new building contractor tax question?

Question

I have been paid a portion of job costs up front to cover material cost. I pay taxes on these materials due to not having set up exempt status yet. Do I have to pay quarterly taxes on the amount spent on materials as they were already taxed? Do I deduct the material costs and pay taxes on that amount?

Answer 1

The taxes you are paying when purchasing materials are sales tax, not income tax. Your income tax would be based on your net income - the materials would be an expense subtracted from your gross before figuring your income tax.

Answer 2

First, you won't get exempt status for building materials. Resellers who don't have to pay sales tax on their purchases are selling the items they purchased and collecting sales tax from the buyers. That's why they are "exempt" from paying them -- the requirement to pay goes to the end user of the items. In the case of the building materials, you are the end user of the items you purchased. You will, of course, pass the full cost along to your customer.

Second, you pay income tax on your income -- in this case, on the net income from your business. Net income is your total receipts minus your total deductible expenses, one of which is materials. Others may include supplies, tools, mileage, insurance, and so forth. You will also pay self-employment tax (Social Security and Medicare) on your profit, approximately 15%.