Hearing the phrase “tax season” gives you a tinge of discomfort. That’s okay. Every small eCommerce business owner has felt the same way. Just imagine working your bones off to generate sales. On top of that, you also manage your business and put out fires in between. Having these things on your plate makes paying taxes feel like more of a burden.
However, it must be done. And we want you to stay ahead of it, so we’ll give you tips on how to stay miles ahead of your taxes.
Identifying the Taxes You Should Pay
If you want to stay ahead of your taxes, the first thing you must do is to identify them. As an eCommerce business owner, a basic knowledge of what taxes your business is obliged to pay puts you in a position to comply with payments. Most importantly, identifying taxes helps you determine how you can employ ways to pay less of them legally.
Here’s an overview of the taxes a typical eCommerce business may be obligated to pay.
Income Tax: Whether you’re structured as a sole proprietorship, a limited liability, or a full-fledged corporation, you must pay income tax which is a percentage of your business’s net earnings.
Sales Tax: Every product you sell has an obligation tied to it, and it’s called eCommerce sales tax. Your customers shoulder this, but it is your job to pay it to the right agency. Knowing the specific sales tax amount you must pay will keep you from losing money.
Capital Gains Tax: A capital gains tax is charged when a business asset appreciates and is sold for a higher amount than the purchase price. This applies to investments in stocks, properties, or any business asset that increases its equity.
Payroll Tax: If your business has several employees, you may have to pay income tax on their behalf. This is called payroll tax and is not deducted from the business income but may still affect your business indirectly.
Practical Tips to Prepare You for Paying Taxes
Tax filing periods are always a painful time for eCommerce business owners. The amount of taxes to pay always seems to be too much. On top of that, you also have to deal with the tax filing frenzy. But things can be better. Here are some practical—and legal—tips to ensure you keep every possible dime inside your own pockets.
Keep Good Records
Accurate and well-prepared records are crucial when paying taxes. Financial statements need to be spotless, especially when dealing with huge figures. A small change or error may lead to huge tax payments. So be meticulous about your bookkeeping.
Invest in New Business Assets
Purchasing tangible assets for your business has a tax advantage. So before you pay your taxes, try to check if there’s a need to make a large investment in furniture, equipment, or inventory within the tax year. This can help lower your income tax payment.
Make Good Use of Depreciating Assets
Your business’s tangible assets are not perpetually in working condition. As the business continues using these assets, they wear out. That is called depreciation, and you can quantify it in monetary terms.
Talk to an expert about depreciation and the methods you can use to deduct it in a way that lessens your tax obligations.
Write off Debts
If you’re a vendor selling to customers on credit, review your accounts receivables. You may have overdue accounts that have not been paid yet. These bad debts can be written off and deducted from your gross income. In effect, it will lower your tax payment amount.
Save for Retirement
You can use your eCommerce business’s income to pay for your 401(k). This is practical because it will help you save money on other income streams (salary, for example) and is a legal tax break.
Check if You’re Eligible for Tax Exemption
A lot of startup eCommerce businesses can apply for certain tax exemptions. This can be very helpful if the business is still starting and has little revenue. This may also apply to businesses that haven’t realized enough revenue to stay afloat. You can check out tax exemptions here.
Get a Good Accounting Software
Recording your financial data using accounting software helps you keep track of your business’s numbers. In addition, what’s good about having accounting software is you can view your business performance and generate reports instantly.
Accounting software such as QuickBooks Online (QBO) and Xero helps you record transactions accurately and fast. Then, come tax time, your statements will be ready immediately.
Hire a Team of Experts to Help
Dealing with taxes can be mentally and physically tiring if you do it alone. But hiring a team of experts can dramatically reduce your tax filing burdens to almost none. That’s because they do the heavy work for you, so you’ll only need to worry about paying what is due when the time comes.
What Experts Can Do to Help You Stay Ahead of Taxes
A team of bookkeeping and accounting experts is invaluable for your eCommerce business, especially during tax season. They’ll grind and crunch those numbers and coordinate with the right people to ensure your business is tax compliant and efficient.
Hiring an expert will give you the following benefits.
Accurate Financial Information
When you hire experts, they’ll take over your accounting information and build it as you elevate your business. Along the way, they make sure every transaction recorded is accurate. They also find recording mistakes and set them right so that when tax filing comes, everything is ready.
Coordinate With Certified Accountants During Tax Filing
If you’re an eCommerce business owner who doesn’t have an accountant, experts can help. They’ll arrange your financial statements and assist you with tax filing by coordinating with a network of accountants.
Alternatively, if you have your preferred accountant to do the tax preparation and filing, these experts can also work with them.
Give You Insights on Your Inventory
Earlier, we brushed on the importance of buying tangible assets, including inventory. So if you’re thinking about investing business resources in products to sell, these experts can give you excellent information to help you decide whether to stock, hold, or dispose of them.
By calculating the cost of goods sold (COGS), these experts empower you to decide whether additional inventory investment is a good idea.
It will also help you decide whether to push forward and drive sales which will drive a higher COGS and a better tax number.
Help You Manage Your Debt Payments and Collections
Part of the services an excellent bookkeeping agency offers is accounts payable management. A team can help break down how much you have to pay for your debts in a fiscal year. This will help your business by adding more deductibles that will lower the tax you pay.
On the other end of accounts payable is your accounts receivable. They can also check how much credit you gave your customers so you can decide whether to write them off and include them as deductions.
Assist You in Filing Taxes
Perhaps the most important thing a financial agency can do during tax season is pay. All the things they do boils down to paying your business taxes and making sure it’s paid right and on time. Professional bookkeeping firms can do this for you.
Bookkeeping Experts Will Help You Get Ahead of the Tax Game
If you really want to get ahead of your business taxes, hire experts to help you. This practical business move will take a huge burden off your shoulders. We know, because we’ve felt the pressure, confusion, and stress that you’re feeling right now.
Ecommerce Bookeeping exist to take this responsibility. For a fair price you’ll get significant advantages in time and resources. That way, you can focus on what matters to you as an eCommerce business owner—keeping your business operations running smoothly.