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Topic: Tax questions
Message: Posted by: Matt Adams (Aug 9, 2010 12:51PM)
Uh oh...yep, I'm going there! I know there are tons of rules and regulations regarding taxes. I just want some help from KNOWLEDGEABLE people. So basically, if you don't know for sure, please refrain from commenting on this topic.

Ok, here goes:

1) I live in AL
2) I perform primarily in AL, GA, FL, MS, and TN

I have an AL business license for legerdemain and can perform anywhere in AL. I then pay AL state income tax on my earnings.

2 questions:

1) Do I have to pay state income tax on EVERY state I perform in? That seems extreme. Or would it just be paying my AL tax at the end of the year.
2) I want to start selling simple kid tricks. Do I have to pay state sales taxes to every state I perform in? Or can I just pay the AL sales tax at the end of the year as well?

Thanks to those who know!
Message: Posted by: Skip Way (Aug 9, 2010 01:39PM)
The fella to ask is Steve Snyder at http://www.thetaxmagician.com . Steve is a working magician and a tax specialist.
Message: Posted by: MikeHMagic (Aug 9, 2010 03:09PM)
Skip you beat me to the punch, I just spoke to him over the weekend.
Message: Posted by: Skip Way (Aug 9, 2010 03:19PM)
Great minds...! :)
Message: Posted by: ScottRSullivan (Aug 9, 2010 03:30PM)
I wouldn't mind hearing from others on this, too.

From what I've been told, you pay state income tax in each state in which you perform. If you sell tricks, you pay sales tax in that state, too.

It would be awesome if I'm wrong!
Message: Posted by: Matt Adams (Aug 9, 2010 04:48PM)
Hmm, I forwarded my 2 questions to him. We'll see what he says. Thanks guys!
Message: Posted by: Dannydoyle (Aug 9, 2010 06:26PM)
Ask on an accounting web site.
Message: Posted by: Al Angello (Aug 9, 2010 07:30PM)
By all means pay your taxes, but is it necessary to have an Alabama business license to perform in Alabama? In my state such a lecense is only required if you sell products at you shows.
Message: Posted by: TomBoleware (Aug 9, 2010 08:17PM)
Al,
Here is the general rule in most states, of course each person should check
with their own city/state:

1. You need a business license if you using a name other than your own.

2. You need a sales tax permit in order to collect sales tax on items you sell.

Generally, with state and federal tax, if you travel out of state and work,
and the amount is reasonable small, you simply add it to your own state total and nobody gets upset.

Dealing with taxes outside your own state can get complicated,
so yes you do need to talk to a tax expert if you going from state to state.

Tom
Message: Posted by: Al Angello (Aug 9, 2010 09:16PM)
Oh I get it since I use my own name I never needed a state license, which explains for bigger jobs they want my social security number.
Message: Posted by: Dannydoyle (Aug 9, 2010 09:48PM)
Usually over $500.
Message: Posted by: ScottRSullivan (Aug 9, 2010 11:08PM)
[quote]
On 2010-08-09 22:16, Al Angello wrote:
Oh I get it since I use my own name I never needed a state license, which explains for bigger jobs they want my social security number.
[/quote]

You might want to look into getting an EIN. It's free and saves you the security risk of using your social security number. You can get one on the IRS site easily.
Message: Posted by: JordanB (Aug 10, 2010 10:06AM)
You do not always have to pay state income tax in states in which you perform. Some states (Texas, Florida, Tennessee…for example) have no state income tax. The reason state taxes are so tricky is that each state has its own rules unlike the Federal government which has one set of rules (albeit very complicated rules).

The general rule is that you will only have to pay state income tax on money earned in that state. The states apportion the income based on where the income was earned. The home state generally taxes all income, but will give credit for taxes paid in other states. Again, this is just the general rule and not every state subscribes to these rules. States walk a thin line to avoid Constitutional limitations on multi state taxation. State and local taxation can become very complex. If you are a C-Corp then it gets even more complicated.

As for whether or not you need to collect sales tax….well, it depends.

I am working on my Master’s Degree in Tax and I have a Bachelor’s degree in accounting. I also work in the tax department of a large company. It can really get complex. I can tell you that in my opinion, state taxes are much more difficult area in some respect than Federal taxes.

The best advice is to talk to a CPA in your state. Be sure and talk to someone who has experience with multi state filings and sales and use tax filings. Most mid size CPA firms have clients that operate in surrounding states, so you should be able to find one without much trouble.
Message: Posted by: Matt Adams (Aug 10, 2010 10:23AM)
Al: yes, it IS necessary to have a business license to do business. You'll need to check with your state/county to see what is required of you to operate as a performer. Additionally, I'd recommend the EIN as well. It's free and easy to get (can do it online). By the way, I believe the EIN is required for a business license.
Message: Posted by: Paddy (Aug 10, 2010 10:48AM)
[quote]
On 2010-08-10 11:23, mattadamsmagic wrote:
Al: yes, it IS necessary to have a business license to do business. You'll need to check with your state/county to see what is required of you to operate as a performer. Additionally, I'd recommend the EIN as well. It's free and easy to get (can do it online). By the way, I believe the EIN is required for a business license.
[/quote]Maybe in your state you need a license to do business. I have been in business full time for 15 years and do not have a license. The reason is that I am an entertainer and do not sell any product, ergo no sales tax in OH, KY, or IN. I keep meticulous records because I am a sole proprietor and must prove my income and expenses. Never had a problem filing my quarterly tax forms and paying quarterly.
Message: Posted by: Steven Steele (Aug 10, 2010 11:25AM)
In California, business licenses are not issued by the State. If you don't use your name you have to file and publish a Fictitious Business Name statement. And if you want it protected you have to do a bunch of other stuff on top of if.

If you are going to sell merchandise, then you have to get a Resale License from the Board of Equalization so that you can collect sales tax.

As far as business licenses they are issued by Counties and Cities, but not all of them have them. I live in a city that required a business license, and next to two that don't.

As everybody else says, this issue gets complicated very quickly; so a tax expert is needed if you are going to be going into these areas in other geographies.
Message: Posted by: TomBoleware (Aug 10, 2010 12:07PM)
Steven, I think that is true in most all states.
In most places the business license is more a city/county thing.
It has nothing to do with your state or federal taxes.

If you call city hall or the county court house they will
gladly sell you one. They want all the money they can get. :)

Tom
Message: Posted by: Ed_Millis (Aug 10, 2010 12:16PM)
My city wants a license; my county doesn't require it. More for zoning and tax issues than permissions. But it also helps "validate" you for certain venues and opportunities.

Ed
Message: Posted by: magicman02 (Aug 10, 2010 05:47PM)
So if you are travel a lot and perform all over the country, and each show is in a different state, do you have to pay taxes in every one of those states or just file one tax return in the state where your business is registered at the end of the year and pay federal and state tax in the state you operate in?
Message: Posted by: TomBoleware (Aug 10, 2010 07:10PM)
[quote]
On 2010-08-10 18:47, magicman02 wrote:
So if you are travel a lot and perform all over the country, and each show is in a different state, do you have to pay taxes in every one of those states or just file one tax return in the state where your business is registered at the end of the year and pay federal and state tax in the state you operate in?
[/quote]

Yes for state taxes. You have to use a nonresident state tax form for each state, if that state requires you to pay a state tax.
(Not all states do) Also, the amount (percentage) for each state will vary.

As for as Federal taxes, no problem, you just add it all together.


But again, each person should talk with a local tax person about their own tax.


Tom
Message: Posted by: Matt Adams (Aug 18, 2010 08:15AM)
Here is Steve's reply to my questions:

The simple answer is yes, you have to pay state taxes in all those states.

Now for the complex issues.

Every state has a minimum amount of money that must be earned before any taxes are due. In some states that amount is as low as $1. You will need to visit each state's tax website to see if you do indeed need to pay any state tax.

Taxes paid to other states for income you earned there, should be able to be deducted from your home states tax requirement - in other words, you don't have to pay tax on the same income in different states.

My suggestion is to find a good tax person, who understands the complexity of your business, and multiple state income - or, you can do it all yourself with a very good tax program.

As for selling goods in other states, that one is a bit trickier. Most states usually require you have a presence in that state before you have to charge taxes. A presence usually means an office or store. Since you don't have that, it is unlikely that you will have to charge sales tax when away from your home state - nor should you have to pay taxes on goods sold outside your home state at the end of the year.

You will need a great recordkeeping system to keep track of your sales. You mentioned you may have sales in 5 states. I would suggest, as a minimum, a 5 or 6 column accounting pad (available from your local office supply store). Label each column with the name of a sate. As sales occur - you can write the description of the sale, and enter the amount in the appropriate state column. At the end of the year, add up all the columns. Your tax-person will know what to do with the information. You can do the same thing for your income (a separate set of sheets from that pad would be necessary).

If your state requires quarterly estimated tax payments (as does the federal government), this system makes it a lot easier to keep track of income and sales in each state.

Still have questions - feel free to write or call.

+++++++++++++++++++++
Steve Snyder
The Tax Magician
http://www.thetaxmagician.com
Message: Posted by: seadog93 (Aug 18, 2010 02:16PM)
So, as far as using your name. My name is Courtney Kolb and I've been calling my "business" Courtney Kolb Magic Shows. Does that count as using my name?
Message: Posted by: Skip Way (Aug 18, 2010 03:09PM)
From entrepreneurs.about.com :

A fictitious business name, assumed name, or DBA (short for "doing business as"), referred to as "trading as" in the UK, allows you to legally do business as a particular name at minimal cost, and without having to create an entirely new business entity. It allows you as a sole proprietor to use a business name rather than your personal name.

In some places you can use either your full name or part of your name plus a description of your product or service without filing an assumed name, e.g., Elena Garza Interior Design or J. Washington Investigataions. [b]The exact rules vary from country to country and from state to state within the U.S., so check with your local business regulatory authority regarding your area.[/b] But if there's any implication that there are more people involved (Shawad & Sons, The Anderson Group, etc.), or if you just use the first name (Joe's Garage, Sam's Boat, etc.), you have to file an assumed name.
Message: Posted by: Bill Hegbli (Aug 18, 2010 03:36PM)
There is a difference between service sales company and a merchandise sales company. If you do not sell any merchandise but only your magic shows, then you are a service company and there is no sales taxes to collect or pay. I believe you do not even have to list the company with the state on a small scale. If you are making hundreds of thousands of dollars, this may have some influence on taxes and such and it is best to seek advice from an attorney and an accountant.

So if you made $5000 from shows one year, it is best to file as a hobby and be able to take all the deductions that come under income from a hobby.
Message: Posted by: Bill Palmer (Aug 19, 2010 01:56AM)
Even this law varies from state to state. About 15 years ago, Texas, which has NO income tax, decided to start taxing certain aspects of the shows entertainers put on. For example, if you are a caricature artist, you have to pay sales tax on the caricatures you draw during your stint. There is a complex formula the state uses for this. This is different from a normal sales tax computation, because normal sales taxes are based upon items sold, so there is a concrete value for each of the items. With a caricature artist, they have to figure out the tax based upon how much they get paid to draw caricatures. This is even after the caricaturists lobbied to be classified as entertainers, because of the conversations they have with the people they are drawing.

When this first started, I called the State Sales Tax people and asked them about service taxes on entertainers. I had been under the impression that a magic show was "entertainment" and therefore not subject to sales tax. My argument was that charging a sales tax on a magic show was a selective income tax. The tax agent explained to me that there are many occupations in which labor is a taxable item -- auto mechanics, repairmen of various sorts, and they had made the same argument. The tax people were just waiting until they had a need to tax us.

My main advice would be to find a tax man locally, Mr. Snyder's expert and much appreciated advice notwithstanding, because your local situation will be different from that of other people.

My tax man is also an entertainer. He worked his way through college as a juggler, magician and piano player. He is also an attorney. This puts him into a unique position regarding handling the needs of entertainers. He isn't cheap, but he knows his stuff, and more importantly, he has already saved me a lot more money than I paid him to do my taxes.

The ONLY person you should pay any attention to who has answered the original post is Steve. He is a professional. Paying attention to "folk tax wisdom" can cost you a lot of money.
Message: Posted by: Matt Adams (Aug 19, 2010 09:22AM)
I wish this stuff were easier to understand. It'd certainly make it more attractive to be honest. Haha. But the great preacher, Charles Haddon Spurgeon, gave this challenge:

Lose all rather than lose your integrity, and when all else is gone, still hold fast a clear conscience as the rarest jewel which can adorn the bosom of a mortal.
Message: Posted by: TomBoleware (Aug 19, 2010 02:11PM)
Matt, I've been a business owner, and I've been doing business taxes for many, many years.
You need to learn the basic tax stuff yourself even if you do have the best tax man in the world.

An important business saying, "Trust but Verify." Learn enough on your own to at least question the experts.

Tom
Message: Posted by: Matt Adams (Aug 19, 2010 03:24PM)
I agree with that Tom. I've been learning all I can and trying not to be overwhelmed. It's not correct, but I figure "I'm doing what I can" - doesn't give me license to do things illegally, but I'm trying to be legit in all my business dealings. Whew...not so easy when there's so many ways to do it incorrectly!