Taxes Archives - Seller Ledger

6 Tips to simplify Shopify taxes

Seller Ledger on January 29, 2025

Tax time is here (in the United States, anyway) and for Shopify businesses in particular, that means a lot of potential complexity. And now that the 1099-K threshold is being lowered to $5,000 per platform, now is a great time to consider ways to simplify Shopify taxes

You can avoid a lot of hassle by investing some time in planning how to manage your business finances. And while tax preparation is one of the last things Shopify store owners tend to focus on (or enjoy,) each filing season can be a painful reminder of the choices we previously made.

6 tips to simplify Shopify tax organization and filing.

1. Use separate bank and credit card accounts

It sounds obvious, but newer and smaller sellers often think they can put this off for the future. But spending the time (and money) to separate commingled personal and business finances is just not worth it. Make sure you have a dedicated business banking account, where all of your eCommerce payouts get deposited. Take out a dedicated business credit card (or use a debit card) and make sure all of your business expenses are paid through it. Doing so makes it a relative breeze to get your transaction history for tax time. You’ll have fewer places to look, fewer statements to track down, and most importantly, get to completely skip “removing” personal transactions.

2. Choose banks and credit cards that have “good” online banking capabilities

When choosing a bank or credit card, do a little research into their online banking capabilities. While most banks have some level of online banking, some banks do a much better job making transaction history available electronically. In particular, small, regional banks and credit unions tend to invest less in their online banking capabilities. This can lead lead to less data being made available, and sometimes at lower quality.

Another way to evaluate online banking capabilities is by looking at how banks handle sign-in and authorization. The best banks now support OAuth, which permits 3rd party application developers to get customer “permission” to access specific data from their bank using special tokens, which avoid the need to request usernames and passwords. In addition, customers can choose to manage and “revoke” permission of these external programs from the bank’s website.

3. Use accounting/bookkeeping software that’s great at accessing electronic data

I mentioned in the prior tip the importance of online banking and access to electronic financial records. The same goes for eCommerce channels. Most large, established channels make their data available through APIs (application programming interfaces,) which allow other software companies to access that data. But not all access is the same.

Some accounting solutions take shortcuts, like only pulling payout information, which is pretty much what you get from banks anyway. But those payouts are missing key details, like item prices, shipping collected, sales tax collected and possibly remitted, and fees paid. Given that different platforms report different totals on 1099-Ks, you’ll want to make sure you have proper transaction details to give you an accurate financial picture.

Others completely ignore things like the actual products sold and that sale’s effect on inventory and cost of goods sold. For example, you may not want to choose a product whose Shopify review reads like this:

Actual accounting software review from a Shopify customer

“This does not pull in sales receipts with product info. So if you track inventory in [name removed to avoid embarrassment], it will not reduce your inventory when you sell an item”

Spend a little time up front, do your homework, read reviews and discussions in different online communities, and make sure your accounting software gets you the eCommerce details you need.

4. Watch out for channel duplication

These days, most successful eCommerce merchants sell across multiple channels. And some platforms, like Shopify, allow you to connect other marketplaces to get a more complete view of your sales. For example, the Shopify Marketplace Connect app allows you to bring in data from Amazon, eBay, Etsy, Walmart and more. But this can lead to challenges in reporting, as the same data gets replicated across different platforms. You’ll want to ensure that you’re never double counting sales or expenses.

Unfortunately, this may lead you to think you can simply connect all of your other marketplaces to Shopify, then pull all of that information from a single source. While this may sound in theory, having worked directly with Shopify’s API, we know that the level of detail you get from the kind of direct integrations outlined in Tip #3 is lost when the data gets to Shopify.

Hopefully, accounting/bookkeeping software knows how to handle this, but you will want to keep an eye on the data.

5. Create (and list) unique SKUs for your inventory

This might be the single biggest thing you can do to avoid headaches at the end of the year (and for many years to come.) Investing the time to create a system of assigning unique SKUs (stock keeping units) for each item you sell will pay off immeasurably down the road. A lot of retailers and eCommerce sellers use a “smart code” approach, similar to what Shopify outlines in this handy tutorial. But whichever method you use, the most important thing is to choose something that is unique to each product/item.

You’ll also want to make sure to use these same SKUs across channels when listing items for sale. Doing so can enable the following (assuming your accounting/bookkeeping system is set up well):

When an item sells, that sales record will reduce your inventory account, helping make sure you avoid stock-outs and accidentally selling product you no longer have.
Having your inventory counts get updated automatically also helps for end of year inventory counts and valuation.
Also, when that item sells, if you have recorded the cost of that information in your accounting/bookkeeping software, it can calculate the cost of goods sold automatically for you, both on that item, and over the course of the year.

In addition to simplifying end-of-year calculations of inventory value and cost of goods sold, this approach can also calculate the gross profit/margin on each sale, giving you better insight into what products drive the most profit for you.

6. If you still need help with sales tax, just pay for a service

While most online marketplaces (eBay, Amazon, Etsy, etc.) must now collect and remit sales tax on behalf of sellers, many online store platforms like Shopify, Woo Commerce and such still leave it up to the merchant to collect sales tax from the buyer and remit (a.k.a. “file”) to the individual states. For sellers in that category, I strongly recommend outsourcing to a paid service like Shopify Tax, TaxJar or another similar service.

Want to try it yourself? You can learn more in this article, but here’s a partial list of what that entails:

Determine in which states you have nexus (physical or economic) so that you know where to collect and file
Register your business in each state where you have nexus
Determine the correct rate to charge based on the item being sold (including any product taxability exemptions, whether shipping is taxable, etc) and the jurisdictions that apply (which can be state, county, city and even special taxing districts.)
Total up all of the sales by each reporting jurisdiction
File accurately in each state, some of whom share similar interfaces, many of whom are specific to just that state. Oh yeah, and the filing frequency differs by state.

As the original head of product for TaxJar (though I left long ago,) I can assure you that trying to manually determine all of the above and comply properly, is incredibly complex and can become a monster drain on your productivity as a business owner. Of all the places to try to save money, this one might be the worst idea to do so:)

In summary

As you can tell from this article, there is a strong bias in favor of thinking through and structuring your approach to business finances up-front, in the hopes of automatic future workflows. For any business owner, it’s better to spend the bulk of your time where you add the most value, and minimize time spent on drudgery. For Shopify and other eCommerce merchants, that means getting back to sourcing, listing and fulfilling. Hopefully, some of these tips can help simplify Shopify taxes going forward, with the added bonus of informing you how to run your business more profitably.

If you are a US-based eCommerce merchant who files a Schedule-C with your tax return, you may wish to consider Seller Ledger, an accounting/bookkeeping platforms that does a lot of what’s described above (particularly tips 3 & 4.) We offer a 30-day free trial, no credit card required. We can even help pull in all of your 2024 transaction data. And we have plans to expand to other business types as well as internationally.

Try it free

Oh, and all of our customer support is handled via email by the actual product team.

Try us today: https://sellerledger.com/shopify-accounting-software/

3 Hacks to maximize mileage deductions

Seller Ledger on January 27, 2025

In an effort to make sure you write off all legitimate business deductions for your eCommerce business, we though it would be helpful to go a bit deeper on the IRS rules around “Business use of your car” so that you cab maximize mileage deductions.

Mileage deductions are a simple way to reduce your tax burden, and many driving trips for
resellers and online store owners qualify, but it’s so hard to remember to enter them all!

The IRS recommends tracking mileage driven for your business by recording every trip
at the time that you take it. You can include your trips to all of these types of
destinations that might be relevant for you:

Inventory sourcing trips
Office supply runs
Trips to the Post Office, FedEx or UPS to ship your packages
Trips to reseller meet ups or conferences
Driving to any in-person training sessions or educational opportunities related to your business

There are two different methods to calculate your mileage deduction, which we explain in more detail below, but either method requires you to track how many miles you drove for business purposes, so you’ll want to be as accurate as possible in capturing these.

But what if you’re already three quarters of the way through the year and you haven’t been tracking all of your miles? Read on for how we’ve seen some sellers capture legitimate business trips they took, even if they might not have been recorded in the moment.

Here are 3 ways we’ve seen sellers maximize their mileage deductions.

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.

1. Use a mileage tracking app

Some sellers use mileage tracking apps, such as MileIQ or Everlance, that can help you to keep track of how many miles you’re driving for business purposes versus personal. On the plus side, these apps can save you a lot of time versus manually entering each expense. On the minus side, they can be an additional cost and they don’t help for the time period you weren’t tracking your miles.

2. Mine your other financial records

Wouldn’t it be great if someone could give you a record of each of your driving trips throughout the year even though you forgot to record them at the time?

If you’re using Seller Ledger’s automated bookkeeping software to import your business bank and credit card expenses and categorize those expenses, it can get you pretty close. Chances are, you’ve got a record in Seller Ledger of an expense for each of those inventory sourcing trips. Simply go to the Expenses tab, select the “Cost of Goods Sold” category and you’ll have a list of each vendor you bought from and the date of the transaction. We’ve seen sellers create a Mileage Deduction in Seller Ledger for each of those trips where they know they drove to the vendor.

We’ve seen sellers use the same tactic for trips to the Post Office, FedEx or UPS for shipping trips. In your Expense tab, select Category “Shipping Costs” and you’ll see a list of your transactions. Sellers obviously can’t deduct mileage for instances where they purchased a shipping label from eBay or Amazon online to ship a package, and they can’t deduct mileage if the shipper picked product up from their home or office, but each seller knows how their business operates and where legitimate driving trips are included, this is a tactic that has helped other sellers to identify them.

This method works for Office supply runs, Education sessions, or any other vendor/expense where it was needed to drive to for business purposes.

3. Use Google Maps

The Simple Part: We’ve talked with sellers who didn’t know the distance between two locations they traveled to earlier in the year. They simply entered their starting point and the destination in Google Maps, and there they had it – they knew the number of miles traveled.

The More Sophisticated Part: One seller even taught us about the timeline in Google Maps. It’s possible to see your timeline in Google Maps both in the mobile app and on the website. All the places you have searched for throughout your history will come up – you can click the “see more” button to see more locations, revealing the potential destinations from your past. The seller was using this tool to research past trips that might qualify as business trips they could deduct.

They shared another approach in Google Maps which is to click on your profile in the upper right of the mobile app and turn on your location history. With this feature enabled you can see the driving trips that you actually took whether they were today, a week ago, a month ago, etc. and it can include your location history that you actually travelled to. This was another gold mine for the seller in identifying trips they took for business purposes.

Standard Mileage Deduction Rate

In 2025, the current IRS mileage deduction rate is now $0.70 per mile. To use the standard mileage rate method, you can multiply this amount by the number of miles driven for each work trip to calculate your mileage deductions. At the end of the year, the sum of all those mileage deductions can be subtracted from your taxable income so that you pay taxes on a lower amount.

Actual Expense Method

Alternatively, there is another method to deduct driving costs by writing off a percentage of your vehicle costs, the actual expense method. This method takes into account spending on things like car insurance, and vehicle repairs among other vehicle-related costs. To use this method, calculate the number of total miles driven for work during the year. Then note the total miles driven by the vehicle during the year. The number of miles driven for work divided by the total miles is the deduction percentage.

For example, if you drove 2,000 miles for work out of a total of 10,000 miles in a year, then 2,000/10,000 = 20%. Once you know this percentage, you will apply it to the total money spent on the vehicle during the year. If you spent $5,000 on the vehicle that year, then 20% * $5,000 would be $1,000, so you could deduct $1,000 for the year.

Unfortunately, you cannot use both methods to deduct vehicle-related expenses, you must choose one or the other. Most folks choose the simple mileage deduction rate, logging their miles as they go and multiplying by the IRS rate to calculate their total deduction for the year.

Of course every seller’s situation will be unique and we cannot provide tax advice for your unique situation. An accountant can help you to identify and maximize mileage deductions. In addition, here are a couple links from the IRS that might be helpful to you on this topic:

2024 IRS Standard Mileage Rate

IRS Tax Topic 510, Business Use of Car

Lastly, if you’re an online seller looking for an easy way to track your business expenses going forward, we recommend giving Seller Ledger a try. Seller Ledger offers a 30 day free trial, with no credit card required, and lots of smart features that learn and remember your vendors, so the more you use it, the faster and easier it gets over time.

Seller Ledger was designed to provide the simplest, most automated bookkeeping solution for ecommerce sellers, at an affordable cost. If you sell on eBay, Etsy, Amazon, Walmart, Shopify, Poshmark, Mercari, Whatnot and more, Seller Ledger can automate your bookkeeping and make tax time easy.

Try it free!

See your eCommerce sales by state

Seller Ledger on August 19, 2024

In response to a number of customer requests, we recently rolled out a new report called Sales by State. You can find it under the “Reports” tab:

This reports shows you sales by state, broken into Non-taxable Sales (e.g. any sales collected and remitted by a marketplace facilitator like eBay, Etsy, Amazon, etc, as well as any shipping collected in states where shipping is not tabale) and Taxable Sales (e.g. sales on store platforms or other channels where sales tax need to be collected. We also show any sales tax that has been collected by not remitted.

You also can click to sort by any of the columns provided.

At the time of this post, the feature is currently in an open “beta” period. Please let us know of any feedback you have at [email protected].

Thanks!

A few small enhancements for tax season

Seller Ledger on April 6, 2024

In an effort to make it even easier to prepare for 2023 taxes, Seller Ledger has rolled out a few small enhancements.

View sales that have no cost information

For those of you tracking inventory at the item level, we’ve made it a bit easier to identify any remaining sales for which you haven’t yet entered cost information. In the Inventory -> Sold view, there is a new filter to allow you to select sales where cost information is missing:

View “in-stock” inventory totals

At the top of the Inventory -> In Stock view, we now show you the total count and cost of all of your unsold inventory:

Mileage totals

At the top of the Expenses -> Mileage view, you can now see both the total number of miles driven, and the total mileage expenses to deduct. In addition, we’ve added date range selectors so you can choose different periods to review:

While these aren’t the largest changes, they do reflect customer feedback about small ways to make the product a bit easier to use, which in turn, makes accounting and taxes less of a pain. Please keep sending us feedback at [email protected].

5 Things Online Sellers can do this fall to prepare for Filing 2023 Taxes

Seller Ledger on October 18, 2023

So often we find ourselves in the springtime questioning why didn’t we do more to prepare,
and tax season ends up being a time-pressured, stressful undertaking. It doesn’t have to be
that way though, as there are many things you can do now to make the process much easier
after the end of the calendar year.

1. Ensure you have a consistent means of tracking your finances, including both your sales and expenses, every month.

There are many different ways to do this, and you should select the method that is right for
you. Some sellers track these manually in a spreadsheet and others use automated
bookkeeping software such as Seller Ledger to make the process faster and easier with
automated imports from sales channels and bank/credit card accounts. The key is to ensure
you are tracking every sale and every expense, and it’s a good idea to summarize this data
monthly to see how your business is doing.

2. Learn about the changes coming for 1099K regulations in 2023.

In 2022, the IRS had planned to require sales channels like eBay, Amazon, and Etsy to issue
a 1099K to anyone selling over $600 (vs $20,000 previously), only to announce at the last
minute that the change would be delayed to 2023. Many organizations continue to lobby for a
higher dollar threshold, but as of the time of this article, the IRS states that it will require 1099K
forms for anyone selling $600 or higher in 2023. Note that different companies may calculate
their 1099K’s differently and you’ll want to be aware of how they do it.

3. Develop your strategy to know how much inventory you have on hand.

There are many ways to manage inventory. Some sellers count their inventory monthly,
quarterly or annually to assess its value, and this is ideal, but it is too huge a task for others. It’s
important to document the purchase price of your items when you buy them so you know how
much you’ve spent on Inventory. You can do this in a spreadsheet, or Seller Ledger makes it
easy to categorize inventory purchased through your connected bank/credit card accounts.
When an item sells and you ship it off, the value of your inventory goes down by the value of
that item, and that amount becomes Cost of Goods Sold for your taxes. Seller Ledger can
manage this process automatically for you so you’ll always know how much inventory you have
on hand and you’ll know your Cost of Goods Sold amount for tax time.

4. Make sure you are tracking things like mileage expenses and home office expenses so you’ll remember to include these in your 2023 tax filing.

Every time you drive to a store to purchase inventory, or drive to the post office to ship
products, you are using your vehicle for your business. You can either deduct vehicle expenses
individually (such as buying a business vehicle, or car insurance), or you can use the mileage
deduction every time you take a trip on behalf of the business. If you’re using Seller Ledger,
you can just enter the number of miles you traveled for work and Seller Ledger automatically
uses the IRS standard mileage rates to track the expense for you. Your home office and things
like your storage spaces are deductible too. Make a list of all the areas in your home that are
dedicated to your business and you’ll have it handy when needed for taxes.

5. Consider investing in accounting/bookkeeping software that can automate much of this process for your business.

Seller Ledger currently supports eBay, Etsy, Poshmark (through CSV uploads) and Amazon (in
beta) with additional channels coming soon. There is a 30-day free trial and pricing is
$10/month for up to 250 transactions/month. There are no additional fees for selling through
multiple sales channels or for using advanced features such as inventory management. You can
connect your sales channels as well as Paypal and your bank and credit card accounts for
automated data imports. Drop down menus make it easy to categorize expenses. Monthly,
quarterly and annual financial reports help you to understand how your business is performing,
and make it easy to prepare for estimated quarterly tax payments. For annual taxes, a pre-
populated schedule C form is prepared for you.

If you’re going to begin using an automated software platform, the sooner you start on it the
better. Some banks have limitations on how far back they’ll allow you to go in directly
importing transactions (many restrict it to 90 days), so to capture the most data possible, don’t
wait before signing up. You can start your free 30-day trial at SellerLedger.com.

Pay eCommerce estimated taxes – accurately and on time

Seller Ledger on August 19, 2023

In time for 2023 third quarter estimated taxes, Seller Ledger has released a new feature to make calculating your tax obligation easy.

New “Quarterly” taxes tab

Under the Taxes section, you will see a new tab labeled “Quarterly”. Clicking on it will bring you to a screen like this:

Seller Ledger now estimates your quarterly tax payments based on your year-to-date business results and shows you the correct payment deadlines for the selected year. We take care of the rates for Social Security and Medicare, and let you choose the federal income tax rate that applies to your situation (see the new “Business” tab under Settings:)

If you under- or over-pay for one quarter, Seller Ledger will remember that for future quarters. To record payments, just use the new “Estimated tax” category that has been added to your account, so Seller Ledger knows to apply the payment correctly.

Click here to get a copy of the latest IRS form 1040-ES.

As always, feedback is very much appreciated, so let us know how we can improve things at [email protected].