Let’s discuss the impact and implications of indirect taxes on your organization.
Direct vs. Indirect Taxes
Before we talk about how indirect taxes shape businesses, let’s break down the difference between direct taxes and indirect taxes.
According to the IRS, “a direct tax is one that the taxpayer pays directly to the government. These taxes cannot be shifted to any other person or group. An indirect tax is one that can be passed on – or shifted – to another person or group by the person or group that owes it.”
Examples of direct taxes include things like income taxes, property taxes, and taxes on assets. Indirect taxes include things like sales tax, value-added tax, and other excise duties, where a tax is collected by the seller but paid by the buyer. Most indirect taxes are paid by consumers, not by the supplying business.
The Impact of Indirect Taxes
Indirect taxes are often used by governments to encourage – or discourage, in the case of sin taxes – certain behaviors in consumers. For example, taxes imposed on items being imported can help push US consumers to think more carefully about buying American-made products. These products are often cheaper because the extra indirect tax does not apply to them. This, of course, depends on the costs associated with making and shipping a product within the US versus from country to country.
Indirect taxes also allow businesses to allocate certain financial burdens, operations, and cost analysis away from the business itself and onto your customers, easing your financial burdens and increasing revenue. But the digital transformation that has been in the works for years before COVID is going to create a lot of new obstacles and opportunities.
The Emergence of NFTs
Non-fungible tokens are becoming more and more popular, as is cryptocurrency. NFTs are unique digital assets whose ownership is demonstrated and verified via DLT (distributed ledger technology). Because NFTs are difficult to classify, they are raising questions among governments that are trying to impose indirect taxes on them.
The more digital-based the world becomes, the more we’ll see governments implementing indirect taxes on different types of online assets and services. The US tax code is always evolving, and we have a feeling the next several years are going to bring about some groundbreaking changes. And those changes may affect your business as well.
Electronic Tax Filing is the Future
And just as many other products and services are going full-digital, there will likely continue to be a big push for taxes – direct and indirect alike – and related forms to be filed electronically.
The business world grows in complexity every day. Online offerings expand and morph into new and exciting things. And that means your financial operations will have to keep up with the times.
Organize and Store Your Electronic Tax Forms
The more you learn about the state of your company’s taxes, the easier it is to mitigate risks and avoid costly mistakes and audits. eFile360 helps business owners, accounting clerks, CPAs, and HR professionals across the country by e-filing, printing, and mailing forms for you. You also have the ability to store your forms data for future perusal. You can learn more about how it works here.
Sign up for a free eFile360 account for more information about how to e-file your taxes this year.