If you’re a U.S.-based e-commerce seller, the new year brings with it goals, aspirations … and tax-preparation time. Tackle your 2014 taxes with less stress by following these six simple tips.
- Mark your calendar. Remember, individual and partnership tax returns are due April 15, 2015 (forms 1040 and 1065); check with the IRS to see you need to submit any additional documents prior to the deadline. Other important dates to remember: February 2 for Forms 1099 and W2 to be postmarked, and March 16 for corporate tax returns (forms 1120 and 1120S).
- Check your books, and organize those receipts. Is your bookkeeping current? Take the time to set it in order now. Clean records simplify the tax-preparation process and help protect you in the event of an audit. For receipts, it’s easy and inexpensive to go paperless; if you haven’t done so already, consider storing your receipts online. Not only will online storage make it easier to refer back to receipts, but saves space, too!
- Make sure you have a handle on sales tax. In order to collect sales tax in a state, your business needs a physical connection to that state. While it’s most common for that connection – known as nexus in legal parlance – to be the business owner’s state of residence, be aware that nexus can also develop in other states (for example, via an office, warehouse or key employee). Also, tax laws vary from state to state, so make sure you know the sales tax requirements for each state where your business has developed nexus.
- Weigh the pros and cons of filing for a tax extension. If you find you need more time to prepare your taxes, an extension gives you that wiggle room. Just make sure you file for the extension before the actual tax deadline, and the extension will be automatic (you’ll be contacted only if the extension is denied).
- Deductions matter. Home office and equipment, education expenses, communication costs, vehicle use, website expenses, contractor work, and shipping and service fees are just a few of the business expenses e-commerce sellers incur that could potentially be eligible to use as tax deductions. You must be prepared to document and defend these business expenses, as well as to never rely on those deductions, since requirements can vary widely from state to state, and year to year.
- Check with an accountant. Seek out an accountant who understands e-commerce and/or your particular market segment. You may well find that an expert opinion is worth a professional’s hourly rate or flat fee. Once you choose the right accountant, be prepared to ask questions about local tax credits, whether your business has nexus in other states, and whether changing your business structure could net you any tax benefits.
The Bottom Line
No one enjoys tax season, but it’s a necessary part of running an e-commerce business. By being prepared and taking steps to ensure you have everything you need in place before you file, you can reduce the stress and uncertainty of tax time, and focus your efforts on growing your business!
