Monday, January 31, 2011

FAQ: What if I underpay my taxes?

This question came in over the weekend and I just answered it. I've sanitized it, because it's worth mentioning to those of you who are relatively uninformed about this:

Found your Sales Tax Guy blog while doing some research. I'm hoping you can answer a question for me.

I own a small retail store in New Jersey. I recently discovered that my now former accountant was underpaying the amount of sales tax I owe. We collect the correct amount (8.75%) but it looks like we have been sending about 7.75% to the state every month for the last three years!

Should I just forget about the past shortages (we're paying the correct amount now) and hope that the state doesn't discover the error? How could the state discover the error anyway unless I brought it to their attention?

Doreen, of all of the possible mistakes that you can make, this is dang near the top of the "really bad" list. Have a look these articles.

You need to get professional help from someone who knows their way around sales and use tax. It'll be expensive but not as expensive as the price you'll pay if you ignore this. And New Jersey is broke, so they're even more aggressive about finding unpaid taxes.

They'll find you. It's called a "sales tax audit." And this particularly problem is one they'll probably find in the first hour or so of the audit. Snap.

Find some help.


This also brings up an issue I've talked about before. While your accountant may be highly knowledgeable at income taxes, there's a good chance that he or she knows virtually nothing about sales and use taxes. But the eventual responsibility will rest with you. So make sure that whoever you take advice from on this topic actually knows something about it. And make sure they're doing it right.


The Sales Tax Guy

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

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