Do you want to know how stores report delinquent accounts? If YES, here is a 10-step guide on how to report delinquent accounts on taxes for retail stores. Delinquency rates in the American retail industry have been growing rapidly over the past five years – faster than any other consumer credit product. This misfortune is happening at a time when retailers are under immense pressure.
According to reports, the typical consumer holds 2.5 retail credit cards with a collective balance of $1,841 and $1,816 in retail credit card debt. Average consumers in the Silent Generation possess 2.3 cards, Baby Boomers hold 2.7, Gen X holds 2.6, Gen Y holds 2, and Gen Z holds 1.5. Average balances show the Silent Generation with $1,354, Baby Boomers with $1,931, Gen X with $2,122, Gen Y with $1,626, and Gen Z with $770.
Note that consumer delinquency rates on retail credit cards have reached a seven – year high (the highest since 2011). It has been rising steadily, on a seasonal basis, since 2013, and the number of accounts at least 60 days delinquent has grown to 4.65 percent, up from 4.08 percent in March 2017.
Owing to the continued popularity of retail credit cards and rising delinquencies, stores in the United States are at an increased risk for experiencing late and missed consumer payments. However, to address delinquent consumer accounts and remain profitable, the retail industry has learnt to implement various debt collection tactics.
Modern retail industry stakeholders understand the importance of such endeavours to fuel growth and protect a business’ brand image in terms of taxes and revenue generation. Whether retail stores use in – house collections, outsource the process to a third – party debt collection agency, or a combination of the two, they have also considered using a consumer – centric approach.
Retail stores that successfully manage internal collections possess a solid collection plan, experienced collectors, leading technologies that accurately monitor performance, and a physical space dedicated to collecting debt.
Note that when performing third-party collections efforts, collectors clearly identify themselves as debt collectors. But whichever methods retailers choose, employing a best – in – class agency saves time, money and resources that can be redirected to other crucial tasks and make tax reporting easier.
How Retail Stores in the United States Can Report Delinquent Accounts on Their Taxes
In the United States, there are some tax dates that apply to all small businesses. For instance, all American retailers should have filed copies of 1099 and W – 2 forms with the IRS by February 28th, unless they file electronically; howbeit, these forms are due March 31st.
Exact filing dates tend to vary from one store to another based on how the business is legally structured and whether you follow a calendar or fiscal year. However, to efficiently report these setbacks accordingly, read on and follow the steps presented below:
Table of Content
- 1. Organize your Receipts
- 2. Update your Bookkeeping
- 3. Know your Sales Tax Requirements
- 4. Know your Sales Tax Reporting Period
- 5. Audit your Data and Get Your Overall Numbers with a Good Totals Report Software
- 6. Check Delinquent Accounts and Taxes Collected from Customers with a Sales Tax Report
- 7. Report the Right tax Classes with the Tax Class Report
- 8. File for a Tax Extension (if you need more time)
- 9. Seek an Accountant and Ask Questions
- 10. Submit Your Tax Forms
1. Organize your Receipts
As long as your business accounting is audited, you’re expected to have your receipts at hand. You can organize your receipts and track your business expenses yourself with file folders, or you can use organizational software like Evernote to store your receipts digitally.
2. Update your Bookkeeping
Have it in mind that bad bookkeeping always hurt and cause delay when tax reporting comes. To be prepared for the tax season and beyond, it is advisable you audit your business accounting so your books are in order. Always take the time to look over your financial records and organize all your business expenses—such as payroll, merchandise, marketing costs—by category.
Also make sure your categories are consistent and report any business expenses made with personal credit accounts. If you have no organized records of your expenses and income at all, you should strongly consider hiring an accountant. You can cut down on the time it takes to organize your financial records for tax reporting by syncing your accounting software and your POS system.
3. Know your Sales Tax Requirements
Stores in the United States have no sales tax requirements at a federal level, as sales tax laws are handled by individual states. Note that most states allow for local sales tax rates in addition to state – mandated sales taxes, so your state’s tax rate may not be the sales tax rate you’re meant to be charging customers—always consult with your local tax regulations to be sure.
Nonetheless, if you operate a retail business in the US, you must report your sales taxes during the mandated reporting period(s) for states in which you have a sales tax nexus. A sales tax nexus is simply as an established presence in a state, the parameters for which vary from state to state. For some, it requires having a physical location (such as a store or a warehouse). For others, simply doing enough business in a state, such as through ecommerce, can establish a nexus.
4. Know your Sales Tax Reporting Period
Have it in mind that your reporting period(s) will vary based on the state (or states) you’re doing enough business in. It is always advisable you consult the laws of the states in which you have a sales tax nexus for your reporting period(s). If you are unsure of whether or not you have a nexus in a state, consult an accountant.
5. Audit your Data and Get Your Overall Numbers with a Good Totals Report Software
A totals report platform is exactly what it sounds like: a total of all your sales in a given period, presented to you by sale line. It also includes your cost of goods sold, margin, and sales taxes. Most common total report software does not break down your sales by tax class or location, but it is useful for a quick overview of the amount of income and tax collected on all your sales.
6. Check Delinquent Accounts and Taxes Collected from Customers with a Sales Tax Report
Normally, a Sales Tax report returns information on taxes you have collected or not collected in a given period, filtered by the different sales tax parameters you set up when adding a store to your account. This report is useful for multi – store accounts with different taxes per store.
When you run it, it will calculate the breakdown of taxes paid per sales tax type. If you’re filing taxes in multiple jurisdictions, having this report at hand will give you a more useful at-a-glance overview of how much sales tax you collected than the Totals report.
7. Report the Right tax Classes with the Tax Class Report
Note that the Tax Class report breaks down the taxes you collected by class and the ones you have not collected by duration. By default, it groups all tax classes together instead of filtering them by individual sales tax rate. You can run it by location if you have different sales tax rates, or as a whole to see the distribution of tax classes across your whole business.
Have it in mind that this report is useful for any retailers who sell goods that, by law, have their own tax rates. A jewellery store that offers its customers repairs and engraving may tax those services at a different rate, for example. This report will return the taxes they collected on those services separately from the taxes collected on goods sold.
8. File for a Tax Extension (if you need more time)
Getting accurate data on delinquent accounts and taxes can take longer than we all expect. Once you feel you need extra time to get your financial records in order, you may be able to file for an extension on your retail tax reporting or on any applicable penalties for late filing.
You can file for a six – month extension on your federal tax return with the IRS if needed. Note that the extension is only for filing; you still must pay your taxes on time. Contact your accountant if you need to file for an extension. Notably, retail businesses classified as partnerships or S corporations who are not using a fiscal year calendar can extend the deadline to September 15th granted you file for an extension by March 16th.
Retail businesses classified as corporations who are not using a fiscal year calendar can extend the deadline to October 15th granted you file for an extension by April 15th. This is also the extension deadline for sole proprietors filing as individuals and not using a fiscal year calendar.
9. Seek an Accountant and Ask Questions
If you think you need clarification and want to ask questions while reporting delinquent accounts and filing your taxes, remember that you can always trust the experts. It is advisable to consult with an accredited business accountant to check that you have properly filed everything.
However, before you meet with your accountant, prepare a list of questions you can go over together to ensure nothing important was missed. If you are filing for a tax extension on a fiscal year calendar, you must make the request by your original deadline. Your extended deadline will be six months after your original filing deadline.
10. Submit Your Tax Forms
In terms of reporting delinquent accounts in your tax reports, it is always a good idea to talk to an accountant—they’re the professionals after all. Using accounting software will make this step go smoothly. Gather all your accounting documents and fill out all the required forms. Remit your forms to the CRA or IRS, pay any amounts due, and file your records and receipts in a safe place in case of an audit.
Immediately you have gathered your forms and consulted your accountant, it is a simple matter of sending the documents to the right agency and paying what’s owed—and that’s it. Your income taxes have been settled for the year. Time to start collecting your debts through a collection agency and gathering other receipts for next year’s tax season.