Disclaimer: Each country has it’s own set of laws regarding taxes, accounting, and running a business. The information in this article is meant to be purely for educational purposes. Always do your own due diligence and contact a lawyer or accountant before following any advice.
Store owners have two main financial responsibilities for their business; make money and reduce costs. As a store owner, you may be required to pay taxes on your business depending on your country’s laws. Some of the contents in this blog may not be applicable to you as each country has its own set of requirements. Many cities have business centers where you can learn more about your local tax requirements. Be sure to visit your country’s government website to determine how to proceed with your ecommerce accounting. In this article, you’ll learn how to save money whilst running your store and we’ll cover some ecommerce accounting apps which you should check out.
Track All Your Expenses
When it comes to ecommerce accounting and managing taxes for your business, you need to track your earnings and your expenses. You can save money on your taxes by claiming business-related expenses. Depending on which country you live in, you might be able to write-off business meals, relevant conferences, online courses, ebooks, home office products, coworking office, accounting fees, and more. Each country has it’s own set of rules and regulations on what types of expenses can be deducted, be sure to check your government’s official website for more information. Here are a just a few examples:
- United States: Business expenses for Americans
- U.K.: Expenses if you’re self-employed in the U.K.
- Canada: List of business expenses for Canadians
- Australia: Allowable deductions for Australian businesses
Keep Hold Of Invoices
One of the perks of running an online store is that you’ll receive nearly all of your invoices online which makes your ecommerce accounting much easier. By having your receipts online, you can easily access your receipts at anytime in case you get audited by the government. If you keep your receipts in a folder in your email or computer, remember not to delete it for a few years in case you need to access them again. With receipts, people often throw them out or forget to save them or misplace them. Hence, why having everything store on a drive or in your email can make access easier. If you make any business purchases such as online courses or conferences, focus on making online purchases or getting a receipt via email where possible. You’ll also want to make sure you use online accounting tools.
An easy way to manage your receipts is to create a ‘2017 Receipts’ folder for all your business-related purchases, expenses and earnings. Keep in mind that most credit cards only show the transactions of the past six months so you won’t want to rely on that for the tax season unless you’ve saved each month’s receipts. If possible, focus on getting a business credit card to keep your personal spending and business related expenses separated.
Know When To Incorporate
Let’s first take a quick look at the difference between a sole proprietorship and a corporation. A sole proprietorship is when there’s no legal difference between the person running the business and the business. If you’re a solopreneur, freelancer or an independent contractor you likely fall within this category. In a sole proprietorship, you claim your business earnings as personal income. The downside to this is that if you get sued, you can lose everything you own – even your home.
A corporation is a separate entity which keeps your personal assets safe. Corporations and sole proprietorships get taxed differently. However, at a certain point, you’ll likely be required, or at least advised, to transition from a sole proprietorship to a corporation. For example, in Canada, some recommend that businesses making over $60,000 a year incorporate.
Be sure to look into your specific country’s requirements. Also, it’s important to note, that even if your business is only making a few thousand dollars each year, you still need to claim that income on your taxes and pay any associated fees the government requires.
Use Ecommerce Accounting Apps on Shopify
There are several ecommerce accounting apps on the Shopify app store. You can choose the best app for your specific needs.
Bench – This app allows you to do your bookkeeping for your store. It currently only serves American store owners.
Tax Jar – Tax Jar allows American store owners to easily prepare and file their taxes. It’ll educate you on whether or not you’re charging the right amount of taxes. Jennifer Dunn of Tax Jar shares a piece of advice for American store owners: “Did you know that over half the states with a sales tax realize that asking online sellers to collect sales tax is a burdensome administrative hassle? Because of this, many states allow sales tax filers to keep a small amount of the sales tax they collected from buyers. While these amounts are generally very small (1-3%), they are free money and you should definitely take advantage of them! You can see a list of states with sales tax discounts.”
Quickbooks – Quickbooks is one of the most popular ecommerce accounting apps that allow you to sync all Shopify orders and refunds.
Unify – This ecommerce accounting app syncs your store’s sales into Quickbooks which saves you time.
Set Money Aside for Taxes
As a store owner, you’ll want to prepare for your ecommerce accounting in advance by setting aside money for taxes. From your store’s first sale you should be managing your taxes. Depending on your country’s laws, you’ll want to charge taxes on your store and set aside a percentage of your profits to pay for your personal income taxes if you pay yourself as well. If you only pay for taxes at the end of the year, keep it in a special savings account where you only put your tax income. If you pay taxes quarterly you can still do this but you’ll be withdrawing the amount each quarter to pay your government. If you don’t set aside a percentage for taxes, you might find that you owe a large sum of money at the end of the year that you don’t have enough money to pay for. By preparing for this on day one, paying for taxes becomes easy.
Manage Your Tax Settings in Shopify
Shannon Brunning of Wireless Chartered Accountant said: “my biggest tip for Shopify owners to save money would be to make sure that your store is setup properly when it comes to your shipping and sales tax. The majority of new clients that I see have at least 1 error in their setup that is costing them money. For example, in Canada if you are charging shipping to your customers you have to charge sales tax on it. If you are charging the proper sales tax rate from the beginning then you’re not gonna pay an accountant to fix it. Also, if the government were to come in and look at your books and see you weren’t charging the proper tax, you will have to pay it out of the business funds as you can’t go back to your customers and collect it after the fact. It is worth getting some advice from an accountant right of the bat to avoid some stressful and costly mistakes.”
How You Pay Yourself Matters
If you’re a sole proprietor, this section won’t be relevant to you just yet. However, if you own a corporation the way you choose to pay yourself makes a difference. When you incorporate your business, you can choose to pay yourself a salary or dividends. If you pay yourself a salary, you’ll be taxed more than if you were to pay yourself dividends. In Canada, paying yourself a salary allows you to invest in your retirement plan or pension. However, Canadians getting paid in dividends are taxed at a lower rate but they can’t contribute to a retirement plan. In the U.K., it is sometimes recommended that you pay yourself the minimum salary and dividends as long as your business is profitable. Regardless of which country you live in, you’ll want to speak with your government services or a professional accountant to discuss the best way to pay yourself.
Hire An Accountant
While hiring an accountant seems like an added expense, many countries allow you to claim it as an expense on your taxes. As a store owner, your expertise lies in marketing and growing your store’s sales. While it’s a great idea to educate yourself on business tax, the reality is that it’s hard to become an expert at it while building a business. Outsourcing your ecommerce accounting to a local accountant can help your business save more money. A great accountant will likely come back to you to tell you that you didn’t list enough business expenses.
If you choose to do your own taxes, you might miss out on a few deductible expenses. Your accountant’s job is to save your business the most money possible. They know all the tips and tricks that’ll save your business more money. Tax software can be great for organizing your expenses and profit but an accountant can really help you save money. Hiring someone to do your ecommerce accounting and bookkeeping can be one of the best financial investments you can make in your business.
When it comes to ecommerce accounting do you plan on managing your taxes yourself or are you hiring an accountant for help? Let us know in the comments below!