For small businesses, filing and paying sales tax is one of the inevitable costs of doing business in just about every state for all but a select few industries. Most business owners put it off until the last minute because its something they don't want to do, given it costs them some of their hard-earned income. However, there are a number of reasons to file and pay sales tax as soon as possible. In this article, we will discussing the incentive provided for doing so in the form of the collection allowance.
The Collection Allowance is effectively the state's method of rewarding business owners who don't make them go out of their way to collect from them. By willingly filing their sales tax within a reasonable time frame and online, they can shave off a portion of the tax owed to reduce the total. For example, in Florida, businesses take off 2.5% (0.025) of the first $1,200.00 of the owed amount if they file and pay before the due date using the online portal.
Now, that doesn't seem like much overall. But for small businesses, where every bit of captial should be conserved whenever possible, it is a free discount as long as they are on-time with their payments. No one turns down a discount if they can help it, more so when the alternative is either getting slapped with a late fee or facing repercussions for not paying at all.
However, you have to actually take the collection allowance by calculating the amount and entering it into the submission form. It isn't done for you, and it is possible to miss out on it from overlooking it. So make sure when you see the line asking you to enter it in, multiply the total owed by 2.5% and record it.
Also, keep in mind that for QBO-users, the collection allowance needs to be recorded as an adjustment on your Sales Tax Payment and placed in an income account. If you don't, then the amount recorded in the bank feeds won't match when payment is subtracted. That tends to cause cascading problems that will need to be addressed once they build up, requiring a professional to fix it.
We here at From Red To Black will be more than happy to lend you a hand with that if need be, but in an ideal world it shouldn't be necessary in the first place.
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