Tracking Your Sales and Expenses for Your Online Business

Some people would assume running an online business is much easier than your average brick-and-mortar store. That’s far from the truth as e-commerce entrepreneurs deal with their own set of challenges. For example, online merchants must learn effective management techniques as their online store continues to grow and thrive. These necessary skills will help them easily track their sale performance, prepare for taxes, and claim e-commerce deductions.

Thinking about starting an online business? Do you already have one? Either way, learning how to track your sales and expenses is a great way to handle all the transactions your online store has. This all sounds confusing, doesn’t it? No worries, we got you covered! We’ve compiled an informative guide that will teach you how to track your sales and expenses for your online store.

Calculating your gross sales and net sales:

First off, you should calculate your gross sales and net sales amount. Just log into your e-commerce platform sales dashboard and export your sales data. This information will provide you with a list of sales you made before platform fees, chargebacks, and returns are calculated.

Remember, the total of your sales before any costs are deducted is gross sales. Write this amount down. Then, you need to subtract the platform fees, chargebacks, or returns to calculate your net sales.

Reconciling your 1099-K:

From there, you use your gross and net sales to reconcile your 1099-K. This specific form is used to report transactions that are made through payment settlement entities. Essentially, 1099-K isn’t a requirement for everyone, but you’ll need to file this form if your e-commerce business processed more than $20,000 worth of credit and debit payments or you processed over 200 individual payments.

When you first receive your form, you’ll notice that gross revenues are more than what was initially paid to you as the 1099-K doesn’t take out fees and chargebacks. You will need to reconcile the form to what you were paid, but you have to complete this task in a separate document, like Microsoft Excel or Google Sheets, by exporting data from your e-commerce platform. This is an essential step as the reconciliation is required when filing your taxes and for financial purposes.

Using separate accounts:

Consider using separate accounts for your business activities. This is highly recommended as the IRS can label your online store as a hobby and disallow all deductions. For example, open a separate credit card and bank account for processing all your operating expenses. Doing this will also help you start building business credit, which gives you access to perks, such as lower interest rates from lenders.

Keeping Your Receipts:

It’s a good idea to keep all your receipts and enter them into an accounting software to track and organize all your transactions. In particular, there are three types of receipts you should definitely keep:

Out of town business travel:Make sure that you maintain receipts related to lodging, vehicle rentals, and flights to provide a paper trail that proves to the IRS that your business trip was not a personal vacation.Vehicle-related expenses:Keep a careful record of when, where, and why you used a vehicle for business. You should also keep a log of your business miles if you plan to claim a mileage deduction.Utility and home-office related receipts:If you plan to take the home office e-commerce deduction, you can also deduct a percentage of your home-related expenses, such as your internet and cell phone bills.

Using expense trackers:

You could track your expenses electronically by downloading an expense tracker app. Look for an app that can be linked to bank accounts so you don’t have to manually input information. Check out Hurdlr, an expense tracker app that tracks car mileage, receipts, and expenses, and can print out your report in the IRS-accepted format. Not only does Hurdlr save you time, but it also lowers your tax burden.

Hiring some professional help:

Still don’t think you could track your own sales and expenses? Consider hiring a bookkeeper! This is an excellent option for online stores that are growing bigger and bigger. Let a dependable bookkeeper handle your accounting as you worry about everything else. Remember, the United States is currently experiencing a surge in COVID-19 cases. To protect you and others from contracting this deadly disease, schedule a phone call or video meeting with your bookkeeper. Don’t meet in-person unless it’s necessary! If you need to meet, please wear your mask over your nose and mouth, stay at least six feet from one another, and use hand sanitizer that’s 60% alcohol.

References:

Farrell, Sean. “How to Track Your Sales and Expenses for Your Online Store.” Tax Hack, 18 May 2018.

“How to Keep Track of Your E-Commerce Business Expenses.” eSeller Café, 22 Apr. 2020.