Back Taxes--What to do About Periods Where You Didnt Collect the Taxes
If you have owned your vacation rental for months or years and youíve just figured out that you were supposed to be collecting and paying sales & lodging taxes, there are solutions to this problem. Many property owners go years without knowing or understanding the sales & lodging tax collection requirements. Most people are familiar with the requirement to report rental income on their state and federal income tax returns, but sales and lodging taxes are an additional requirement that a significant number of vacation rental owners simply are not aware. If you are in this situation you may be unsure of what to do or worried about the years of past tax that you owe.
The good news is that most state revenue agencies have programs for exactly this issue. States are motivated to get taxpayers complying and collect these taxes to increase their tax revenues. As a result, state tax agencies have programs called Voluntary Compliance or Voluntary Disclosure, whereby they will agree to waive most penalties in exchange for you voluntarily coming forward and paying these taxes that may have gone uncollected or unpaid for years.
Penalties for non-compliance vary by jurisdiction and can be significant. Penalties are typically between 10% to 50% of the tax due each year and may accumulate to a significant amount over a period of several years. Most jurisdictions will impose a minimum penalty on a late return or returns not filed Ė even if there was no tax due. A minimum penalty can be as high as $50 or $100 per late return.
Keep in mind that it is imperative that you contact the tax authority first. If you have already been contacted by a tax agency you lose the option to participate in the voluntary disclosure program. Also, if an enforcement agent contacts you first, they will probably not waive penalties. Tax agencies have alot of tools and powers enabling them to pursue and collect unpaid taxes. They can assess taxes on a property (basically estimate an amount they believe is due) and they may ultimately place a tax lien on the property, if the tax liability is not resolved. Enforcement officials routinely review vacation listing listing websites in search of rental properties that are not collecting and remitting sales and lodging taxes. So donít procrastinate; the penalties and interest for non-compliance continue to accrue and increase over time.
About HotSpot Tax Services
HotSpot Tax Services specializes in sales and lodging tax compliance, for vacation homeowners and property managers. As part of its services, HotSpot will work with state and local tax authorities and resolve back tax issues. There are a number of options to deal with back taxes, including voluntary disclosure. Call HotSpot today at 877-589-0207 for a confidential conversation regarding voluntary disclosure in your area, or visit www.hotspottax.com.