eCommerce and Taxes: What You Need to Know
By the end of 2020, global eCommerce sales will reach $4.2 billion and make up 16% of total retail sales. And these numbers are only predicted to go up as we continue into the ‘20s, according to Bigcommerce. However, for business owners, taxes can be a stressful component of managing their eCommerce business.
Whether you have been a business owner for 15 years, or you’re in your first year of business, it’s important to understand your tax liabilities. This is especially useful when it is tax time. For example, did you know that if you pay your employees at least $1,500 in wages during any calendar quarter in the current or previous year you must pay FUTA tax?
If you are not familiar with it, Camino Financial, an online lender for small businesses, helps you understand all about the FUTA tax as part of their educational experience.
Don’t miss the IRS Obligations
Some of the IRS obligations for eCommerce entrepreneurs are:
- You must pay estimated taxes, which cover things like self-employment and income taxes.
- You must pay income tax on your profits at regular tax rates the same way as a business with a physical storefront.
- If you’re an online retailer, it’s your responsibility to charge your buyers the correct amount of sale tax and remit the taxes collected back to your state.
- If you incur a loss, you may deduct it from other income during the year.
- You must pay employment taxes (Social Security and Medicare taxes) as well as income taxes. You are also responsible for paying federal unemployment taxes (FUTA).
If you’re an eCommerce that sells over multiple channels and states, handling your sales taxes can be stressful and time-consuming, especially if you sell products or store physical inventory across multiple states.
In this case, you must determine the sales tax rate in that state, plus any local sales tax that might apply. In other words, you need to be familiar with rules for sales tax on the internet, the tax rates you need to collect based on your business location and your business structure, and penalties for not collecting.
5 eCommerce Tax Deductions You Need to Consider for Your eCommerce
Effective management of taxes is one of the biggest challenges for entrepreneurs, and every year business owners search for every tax deduction they can possibly claim. Thankfully, there are many tax savings strategies to reduce your taxable liability. Some of them are:
- Packaging materials: are considered necessary in operating most types of businesses. Therefore, if you pack and ship your own products, all those items are tax-deductible. This includes boxes, containers, displays, tape, labels, paper, bubble wrap, and more.
- Cell phone and internet service: To deduct this expense, you will need your internet bill and also would need to calculate the business-use percentage of the mobile phone on a month-by-month basis.
- Home office expenses: If your home office occupies 10% of your home, for example, then 10% of your annual electricity bill becomes tax deductible. In order to deduct this expense, your home office needs to be your company’s principal place of business.
- Business Software and Tools often become integral parts of your eCommerce business and they are tax-deductible.
- Marketing and advertising: Online or offline Marketing is essential for any business and if you advertise, it may count as a tax deduction.
As the owner of an eCommerce business, you need to understand your tax liabilities. This understanding will help you to stay organized so you can make smarter business decisions.
If you need further information on taxes or any other business resource so you can grow your company rather than get bogged down by problems, visit Camino Financial’s web. You’ll find not only financing for small businesses but an entire educational experience and all the tools you need to grow and improve your financial performance.
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