Owning a business can be stressful when it comes to taxes. Not only do businesses need to file federal taxes to the IRS, but they also need to file state taxes. All businesses in Iowa that generate taxable income must file with the Department of Revenue. Even if your business has zero dollars in sales, you are required to still file and state that.
Keep reading to learn our 5 tax tips for local businesses. You can also read our Tax Preparation Guide for personal tax returns here.
1. Determine if your goods or services are subject to Iowa sales or discretionary tax
Iowa has sales and use tax for retail sales and services, which is charged at 6% as well as discretionary sales tax and several other taxes. Businesses pay either the sales or the use tax, but not both on any given item.
The Iowa Department of Revenue explains that:
Sales tax is “imposed on the sales price of the sales of tangible personal property, specified digital products, or taxable services at the time the sale takes place. The seller of the goods or services is responsible for collecting, reporting and remitting the sales tax.”
Use tax on taxable purchases is “most often imposed after the sale takes place and only on goods and services on which sales tax was not collected. In many cases, these are purchases made from an out-of-state supplier not collecting Iowa sales tax on goods or services that are for use in Iowa.”
Sales subject to use tax is when “retailers that do not have physical or economic nexus in Iowa, but make sales into Iowa, may collect and remit the use tax that would be due on behalf of their customers.”
2. Register for a permit with the Department of Revenue
Before taxes are charged, a business first needs to determine if the goods and services they are selling are subject to Iowa sales tax or discretionary sales tax. Then the business must register for a permit with the Department of Revenue. The sales tax permit itself is free and serves as a license to collect tax.
For more information, visit the sales and use tax guide provided by the Department of Revenue or contact Cedar Rapids tax preparers John Freeman CPA to learn more.
3. Investigate Iowa tax exemptions
Iowa has some exemptions to sales and use tax. If you determine that your business could be exempt from certain sales and use tax, you must fill out the Tax Exemption Certificate and keep it in your files. Businesses are not required to send it to the Iowa Department of Revenue.
Common sales and use tax exemptions include:
- Construction services (note: this excludes repair services)
- Services for an employer by an employee
- Private non-profit educational institutions
- Iowa Government subdivisions and government agencies
- Federal government
- Some non-profit care facilities
- Legal aid organizations (if they are non-profit)
- Non-profit museums
4. Understand the frequency of filing taxes in Iowa
Tax season can be overwhelming, especially for a business owner. Submitting your tax return to the IRS is only one step in the tax process for a business. Businesses must also comply with state regulations and file a related tax return.
In Iowa, any business that holds a sales and use tax permit is required to file a return monthly, quarterly or annually. When applying for a permit, the business will estimate the amount of sales or use tax that they anticipate will be collected. The filing frequency is then determined based on this amount.
The following provides a guide to filing frequencies in Iowa for a business that collects:
- More than $60,000 in taxes per year or more than $5,000 per month, the business must file sales tax returns and remit payments monthly
- Less than $60,000 in taxes per year but more than $6,000 per month, the business must file quarterly
- More than $120 but less than $6,000 in taxes per year, the business must file quarterly
- Less than $120 per year in taxes, the business can file annually
If taxes are paid monthly, they must be filed by the 20th of the next month except for March, June, October and December, which are due on or before the last of the next month. Quarterly tax filings are due on or before the last day of the month following the end of the quarterly. Annual tax filings are due on January 31st.
5. Consult a Professional Accountant
A CPA-certified accountant will help to ensure that your business’s taxes are done correctly. CPA’s are knowledgeable and up-to-date on all tax laws – from federal to state laws and regulations. Consulting a professional accountant early and often can help ensure that your business is complying with all federal and state tax laws, while also maximizing your exemptions and returns.
To learn more about how to hire a CPA-certified accountant to elevate your business, contact John Freeman CPA at 319-396-5660.