Tax Tips For New Ecommerce Entrepreneurs

Tax Tips for New Ecommerce Entrepreneurs
New ecommerce entrepreneurs can find them confused and confounded by the​ tax and accounting requirements of​ their venture .​
And that’s a​ shame: If someone’s spotted a​ great new category and successfully built a​ web presence,​ heck,​ that someone shouldn’t find themselves bogged down with the​ accounting minutia .​
The entrepreneur should focus on​ increasing traffic,​ expanding margins,​ and growing cash profits.
With that in​ mind,​ I​ offer up the​ following tax and accounting tips:
Tip #1: Don’t Incorporate
A true corporation—whether a​ C corporation or​ an​ S corporation—saddles your business with more complicated tax accounting and a​ bunch of​ state filing requirements .​
You don’t want to​ deal with this redtape—or at​ least not until you’re profitable.
Instead,​ operate your business as​ a​ sole proprietorship .​
If you’re concerned about legal liability protection,​ note that you​ can setup a​ one-owner limited liability company,​ or​ LLC .​
a​ one owner LLC is​ treated as​ a​ sole proprietorship for income tax purposes.
Tip #2: Start Your Business Before Making Investments
Expenditures you​ make before you’re actually in​ business-in other words,​ before you’ve got a​ business license and before you’re selling or​ trying to​ sell your stuff—aren’t very deductible.
Specifically,​ you​ can probably deduct the​ first $5,​000 of​ these expenses .​
But any amounts in​ excess of​ the​ $5,​000 must be amortized over the​ next fifteen years.
What this means is​ that you​ want to​ start your business before you​ start spending money on​ advertising,​ training,​ web development,​ accountants and lawyers and so on.
Tip #3: Automate Your Bookkeeping & Accounting
By law—and some people don’t know this—you’re required to​ maintain an​ accounting system that lets you​ clearly measure your income .​
As a​ practical matter,​ this means you​ need to​ use a​ product like Quicken or​ QuickBooks.
But you​ ought to​ go one better than simply using desktop accounting software .​
Make sure that you’re taking advantage of​ online banking and bill payment features which integrate your accounting system with your banking .​
As much as​ is​ possible,​ for example,​ you​ want to​ be able to​ move money from PayPal to​ your bank to​ QuickBooks simply by typing a​ few keys or​ clicking your mouse a​ few times.
Tip #4: Hire a​ Payroll Service Before Hiring Employees
Many successful ecommerce business owners can run their operations without employees .​
And if​ that’s true for you,​ hey,​ congratulations .​
If and when you​ do need employees,​ however,​ don’t try to​ handle the​ payroll yourself .​
Oursource the​ payroll to​ one of​ the​ large payroll service bureaus like ADP,​ Payroll,​ or​ QuickBooks.
These services are expensive .​
Figure $1000 to​ $2000 per year .​
But the​ services let you​ avoid the​ bookkeeping nightmare called payroll and prevent you​ from getting into payroll tax trouble.
Tip #5: Consider S Corporation Status After You’re Profitable
I’ve written and talked much about how S corporations save taxpayers money and how the​ right way to​ set up an​ S corporation is​ first create a​ limited liability company and then ask the​ IRS to​ treat the​ LLC as​ an​ S corporation for tax purposes.
Let me review the​ basics here again,​ however .​
Suppose that you’re making $90,​000 a​ year off your web site .​
If you​ just treat your business as​ a​ sole proprietorship—or an​ LLC treated as​ a​ sole proprietorship—you might pay $12,​000 in​ income taxes on​ the​ $90,​000 and then another 15.3% self-employment tax,​ or​ roughly $13,​500 on​ the​ $90,​000.
If you​ set up an​ LLC and have the​ LLC treated as​ an​ S corporation,​ you’ll still pay the​ same $12,​000 in​ income taxes .​
But you’ll only pay the​ 15.3% self-employment tax on​ that portion of​ the​ profit that you​ categorize as​ wages .​
If you​ categorize,​ say,​ $50,​000 of​ the​ profits as​ wages,​ you’ll pay $7,​500 in​ self-employment taxes .​
(The other $40,​000 in​ remaining profits,​ by the​ way,​ gets paid out as​ a​ dividend-like distribution.)
Note,​ then,​ that the​ S corporation saves you​ roughly $6,​000 every year .​
Sweet,​ right?
Tax Tips For New Ecommerce Entrepreneurs Tax Tips For New Ecommerce Entrepreneurs Reviewed by Henda Yesti on July 03, 2018 Rating: 5

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