Selling Goods Online? Here’s What Your Business Needs to Know!
Does your business sell goods or services online? Great! Online shopping has increased exponentially, with nearly 40% of consumers reporting that they buy something online at least once per month.
While online storefronts are a great way for businesses to expand their reach and increase sales, keep in mind—your business must properly account for your sales in your corporate tax filings. These sales must be accounted for and reported to the IRS.
In recent years, the accounting experts on the Tally Services team have worked with several eCommerce businesses and have noticed many incomplete or improper tax filings related to online sales that leave businesses with no choice but to amend their taxes and make them possibly liable for the difference. In this Tally Services blog post, we’ll cover what you need to know about how to account for selling goods online.
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Sales Tax: There’s no way around it: online sales tax is very complex and may be changing if Congress takes up the issue. For now, tax rates and requirements vary state by state. In general, if you are selling taxable items and own a brick and mortar building in a state that collects sales tax, you must also collect taxes for your online sales. However, if you are strictly selling online, you likely do not have to collect. Unless, you are selling through an online retailer like Amazon’s Fulfilment by Amazon program, you may be liable for sales tax based on their location. Check the rules of the states you are located and selling in to determine the tax rates your business must collect and pay. Working with an accounting professional can help you be sure you’re charging the correct sales tax to each order and filing it properly.
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Reporting Amount: Oftentimes, when businesses sell things online, they only receive a portion of the amount paid for the product. For instance, if your company sells an app through the App Store, you may charge $10 for the product, but your business will only receive $7 of the total sale, with the remaining amount going to Apple. The $3 is paid to the tech giant for use of their platform. Many businesses find themselves in trouble for only reporting the amount of revenue that hit their bank account—in this case, the $7. However, according to the IRS’s rules, businesses must actually report the total gross sale amount—in this case, $10. This big discrepancy can lead to businesses having to prove why there is a difference in their reported amount vs. the actual sales amount, which can lead to the need for amended taxes and possibly a makeup of the tax liability.
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Detailed Records: It’s incredibly important to keep detailed records of all of your transactions for reporting and filing reasons. With these reports, your business will be able to track all tax collections and prove your history if need be. If your company is selling through an online portal like Etsy or Shopify, these systems will help you generate reports. If selling through your own website, your web developer should be able to sync your sales with your accounting software like QuickBooks. Other online tools are available to help you manage this, like TaxJar, which helps you calculate the amount to collect and integrates with your site to do so.
Don’t let the fear of taxes and reporting keep you from harnessing the power of the web to reach new customers and drive sales. Does your business sell goods online? Or are you thinking about it? Work with the accounting professionals on the Tally Services team. We’ll help you determine and implement the accounting tools and systems to make sure you’re properly collecting and reporting the sales tax necessary for your state and online store. Tally Services in Fort Collins, CO, is here to partner with you to provide top-notch accounting and bookkeeping services for all your off- and online needs. Contact us today to get started!