Navigating the Numbers: Small Business Accounting Essentials for E-commerce Entrepreneurs

There’s no doubt e-commerce is the way to go for many budding entrepreneurs. From food to fashion, if you can ship it, then there’s an opportunity to expand your business to markets traditional storefronts only dream of. 

But there’s also a lot to consider in terms of taxes, accounting, and regulations. So, before you jump into the e-commerce pool with your small business, read this post so you’ll be better prepared. 

Let’s go! 

Tax Considerations

One of the main advantages of e-commerce is access to more geographic markets. Expanding your business to other states is easy. 

It also used to be easy to leap from state to state without worry.  

In the early days of e-commerce, you could order from a vendor in another state and not pay any sales taxes. That’s because state governments were slow to establish an economic nexus, or requirement, of which out-of-state e-commerce vendors had to charge sales tax. 

Often, it wasn’t a monetary requirement, unless you had a physical presence in the state you were selling. 

So, you could sell a widget in another state from your home location and not worry about sales tax if it was done online. 

Those days are gone. 

Now, each of the 46 states that charge sales tax has an economic nexus that determines whether it is necessary to collect sales tax. 

And, yes, every state nexus is different. 

For example, Louisiana says you may have to charge sales tax if you sell more than $100,000 or conduct more than 200 transactions per year with residents. 

So, how much you sell matters, but so does what you sell. 

If you sell a physical product, you may have to charge sales tax. However, if you sell a service, then maybe not. 

It really depends on the state and how it defines a service. For example, some say online software is a service, while others treat it like a taxable product. 

It can be a lot to digest for a small business owner. 

That’s why you’ll probably want to get help from a tax professional if you suspect you’ll meet any state’s economic nexus. 

Setting Up Your Accounting System

One of the biggest decisions about sales tax is whether to use a CPA or accounting software to keep track of it. 

You can read more about how to make that decision here.  If you decide to use software, you’ll want to consider a few different things. 

One of the most important is how well it integrates with your e-commerce platform. From there, check on tax compliance tools. Your software should assist with compliance so you can manage all the different tax responsibilities where you sell. 

Finally, you’ll want to ensure the software has good inventory management tools. This will keep customers happy. Also, if your state taxes business inventory, controls to track levels, make physical counts, and reconcile them with your records are a must. Not having these tools in place can get you in economic trouble. 

The Bottom Line

No matter how big or small your e-commerce business is, you’ll want to maintain good financial records, reconcile accounts regularly, and continuously evaluate accounting processes for efficiency and accuracy. 

Keep learning, prioritize accounting so your business can reach its full potential, and don’t be shy about seeking help. 

You’ll probably find that sales taxes aren’t all that taxing after all.