Top Tax Tips for E-Commerce Businesses

Tax season isn’t something that any small business owner looks forward to whether you’re planning to prepare your taxes yourself or have an accountant do them for you. As an e-commerce business owner, tax season can be particularly difficult. Even though you have to pay taxes like any other business, the unique characteristics of e-commerce businesses can lead to some challenges when it comes time to prepare a tax return.

I know that personally I found it hard to get my tax return ready the first couple of years that I owned my e-commerce business, but along the way, I learned some tips that have greatly simplified the process and that are sure to help make tax time a little easier for you, too.

  1. Don’t Miss Money-Saving Expenses.

Why should you pay more taxes than you have to? As an e-commerce business, you’re less likely to have some of the types of expenses that other types of companies have, such as depreciation on large amounts of equipment; however, there are still many expenses that you can deduct. Many e-commerce business owners make the mistake of overlooking some of the expenses that they can use to lower their tax liability. Go back through all of your receipts and make sure that you haven’t missed any business-related meals or trips this tax season. Going forward, you can make things much easier by separating your finances. Use a credit card specifically for your business and keep a separate bank account for writing checks for expenses. This way, you can simply use the statements at tax time to crunch the numbers and guarantee that you never miss a single expense.

  1. Familiarize Yourself With and Take Advantage of All Expenses.

My first year as an e-commerce small business owner, I ended up missing out on over $2000 of expenses because I simply didn’t know I could deduct them. Make sure that you don’t make the same costly mistake by learning more about allowable expenses. A good tax preparation software program or online service can make it easier to not miss expenses. Remember that your cell phone can be expensed if you use it for business and that you can count things like meals and even vacations if you talked about business or used them to further your business.

  1. Get a Lesson from a Pro.

I mentioned tax preparation software before, and it is a great way for e-commerce businesses to file their taxes properly and avoid missing expenses without having to pay for an expensive accountant. Still, I strongly recommend hiring a bookkeeper on a one-time basis to sit down with you and review how to categorize all of your expenses and set up your accounting properly. It will likely only cost you a couple of hundred dollars, and the information that you’ll learn will save you tons of time at tax time and beyond.

  1. Don’t Overlook Sales Tax.

As an e-commerce business, you’re paying state sales tax on transactions in your state, and you don’t want to forget about this when you’re filing. If you sell through Amazon FBA, state sales tax can be especially complicated. From what I understand, Amazon assesses sale tax whenever you sell items to customers that are located in the same state as you. For example, if you’re located in California, Amazon will charge sales tax to any order you’re shipping to California. In addition, Amazon pays sales tax to states where orders originate from if they’re in the same state. So if you’re located in California, you sell an item to someone in Florida and Amazon ships the item from a warehouse in Florida, sales tax will be assessed. If you’re using Amazon FBA, I strongly recommend contacting them in January the first year that you file to get the sales tax information explained to you by the experts there. This will ensure that you end up recording all of the sales tax that you paid properly.