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YOUR GUIDE TO NAVIGATING 1099 REQUIREMENTS

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Here’s our #1 tip on how to save yourself from stress come January 1st: Think about 1099s all year long. Believe us when we tell you, that nothing is worse than begging your vendors for W9s on January 1st when you have an impending 30-day deadline to file your information returns. The consequences of not doing so can be crippling for your small business if the IRS decides to penalize you.

The ebook below walks you through the various 1099s and guides you through the who/what/when/and why of 1099s (last update 2024). After you take the information from this ebook, further your research to gain a full understanding of the 1099s your business is likely responsible for. In our small business, we have a strict policy to not pay ANY service vendor without first collecting a W9 (assuming they fit the requirements). It is much easier to grab that form when people want to get paid.

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SMALL BUSINESS GUIDE TO ESTIMATED TAX PAYMENTS

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For small businesses in the United States, financial responsibility extends beyond day-to-day operations. Estimated tax payments stand as a crucial element in maintaining compliance with the IRS and avoiding potential penalties. These payments are a proactive way for businesses to fulfill their tax obligations throughout the year, preventing the accumulation of a substantial tax liability come tax season.

Why are Estimated Tax Payments Necessary?

Small businesses, especially those without withholding taxes from employee wages, are typically required to make estimated tax payments quarterly. This ensures a steady inflow of revenue for the government to cover income and self-employment taxes. Failure to make these payments can lead to penalties, making it essential for businesses to stay ahead of their tax responsibilities.

E-Commerce businesses have the unique challenge of managing inventory and tracking the cost of goods sold (COGS), and the processes can be complex and time-consuming. To ensure efficiency and profitability, however, your e-commerce business must keep accurate records of inventory and COGS. This blog will discuss best practices for managing inventory and COGS for your e-commerce business.

For Starters — What is COGS?

COGS is the direct costs associated with producing and selling your product. COGS is a crucial calculation for your e-commerce business and can give you important insight into how to increase profitability. For e-commerce businesses, COGS includes the expenses directly related to the product’s sale. 

What Direct Costs typically go into COGS?

• Product Costs

• Import Duties and Customs Fees

• Packaging Costs

• Seller & Merchant Fees

• Manufacturing/Production Costs

• Shipping

Tracking COGS

Accurately tracking COGS is essential to determining your e-commerce business’s profitability. Here are some best practices for monitoring COGS:

1. Include All Direct Costs: Include all direct costs associated with the production and sale of a product in your COGS calculation. Direct costs include the cost of the product, shipping, packaging, and any other expenses directly related to the product’s sale. To accurately determine COGS, we must calculate each unit’s portion of the total purchase price for all aspects of developing that product for sale, including the single unit’s shipping cost and discounts!

2. Use Consistent Accounting Methods: Consistency is critical when it comes to accounting. Use the same accounting methods when tracking COGS to ensure accuracy and consistency in your record-keeping. If you’ve had the opportunity to read our last blog, you know that we insist our clients use the accrual method of accounting. 

3. Keep Accurate Records: Keeping accurate records is crucial to tracking COGS. Detailed logs allow us to track the fluctuation in COGS as inventory is purchased/sold and give insight into when you may need to increase your prices. Be sure to keep detailed records of all costs associated with the production and sale of a product, including invoices and receipts. 

Tips for Managing Inventory

Inventory management is critical for e-commerce businesses because it directly impacts cash flow and profitability. Here are some best practices for managing your inventory:

1. Set Par Levels: Determine your minimum and maximum inventory quantity. Setting par levels ensures you always have enough inventory to meet demand while avoiding overstocking, which can lead to cash flow issues.

2. Implement a System: An inventory management system tracks inventory levels, costs, and sales. An effective inventory management system can help you make data-driven decisions, avoid stockouts, and reduce carrying costs.

3. Conduct Regular Audits: Conducting regular inventory audits helps ensure that your inventory records are accurate. It also lets you identify discrepancies between your inventory records and stock levels.

Conclusion

Managing inventory and tracking COGS are essential to the success of your e-commerce business. You can improve your business’s efficiency and profitability by implementing best practices for inventory management and COGS tracking. As your business grows, consider working with a professional bookkeeper to help manage your inventory and financial records to ensure that you are on the right track.

If you’re going to DIY your bookkeeping: You Need to Know

While e-commerce businesses are exciting and rewarding ventures, they come with a unique set of challenges with bookkeeping. Properly tracking your financial records is essential for the success of your business, so in this blog, we’ve curated a short list of tips in hopes to lead you to bookkeeping success.

Tip 1 – Set up a separate business bank account

I’ve got one word for you: comingling. Comingling in the bookkeeping world is the mixing of personal and business activity in the same account and I’ll let you in on a little secret… your bookkeeper doesn’t care for it. If you want clean records for your finances, one of the easiest and most important things that you can do is to open a separate bank account for your business. A separate business bank account makes it easy to track your transactions, reconcile your accounts, and is easier to audit.

Tip 2 – Keep track of your expenses for better eCommerce Bookkeeping

One huge mistake that we often see in e-commerce bookkeeping is bookkeeping straight out of the bank feed. This type of ecommerce bookkeeping is incorrect because it only captures the resulting net payout while missing the full picture of where that deposit came from. Your payment processors take a portion of each sale that is earned and that expense needs to be reflected on the books. The proper way to complete your bookkeeping is to capture the gross sale less applicable fees.

Tip 3 – Use a clearing account

When you are tracking payment activity within your separate payment processors, you want to make sure that it is done as cleanly as possible. The only way to do this is by way of clearing accounts. Each payment processor should have its clearing account to track sales, applicable fees, and payouts.

Tip 4 – Consider automation software

Manually entering sales when you are starting is perfectly fine, however, once your business picks up and you are clearing hundreds of transactions a day, manual entry is going to exhaust your time (and patience). Automation software, such as A2X, Bookkeep, and PayTraQer will do the heavy lifting behind the scenes by connecting your sales platforms/marketplaces and your accounting software.

Tip 5 – Stay on top of your sales tax obligations

The most challenging aspect of e-commerce bookkeeping/accounting is tracking sales tax obligations. Your team must help you stay compliant by tracking nexus triggers so that you are registering and collecting sales tax from the correct customers.

Bonus eCommerce Bookkeeping Tip – Reconcile your accounts regularly

Reconciling your accounts regularly is important to ensure that your books are done correctly. Reconciling helps you catch errors in your bookkeeping as well as helps prevent fraud. At Upscale Bookkeeping, our clients’ books are reconciled every month.

In conclusion, e-commerce bookkeeping is a crucial aspect of running an online business. By following these tips, you can set yourself up for success and ensure that your financial records are accurate, organized, and compliant. Remember, accurate bookkeeping is not just a legal requirement, it’s also essential for making informed business decisions and growing your e-commerce business.