As part of our recent rollout of expanded support for balance sheet accounts, we’ve also made it possible to hide old connected accounts from the dashboard.
For those users who may have switched bank accounts, or had new credit cards issued, you likely want to keep all of the transaction history in those accounts (deleting the account would delete all of the transactions as well,) but may no longer wish to see them listed on your dashboard. Changing that is now simple.
Just go to Settings -> Accounts, where you will see the list of all of your balance sheet accounts.
Click the edit/pencil to the far right of the account you’d like to hide and you will see a checkbox to “Show on dashboard.”
Simply uncheck that box and click the Save button. That’s it. Your account, and all of it’s underlying transactions, will remain in Seller Ledger, but you won’t see it listed on your dashboard any more.
While it is important for Seller Ledger to remain simple to use, we have just rolled out some more powerful accounting features that were previously under the hood. Please note, they are all in open Beta, so please send us any feedback you have at [email protected].
Balance sheet accounts
From the beginning, Seller Ledger let you categorize your income and expenses, including the ability to add sub-categories. Now, we have provided the same functionality for balance sheet account, which you can find under Settings, in the new “Accounts” Tab,
As you will see, any connected accounts that you have will already show up there, as well as internal accounts we created behind the scenes, like Sales Tax Due and Owners Equity.
There are a number of possible accounts you might want to add, but here are some of the more common ones we have heard:
Cash accounts for tracking cash you withdraw and spend
Sales channel accounts that we do not yet support directly
Equipment tracking accounts, for depreciable assets like computers
Liability accounts for tracking outstanding loans
Balance sheet report
In addition to exposing and letting you customize your balance sheet, we’ve also just rolled out a new Balance Sheet report, which you can find in a new sub-tab under the Reports tab.
Journal entries
And finally, the ultimate accounting utility, the journal entry, has been introduced. This feature lets you create any accounting transaction across multiple accounts/categories.
It is also the first place you will see the use of the dreaded accounting terms “debit” and “credit.” But, we assume those who intend to use this feature are familiar enough with accounting to understand these terms.
Now, remember, with great power comes great responsibility. Journal entries allow you to change your account balances in many different ways. But it is also easy to mess up your books. If you are not familiar with the use of journal entries, we recommend learning more before using this feature too much.
One caveat: we do not yet let you make journal entries that affect directly connected sales channels, as we try to keep the raw data from those channels as accurate as possible.
A.k.a “The simplest way to calculate cost of goods sold”
There’s a lot of content out there on the internet around inventory, accounting, cost of goods sold and taxes. While it has the potential to be very confusing, we’re going to try to simplify things a bit, especially for small online sellers.
Definitions
The most basic definition of cash-based inventory tracking (versus accrual accounting for inventory) is as follows.
Cash-based
Expense the cost of your inventory when you buy it, regardless of when it sells
Accrual
Expense the cost of your inventory when it sells, regardless of when you bought it
Historically, the IRS pushed most people to use the accrual approach, even if using cash-based accounting for the rest of the business. But we have seen a TON of sellers file this way, and know that some tax pros have dug into this as a legitimate approach. I don’t want to get into any tax advice here, but I will show you how, practically, each approach works, and how they can actually be very, very similar to each other.
Let’s take a look at how you can used cash-based inventory tracking using Seller Ledger. This is actually the default setting when you first start using Seller Ledger. It works by giving you the option to categorize expenses as “cost of goods sold” when you purchase them and deduct the total amount on your tax return. Check out this video tutorial on expensing cost of goods sold to see exactly how that works.
This is the simplest approach you can take. But I want to explain what you’re effectively doing if you file this way.
Understanding the math
If you look at the actual Schedule C form provided by the IRS, yes, line 4 (highlighted in red) does ask for Cost of Goods Sold. But in parentheses, it says “from line 42”. Line 42 comes from Section III.
Here is what Section III of the Schedule C looks like:
The key lines in Section 3 (again, highlighted in red) are Lines 35 (your beginning of year inventory), 36 (the cost of items you purchased throughout the year) and 41 (your end of year inventory.)
As you can see, Cost of Goods is calculated using this basic formula, which we can lay out in a slightly different way:
By simply categorizing all of your purchases as cost of goods sold, you’re basically saying to the IRS, everything I bought, I sold within the same year. As in, if this is my first year selling, my beginning inventory was zero (because I didn’t buy anything the prior year) and my ending inventory is zero, because I’ve sold everything I bought this year. Now, using that same formula above, you would get:
In our example, you’d be declaring a starting inventory balance of $0 and an ending inventory balance of $0. In order for your costs of goods sold to end up at $3,929.72, you would enter that same amount under items purchased for the year.
The only thing that is changing is that, instead of calculating Cost of Goods Sold based on the other 3 values, you are backing into the Purchases value by assuming that opening and ending inventory is zero. That’s all the Cash-method for inventory and cost of goods sold tracking is. In fact, we’ve seen cases where tax professionals are filing returns using a pretty significant, non-zero opening and matching closing inventory balance, and still just declaring that purchases and cost of goods sold are the same.
In fact, the funny secret here is that, for all intents and purposes, cash-based inventory (a.k.a. just writing off your purchases as you make them,) is no different than periodic (or, as well call it, “balance-level”) accrual inventory tracking. The only difference? Whether you actually count up the cost of your unsold inventory at least once a year.
A big limitation
All of the above is meant to outline the easiest way to track inventory for tax purposes. But, the cash-based method for inventory tracking (as well as the periodic/account-level method of accrual accounting) do have a pretty big limitation – they won’t help you figure out how much money you make on each sale or type of product. For that, you are going to want to look into tracking at the item-level (a.k.a. continuous inventory management.)
If you are an eCommerce merchant who wants to keep bookkeeping simple, we strongly recommend giving Seller Ledger a try. We connect directly to LOTS of leading marketplaces and platforms, as well as most banks and credit cards. You can try us for free for 30 days, no credit card required.
Now that we’re through another tax season (for those that didn’t file extensions,) we’ve released a few minor enhancements around sorting. Specifically, around sorting columns in the Income and Expense views, as well as Inventory.
Under both the Income an Expense tabs, you can now sort values based on the Amount column. Just click on the icon to the right of the column header.
Under the Inventory tab, we have also adde the ability to sort results by a number of different columns. In the Purchases sub-tab, you can now sort by Date, Purchased from and Total Amount columns:
In addition, you can also now sort by every column in the “In Stock” sub-tab and the Date and Total Amount columns under the Sold sub-tab.
Keep those customer suggestions coming and we’ll keep cranking out the improvements. Just email us at [email protected]
While we’ve had the ability to search for transactions in the Income and Expense tabs for a while now, we just expanded that functionality to connected marketplaces like eBay, Amazon, Etsy, Shopify, etc. as well as bank and credit card accounts.
Just type in the value that you are looking for. You can also combine the search with other filters like date range.
In our continued efforts to make it easier to get data out of Seller Ledger, we just added the ability to export both the Profit and Loss report and the Schedule C tax report.
Just click the “Export” button in the upper right of the Filters section and Seller Ledger will generate a comma-separate (CSV) file containing the values. You will then be taken to the Exports page under Settings (which we announced a few months ago) where you can download the file you just requested:
As always, we look forward to more customer suggestions. Keep them coming by emailing us at [email protected].
To make it easier to see trends in your business profit or loss, as well as what’s driving it, we are excited to add a new chart to the top of your Profit and Loss report, above the traditional table:
Mouse over any color on the chart to see the amount for that category, for that period.
One fun feature – if you click a category name in the legend, it will toggle that category on and off, so you can choose to isolate certain categories.
Do you make a lot of the same business-related trips in your vehicle throughout the course of the year? Like going to the post office to ship packages? Do you go to the same venues to source on a regular basis? If so, manually recording each trip can become a bit burdensome when it comes to writing off your mileage. Well, no more. Seller Ledger now makes it simple to record many mileage trips at once.
If you use a spreadsheet to track your mileage trips so that you can copy and paste the same trip over an over, you can now upload a version of that to Seller Ledger and let us calculate the deductions for you.
Click the “Choose File” button to find the CSV file on your computer and then click “Save”. Seller Ledger will import the file and create mileage trips for each row in your file, as well as calculating the deduction based on the date and the IRS standard rate for that date.
Are you are an eCommerce seller who stores inventory in a closet, basement, office, attic, garage or other location in your home? You may be able to use the Home Office deduction for those spaces to reduce your tax burden. This article explains how to qualify for the Home Office Deduction and how it can be used for inventory storage in your home.
Disclaimer
Before proceeding, it’s important to mention that we at Seller Ledger are not tax experts and are not trying to provide tax advice. It is critical that you as a reader make your own decisions on how to handle your specific tax situation, which may include hiring a professional.
Qualifying for the Home Office Deduction
Generally, qualifying for the home office deduction requires that you meet two criteria:
Your home must be the Principal Place of Business for your business AND
the spaces you are claiming must meet the criteria of Exclusive and Regular Use.
If you run your eCommerce business from home and have no other place of business, you may qualify for that first criteria. In addition, you may ONLY use the the space you are claiming for your home office deduction for business, not for any other purposes. Here is a link to the IRS page describing the Home Office Deduction in more detail and we recommend you consult with a tax professional to see if you qualify.
Let’s talk about a couple inventory storage examples with the home office deduction to clarify.
If you use a spare room in your home for mixed purposes, such as storing your own out-of-season clothing or other personal items mixed in with the inventory for your business, you will forfeit your ability to claim the home office deduction for that space. If, however, there’s a portion of the room that is dedicated exclusively to inventory and that section is separate from the space used for personal items, the portion dedicated to inventory storage would be acceptable to claim.
The same is true of spaces for packing and shipping. If you use your dining room table for these purposes, and that is where you also eat all your meals, it would not qualify as a business-use-only space. However, if you pack and ship in a corner of an office that is never used for personal purposes, that space would qualify.
How to Calculate Your Home Office Deduction
If you qualify for the home office deduction, there are two methods for calculating the amount to deduct. There is both a simplified method to calculate your deduction, which many people find to be easier to use, and a regular method.
Simplified Method
The simplified method is quite simple. It allows you to measure the square footage dedicated to your business and then calculate $5 per square foot. But there is a limit of up to 300 square feet. This method applies to both a traditional home office space where you work for your business and spaces in your home you use for dedicated inventory storage for your business.
Let’s say you store inventory in one dedicated closet of the home as well as a portion of your basement. If the closet measures 30 square feet and the portion of the basement dedicated to inventory measures 120 square feet, that would be a total of 150 square feet. Let’s say you also have an 10×12 office that you use exclusively for your business to list items for sale, manage customer support, purchase inventory and package items for your business, so that would be another 120 square feet. (Remember, this office must be a dedicated space for your business, not a mixed-use space!). The closet, plus the portion of the basement, plus the office is 30 sf + 120 sf + 120 sf = 270 sf. This meets the test that it is not above the maximum allowed of 300 square feet. The total of 270 square feet is multiplied by $5 to be $1,350, so that would be the amount of your Home Office deduction on your taxes.
Now, some of our larger sellers may look at at that 300 square foot maximum and say, aw, isn’t that cute. But I have way more inventory than that. For folks in that situation, you might want to consider the “regular method.”
Regular Method
To use the Regular Method, you would divide your expenses of operating the home into those that are business-related and those that are personal. You may deduct any purely business expenses in full. For shared expenses, you may allocate the portion that are business-related as a percentage of the total, using the percentage of square footage in the home that is dedicated to the business.
For example, let’s say your home is 2000 square feet. If 350 square feet are dedicated to your business, you would use 17.5% as the percentage that is business-related. Deductible expenses for business use of home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs, etc. In this example, you could deduct 17.5% of each of these costs. Again, you should consult the IRS details and seek advice from a tax professional to get this exactly right. And you may use either the Regular method or the Simplified method, but not both.
Edge Cases
Now let’s clarify some edge cases that might apply to you:
What if your inventory is stored in a separate detached structure on your property such as a garage, barn, shed or other out-building? So long as you meet both the Principal Place ofBusiness and Exclusive and Regular Use criteria, all of these would qualify.
What if you live in an apartment or condo instead of a home? Or you rent your home instead of owning it? Or you live in a mobile home or on a boat? Again, if you meet both the Principal Place of Business and Exclusive and Regular Use criteria, these would all qualify as well.
Let’s say you’ve outgrown your home as a place to store inventory. You store the bulk of your inventory in a rented warehouse, but some inventory gets stored at home too. In this case, you may NOT meet the criteria necessary to use the home office deduction. Your home may no longer be the principal place for your business. According to the IRS, inventory storage is deductible “so long as your home is the SOLE fixed location of such trade or business”. Consult a tax professional for further advice on this situation.
How do I enter a Home Office Deduction in Seller Ledger?
If you’re already using Seller Ledger, entering a Home Office Deduction is very easy. Simply go to the Expenses tab and click the “Add Expense” button in the upper right. When prompted, enter a description like “Home Office Deduction” and the amount you’ve calculated. Seller Ledger will automatically know to categorize that expense and it will roll up on your real-time Schedule C form. You can always reach out to us at [email protected] with any questions.
If you’re not yet using Seller Ledger, feel free to give it a try. We offer a 30 day free trial to all customers, no credit card required. You can learn more at www.sellerledger.com. For tips on additional deductions that may apply to you, you can also see our blog post on 3 Hacks to Maximize Mileage Deductions.
In our ongoing efforts to streamline eCommerce accounting and bookkeeping, we’ve just rolled out the ability to invite an accounting professional to access your books in Seller Ledger.
If you work with an accountant, bookkeeper, enrolled agent, or anyone else who helps you with your accounting, it’s now quite simple to grant them access to your Seller Ledger account. Just go to newly redesigned Settings -> Business page and you’ll see a new option to invite an accounting pro:
Just click on that button, enter the email address of your accounting professional, and they will receive an invitation to link to your account. Clicking on that invitation will allow your accounting pro to create their own Seller Ledger account, with their own login details.
What will my accounting pro have access to?
Once your accounting pro has accepted your invitation s/he will be able to view all of your financial data, categorize transactions and run reports. S/he won’t be able to do the following:
Add or remove connected accounts, banks or credit cards
Change your billing information
Change your business name
Can I revoke access?
You certainly can, at any time.
Does this feature cost extra?
Nope. Not only does it not cost you anything, but as of right now, accounting professionals can use Seller Ledger for free. Think of them as your first “extra” user on your Seller Ledger account.
As with all new features we roll out, we welcome any and all feedback to help us improve over time. Please encourage your accounting professional to also send us feedback at [email protected].
