Deducting Sales Taxes on Form 1120S

[Tax Sleuth]

A taxpayer owns a cash basis business. He collects sales taxes from customers and remits them as a part of his state tax requirements on a quarterly basis. Can sales taxes remitted to the state in 2014 for his fourth quarter 2013 sales tax obligations be deducted on a 2013 Form 1120S?

[DaveO]

Sales taxes are genrrally not included in gross income and therefore not deductible. If your client includes the sales tax collected in gross income it would then be a deduction. However 2013 sales tax paid in 2014 would be deducted in 2014. The 2012 Q4 sales tax paid in Jan 2013 would be deductible in 2013.

[ATSMAN]

I run into this issue frequently when I get a new client. I am surprised how many preparers still show gross sales to include sales tax collected and then deduct the sales tax under taxes even though some of that is paid in January of the following year. These are all cash basis taxpayers.

I setup my clients to record the sales tax collected and remitted separately. That way I can see it.

[taxxcpa]

If a client records total sales, including the TX 8.125% tax, I would divide the total by 1.0825 and report that as sales and consider the other part as a tax payable rather than income.

[ATSMAN]

I guess that is a quick and dirty way to get a "ball park" number but I will not use it in a tax filing. The reason is that there are sales that are non taxable in a retail store (My clients are convenience stores).

I insist that they get their book keeping straight. Their sales register needs to have sales that are taxable and non taxable, and tax separated. They need that data to file the state sales tax returns each month so they have to keep it separated.