As a health food retailer, you spend a lot of time and effort helping your customers stave off the ravages of time and, ultimately, death. Now if only you could do the same thing with that other inevitable: taxes.
Tax forms for natural foods stores are complicated. Not only are there state, federal and sometimes city taxes to calculate, but there are separate forms if your store is a corporation, partnership, sole proprietorship or nonprofit.
While a good accountant can help you navigate the paperwork at tax time, you can do a variety of things on your own to keep the Internal Revenue Service's grim reaper from knocking at your store's door.
Hire a payroll service. While employment taxes are not unique to retailers, they're a bigger deal for a natural foods store than, say, a one- or two-person law firm. That's because many retailers have multiple employees, making it time-consuming to track the taxes you have to withhold for every worker.
Terry Rindt, a certified public accountant and board member of Outpost Natural Foods Co-op in Milwaukee, says farming out your payroll to a service not only saves you time writing paychecks each month, but also tracks all the taxes you have to pay.
"You provide a payroll service with employee names, Social Security numbers, addresses and hours worked, and they'll calculate withholding and your quarterly and annual tax returns for the state and federal." A service can also easily determine whether you or your employees qualify for specialized credits or taxes, he says. "That saves you a lot of paperwork, especially if you have a lot of employee turnover."
In addition, Rindt says, if the IRS ever audits your employment taxes, you have some recourse if you use a payroll service, because most services will back you up with computerized records. Rindt recommends hiring one of the "big, reputable" services like ADP or Paychex, or check with industry groups or your local chamber of commerce to see what fellow businesses use. Such services could cost a natural foods retailer as little as $2,000 a year, Rindt says.
Make sure you have an up-to-date sales tax system. "The thing with retail is that sales tax is different for every state," Rindt says. For instance, "in Ohio, drinks are taxable only if they have sugar. People didn't know what to do with natural drinks that may have sugar but are good for you anyway." Rindt says the best way to deal with local sales tax laws is to buy software or have computer professionals program your cash registers to recognize what's taxable and what's not.
Unfortunately, Rindt says, even careful cash register programming may not prevent your store from being audited by the IRS. "The sales-tax audits I've been in are totally random," he says. Even worse, "if the IRS is going to come in on a sales-tax audit, they'll always find something," he says. "If the [extra tax] is in the $2,000 to $3,000 range, just pay it, because if they come in again or a third time, they'll give you a 25 percent penalty." While you probably can't account for every minute sales-tax detail, "the important thing is, if you see something you can fix in your system, do it," Rindt says.
Don't forget use taxes. This is probably of most concern if you're remodeling or building a store, Rindt says. If you buy construction materials or other big-ticket items from out of state and don't pay sales taxes on them, you still have to figure out what the sales tax would be and report it to the IRS. "Use tax is for anything that you use or remove from inventory, so it also applies to trade publications you might get, anything you use in the store, like lighting or shelving or your telephone," says Amy Satterfield, who owns a retail store in Fort Collins, Colo. "It's not true that it's only a concern if you're remodeling or building a store. Even if you're not, you'll still probably have something to report on the use tax form," she says.If you're planning to go shopping, do it soon. IRS Section 179 allows a business to depreciate a maximum of $108,000 in capital expenditures a year (including equipment, furniture and fixtures), up to an overall investment limit of $430,000. But in 2008, that will drop to $25,000 in capital expenditures and an annual investment limit of $100,000, according to IRS Senior Web Analyst Benjamin Hodges.
Check to see if your neighborhood or city qualifies you for tax breaks. State, city or federal enterprise zones, usually located in disadvantaged areas, offer tax incentives to businesses that set up shop there. The same goes with work opportunity tax credits, from which employers can qualify for a tax break on employee wages. Employees who lived in the core disaster area when Hurricane Katrina hit qualify, regardless of where they now work, but check IRS regulations for hiring date restrictions.
Vicky Uhland is a Lafayette, Colo., freelance writer.
Natural Foods Merchandiser volume XXVII/number 12/p. 14, 18