Some good news for small eCommerce sellers! Congress, in the new One Big Beautiful Act, has restored the original 1099-K reporting threshold to $20,000 and 200 transactions in a year.
If you’re an eCommerce business seller, it was always necessary to file a tax return to report your profits, regardless of what 1099-Ks you received. However, lowering the reporting threshold to $600 was starting to catch a LOT of individuals simply selling their personal items, which was a big unintended consequence of the original idea.
Based on a recent question from a customer, we decided to outline the steps to make sure you automate the ability to track cost of goods sold with Poshmark.
The first step is to create a unique SKU (short for “stock keeping unit”) for each item you list. Next, record the SKU and purchase price (and any other inbounds costs) of that item in Seller Ledger. Finally, when listing your item for sale on Poshmark, make sure to include the unique SKU value in the listing. Doing this is not obvious, as the field is considered “optional” and not exposed by default.
Adding SKU value to your Poshmark listing
When you go to create a new listing at Poshmark, you will see a screen that begins like the following:
Scroll down to the bottom and you’ll see a private section called “Additional Details.”
In order to add a SKU to your listing, you’ll need to open the “Additional details” section by clicking “show details” on the far right. That expands the section to reveal a field for SKU:
Note – there is also a “Cost Price” field in there, but it’s not necessary (nor recommended) to record your costs there, as Seller Ledger should already have the cost information for that item in its records.
That’s it?
Yes, that’s it. What happens form here is that, when your item sells on Poshmark and Seller Ledger imports that sales information into our software, we look for the SKU value and automatically match it to what we show in your Seller Ledger inventory. Once we do that, we reduce the amount of your and automatically update your cost of goods sold expense amount. There is no additional record keeping or analysis that you need to do.
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.
