If just the thought of tax season gives you a headache, you’re not alone. In fact, 60 percent of small-business owners don’t feel confident about their accounting knowledge (Small Business Report – Accounting).
We understand the feeling – tax season is approaching and you’re frantically trying to add up and categorize all of those shoe boxes full of receipts. Or maybe you’re not even completely sure of your business’ financial position as you haven’t accurately tracked your orders/sales.
Whether you’re behind on your accounting, unsure of what your business income is, or simply want to save yourself the time and headaches that tax season entails, this guide is for you.
We have compiled our top WooCommerce accounting tips to save you time this tax season (and every year there after…)
Ready to dive in?
1. Meet with an accountant to get your numbers and dates straight
Our first tip might not surprise you, but a meeting with an accountant is worth its weight in gold. You will get answers to all of your important questions, receive personalized recommendations and so much more. Even one meeting could save you big numbers every year. In addition, an accountant will help you ensure that you’re in compliance with all rules and regulations.
If you need more convincing – the amount you spend on an accountant is a tax-deductible business expense!
An accountant is to your business health what a doctor is to a human’s health. They will be able to evaluate your business’ financial health, tell you what’s working and what’s not, as well as give you tips and suggestions. We suggest meeting with one at least once a year, just as you (hopefully) do with your annual health check-ups.
Do you already have an accountant? Perfect! If not, we suggest looking for an accountant that is familiar with ecommerce businesses. Ecommerce businesses have their own particular rules and situations, and a specialized accountant will be better able to help you with your bookkeeping.
Here are a few tips to find an accountant:
- Ask other ecommerce business people about their accountants
- Find a QuickBooks Pro Advisor near you https://quickbooks.intuit.com/find-an-accountant/
- Compile a list of candidates and ask them each a set of questions
Once you find an accountant, be sure to prepare all of your questions ahead of time. Doing so will allow you to get the most out of your meeting.
Questions to ask accountants:
The following are a few questions that you may ask your accountant to ensure that they’re a good fit for your business. Keep in mind that as an eCommerce store owner, you need to find an accountant who is familiar with your business model and can represent you in all of the states where you do business.
- What are your fees?
- What services do you provide?
- Are you familiar with ecommerce businesses?
- Can you advise me about rules in all States where I do business?
- Can you explain your tax philosophy and tax planning priorities?
2. Use an accounting software
If you aren’t using an accounting software yet, this one tip may just completely change the way you do business. Platforms like QuickBooks act as your own personal accountant, taking in everything you tell it, and then doing all of the accounting work for you. It’s like having a personal accountant who works 10x faster at less than 1/10th of the price.
A few of the features that most accounting platforms provide include:
- Cash Flow Management
- Invoicing & Sales
- Expense Tracking
- Accounting Reports
- Cloud Accounting
Those features will allow you to easily keep track of all of your expenses (no more shoe boxes full of receipts!) categorize expenses, manage your cash flow, and monitor your business health.
One of the main reasons why we love these platforms so much is because they make everything so easy. You no longer need to have advanced accounting knowledge in order to evaluate your business’ financial health.
Depending on the platform you use, data entry such as expense tracking may be as simple as snapping a photo of a receipt, or just connecting your credit card to the app to track your transactions. At the end of the year, you can easily pull a report of all of your business expenses in order to maximize those tax-saving benefits.
The #1 accounting platform and our top recommendation is QuickBooks, but there certainly are other alternatives available. QuickBooks offers a few different plans and tiers, so you may pick the plan that works best for you.
To save you even more time, you may use the QuickBooks Sync for WooCommerce by MyWorks to connect your WooCommerce store directly to QuickBooks. This sync platform will automatically take all of your customers, sales, payments, taxes, and transaction fees and categorize your data into the correct accounts in QuickBooks. That means you’ll never have to spend time manually entering or adjusting your data – you’ll just see it appear in QuickBooks.
If you connect your WooCommerce Store, bank account, and credit card to QuickBooks, you will have about 95% of your accounting work done automatically.
And if you take the time to set your COGS accounts up in QuickBooks, you’ll even be able to track the cost of the products you sell.
To Sync WooCommerce and QuickBooks, you will simply need to complete the following steps:
- Sign up for an account with MyWorks
- Install their helper plugin on your site
- Connect to QuickBooks
- Review settings and data mapping
- Optional: sync historical sales into QuickBooks
And that’s it. All of your sales data will sync directly into QuickBooks, so that QuickBooks is up to date and categorized for next tax season.
3. Keep track of expenses through accounting platform
After income, the next most important piece of information you need to prepare for tax season is expenses. In order to maximize your tax-savings benefits, you’ll want to count every deductible expense…and also keep track of it. QuickBooks will allow you to easily snap a photo of a receipt and save and categorize it for you.
An accounting platform will be able to store this information for you for years – and you won’t have to worry about keeping track of receipts.
Plus, categorizing your expenses will allow you to run reports to get a break down of your expense areas. The more you know, the more you can save.
4. Watch your COGS
Our next tip is to track your cost of goods sold. This is a very important step in your accounting process to understand:
- Your margins
- Best sellers
- How much you’re actually making on a product when it sells
So what is Cost of Goods Sold, exactly? It’s a calculation of all of the costs involved in selling a product. Those costs may include materials, labor and operations.
- Costs of all parts or materials used to create a product
- Cost of all the raw materials
- Cost of anything used to assemble product
- The people who create or handle the products
- Cost of people or machines used to create products
- Shipping and fuel chargers
- Software, hardware, or other utilities directly involved in product creation
Why should you track your cost of goods sold? Tracking your cost of goods sold can be very important and helpful in an accounting platform to help understand your margins and your best sellers.
If you use QuickBooks, you can easily manage this information by using the “Cost” field. If you use the WooCommerce Cost of Goods Sold plugin, you can also sync this cost from WooCommerce into QuickBooks with MyWorks Sync.
5. Review books often
No matter how you choose to manage your accounting, it’s important that you spend time reconciling, or “cleaning up” your books periodically.
As Investopedia puts it, “Reconciliation is an accounting process that uses two sets of records to ensure figures are correct and in agreement. It confirms whether the money leaving an account matches the amount that’s been spent, and ensures the two are balanced at the end of the recording period. Reconciliation provides consistency and accuracy in financial accounts“ (https://www.investopedia.com/terms/r/reconciliation.asp).
Reconciling your accounts will allow you to find any discrepancies. If you do have discrepancies, it will be important for you to get to the bottom of them. The more often you reconcile, the easier it will be to spot and resolve any issues – like an expense you forgot to record, a check you forgot to deposit, or a sale entered incorrectly.
Do you remember what you bought at the grocery store 6 months ago? Probably not. Now imagine reconciling your books only once a year. Would you be able to remember figures, facts and events from 6 months prior? If you reconcile often, you will easily be able to detect and correct discrepancies.
6. Set money aside for taxes in a separate account
If your business turns a profit, it usually need to pay taxes at least once a year. Depending on where it’s incorporated, it may even need to pay quarterly taxes.
Depending on the nature of your business, you may need to pay a variety of different taxes. Examples include:
- Sales tax: the sales tax that you collect when you sell products
- Franchise tax: this varies from state to state, but may be required by states in which you have nexus
- Property tax: if your ecommerce business owns real estate, you may need to pay property taxes
- Employment tax: taxes paid if you hire employees
- Income tax: tax paid on any profit from your business
As we have mentioned before, one of the best investments that you can make on your business is to see an accountant.
They will be able to inform you on your tax obligations, as well as help you keep track of important dates and deadlines. They will also be able to help you estimate how much tax you may need to pay.
As a rule of thumb, use the 30% rule. Save 30% of your business profit to cover your federal taxes. Consider an additional 10% to cover local taxes, if this applies.
You should create a separate business savings account and deposit 30% of your monthly business profit there.
When tax season comes around, you’ll be glad that you prepared! First of all, setting this money aside lets you better understand your business’ position. Secondly, you will be prepared for the tax-burden that your business feels come tax season.
Implement these 6 tips and your next tax season will be a breeze. And remember that most of these processes can be automated by using the QuickBooks Sync for WooCommerce by MyWorks Software to save manual data entry from WooCommerce to QuickBooks.