Starting a business can be a scary, intimidating, and challenging time for an entrepreneur. To many, entrepreneurship might seem like an escape from the highly demanding corporate sector that sucks the life out of professionals by making them work 9 to 5, but it is important to realize that entrepreneurship is not an escape from 9 to 5 work life, it is entering a phase where one has to work round the clock. The biggest challenge in entrepreneurship is dealing with all spheres of the organization; from marketing to accounting, human resource, production and manufacture, sales and growth and so on. And while there is no denying the fact that a person cannot be a jack of all trades, there is also no doubt to the fact that an entrepreneur cannot afford to hire experts in each field and thus has to manage all of it on his own to begin with.
One area that needs particular training is tax. It is important for anyone starting a business to know what tax is and how or when he or she has to pay it. A majority of entrepreneurs and business owners who have just begun think tax is not a big deal. This is where they go wrong because it is! Failure to comply with tax and its various kinds can have upsetting penalties on a business, some that a new start up might not be able to afford. This is precisely why it is important for all business owners to understand the basics of tax.
The two most common types of taxes most start-ups are exposed to are sales tax and use tax. These differ greatly from each other. Here is the explanation of the distinction between sales tax and use tax.
What is Sales Tax?
While many believe that sales tax is an additional price paid for every item bought but for entrepreneurs and businesses, it means a lot more than that. According to the law, businesses that sell goods and services must collect a specific percentage of tax, depending on the state, from their consumer at the time of purchase. Certain areas and states demand the tax to be states separately on the receipt of the customers whereas others include it in the overall price but sales tax is definitely charged to the end user of the product or service.
What is use tax?
Use tax is a specific kind of excise tax charged by governments of several states. Use tax is evaluated according to the resident or business’s tangible personal purchased for storage or for operational use. Use tax is applied regardless of the area of the purchase of the item, which means it is applied even when sales tax was not paid.
Starting a business can be a challenging yet fun and exciting time for the entrepreneur but it is extremely important for him or her to know the crucial information about tax. The knowledge in this article is just the tip of the iceberg considering the knowledge and information that experts must know but it is definitely a good base to start from.