Taxes 101 For
E-commerce Business Owners
When you’re running a business, you have a million things on your mind at any given moment: sales, marketing, promotion, when you need to hire someone new… the list goes on.
Accounting is probably the last thing on your mind on a
But don’t worry: we’re here to help you break the cycle.
We’re going to cover everything you need to break your bad accounting habits, starting with…
Accounting tools for
Price: Starts at $19/month
Out of all the options on this list, TaxJar is the only one created specifically for
Price: Starts at $15/month for small business plans
QuickBooks has been the
The downside is that a lot of
Price: Starts at $9/month
Xero positions itself as an easier to use alternative to QuickBooks, and has many of the same features: invoicing, accountant access, payroll (with timesheets built in), W2 and 1099 prep, and filing sales taxes. There’s also a mobile app, and you can easily import your data from QuickBooks if you want to switch.
Price: Free plans available, $19/month to track and pay staff, $19/month for
Wave has similar features to Xero and Quickbooks, with the main difference being its pricing structure. Instead of having a monthly fee by default, Wave charges for credit card processing when payments are made through Wave invoices, and has
Price: $199.95 a year or $29.95/month
Kashoo is created for small business owners who do their own accounting and need a simple, fast way to view all their important numbers — from expenses to cashflow to tax reporting — in one spot. It also has integrations with payroll apps and accountant access, should you need it.
Accountant or DIY?
Once you’ve picked an app to use, the next question is: will you get some help, or DIY your accounting?
First off, let’s address a common source of confusion: what’s the difference between a bookkeeper and an accountant?
A bookkeeper works on a
Meanwhile, accounting is more of a
For many business owners, bookkeeping can be DIY’d without taking too much time or energy using a tool like one of the above suggestions (Xero, QuickBooks, etc.). When it comes to filing taxes, however, you might want to get an accountant — depending on your previous experience with filing business taxes, an accountant can help you maximize your deductions and minimize your time spent stressing out over tax paperwork.
If you have multiple streams of income (i.e. you work a day job and your
State sales tax: What you need to know
Arguably the trickiest part of tracking sales tax is that you’ll need to collect taxes in every state that your business has nexus in. Nexus is created when you have even the slightest physical presence (typically, property, employees, business owners, or inventory) in a state.
If you use your own shopping cart (like Ecwid), and all of your inventory, owners, and employees are in the same state, then you only have nexus in one state.
If you use dropshipping services, where your products are stored in a
If you are (or your inventory is) in one of the following states, then you won’t need to collect sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Everyone else needs to collect and file their sales tax. You should be collecting sales tax on sales from within your state (i.e., if you live in Texas, and someone in Texas orders a product, they pay the sales tax).
Past that, the rules as far as how much to collect in tax and how to file those taxes are going to vary from state to state, so you’ll need to check the state government website or talk to a local accountant to verify all the rules. Sales taxes are typically paid quarterly and you can pay fines or fees if you miss the file dates — I once paid $120 to file $40 worth of sales taxes. Not a mistake I made again!
How to file your taxes
How you actually file your state and local taxes will depend on your business structure. The rules and filing processes for LLCs or
Either way, as an
Also, for the sake of clarity, it’s worth noting that state income tax (which is based on your business income) is not the same thing as state sales tax (which is a percentage of sales made to customers within your state). Both of these things need to be tracked separately and filed accordingly.
Whew! That’s a lot of information, but knowing all of that, you’ll be much better equipped to keep all your business numbers measured and your taxes filed from here on out.
Your first step: pick a software solution and set it up, today. (Won’t have time today? Pick a day in the next week and task it out in your project management tool of choice — or just set a reminder using your phone.)
Have a question? Let us know in the comments. Want to get more