Tax time can be stressful—there are so many tax rules, regulations and forms to keep track of that it can become overwhelming to even the most seasoned business owner.
We at ShipWorks highly recommend that you choose a qualified tax accountant who can help you with a wide range of financial matters pertaining to your business, including tax preparation, auditing services, and providing advice on developing effective accounting systems. By having a tax accountant you run less risk of misfiling your business tax returns, avoid missing deductions because you don’t know you qualify for them, and you’ll have someone you can count on to keep up with ever-changing Federal and state laws, rules and regulations.
Whether or not you choose to use a tax accountant, below are four tax-related tips you should be aware of before filing your business tax returns.
Understand when to Collect Sales Tax
One important criteria that ecommerce businesses need to be aware of is that sales tax requirements can be determined by your delivery and distribution methods. If you use a common carrier such as USPS, FedEx or UPS you probably won’t trigger a sales tax obligation through delivery. But, if you use a drop shipper or if you contract with a distributor that functions as a drop shipper then you should prepare to meet sales tax requirements for both the state you’re based out of and the state or states that your drop shipments originate from.
ShipWorks tracks all shipments and carriers used so you have an easily accessible record should the auditors come knocking.
Know Sales Tax Nexus Rules
Sales tax nexus occurs when your business has some sort of connection to a state. While the rules vary state by state, most link it to whether a business has physical presence in a state. This can mean anything from having an office or warehouse, but also an employee or affiliate. In other words, your business has to collect sales tax from shoppers in the state where they have a connection. This checklist can help you determine where you have a nexus.
Use Reporting and Auditing Tools
Be sure to take time, on a regular basis (weekly is recommended), to update your financial records, reconcile expenses, file receipts and review your accounts. This will not only help tax time run more smoothly, but it also aids in the monitoring the progress of your business. ShipWorks helps with your financial reporting needs by integrating with leading accounting software, like QuickBooks, to keep track of and organize your financial data, making it easier to access when tax time rolls around. ShipWorks is also aware of most order and customer related information and can generate reports on demand using this historical data. Check out this post to learn how to create reports based on orders that contain tax by using filters. Want to do this manually? This post can help.
Knowing exactly what you have in inventory at any given time and knowing how many of each item has shipped can really help you at tax time. For instance, if you have excess inventory that has dropped in value throughout the year, you may be able to claim a tax deduction. But, check with your tax accountant to be sure.
By leveraging third-party partner integrations, ShipWorks can support inventory tracking, making it easy for you to manage out of stock items, reorders and more.
While this is only the tip of the iceberg when it comes to filing tax returns, we hope these few tips help make tax season a little less stressful for you and your business.