Sales tax is a consumption tax charged on goods and some services. As a freelancer, you need to understand when you must charge it to clients.
What is Sales tax?
Sales tax is a percentage-based tax governments add to the sale of goods and certain services. It's charged to the end consumer. For freelancers, this often applies if you sell tangible products or specific digital goods, not typically for pure service work.
Why is this important?
You are responsible for collecting and remitting sales tax if required. Getting it wrong can lead to penalties, interest, and audits. Knowing your obligations protects your business and keeps you compliant with state and local laws.
How does it work?
Your obligation depends on 'nexus,' meaning a business presence in a state. If you have nexus, you register for a permit, then add the tax to invoices for taxable items. You then file returns and send the collected tax to the government periodically.
Pros and cons
The main pro is that you are simply collecting tax for the government, not paying it from your income. The cons include administrative complexity, varying rates by location, and the need for careful record-keeping to avoid liability.
Conclusion
Sales tax compliance is a key part of freelance business operations. Determine if you have nexus and what you sell is taxable. When in doubt, consult a tax professional for advice specific to your situation.
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