and interest charges that may result from noncompliance.
Voluntary Disclosure Agreements
Voluntary Disclosure Agreements (VDAs) are legal agreements between taxpayers and state and local tax authorities that allow taxpayers to declare any unreported taxes or unknown liabilities they may have incurred. These agreements are typically used by businesses who have identified past tax exposure in a state and want to get on record and pay the back tax to avoid penalties or state audit.
One of the key benefits of VDAs is that they can provide taxpayers with significant relief from potential penalties that may have been accrued on unreported taxes over time. Additionally, most states allow for a “lookback period,” meaning that the state will limit the amount of years to go back and assess the tax.
Overall, VDAs can be a useful tool for taxpayers who are concerned about potential tax liabilities, as they can help alleviate the risk of penalties and allow taxpayers to move forward in compliance with all relevant tax laws.
DHJJ’s SALT Team Can Help
Don’t wait for your business’s State and Local tax situation to go array. Get a knowledgeable handle on your obligations and prepare for your liabilities. Connect with the DHJJ SALT Team today.
