Accounting and preparing for tax season can be a painful process. Even though it may sound like a daunting task, you will have to deal with it at one point or another. If you are on top of your numbers, you can easily tell if you are profitable or not. You will also be better prepared for the tax season.
Tax forms have often caused anxiety and stress for WooCommerce store owners. To make this challenging task easier, it is better to have processes and procedures in place right from the start. You don’t want to end up doing lengthy reconciliations when tax season is around and lose focus on your business. To help you get through this easily we have put together these 5 essential WooCommerce accounting tips.
1. Stay up to speed with your cost of goods sold
This is a figure that you should always be on top of no matter what kind of business you are running. It will help you understand your margins, profitability, best sellers and how much are you exactly making.
It is important not to confuse the cost of goods sold with simply the purchase price of a product. There are other costs that you may need to consider as the cost of goods sold such as raw materials, labor overheads, shipping costs, packing costs, etc. You need to understand your total cost of goods sold.
If you don’t know this number, you will have difficulty calculating your gross margins. You can also use it to analyze which products are highly profitable and which ones are less profitable. You can then try and sell more of the ones that have better gross margins.
Unfortunately, WooCommerce has no built-in module to track the cost of goods sold. Even though it is a vital number to keep track of. The only option we are then left with is to use plugins to track our cost of goods sold.
Download : Cost of Goods
The plugin is an exceptional solution that can help you track your cost of goods sold. It works by adding a new field to simple and variable products, in which you can define your cost of goods sold.
Once you add the cost of goods sold for products, you will see the cost on the All product page as well in the back end of your website.
So now rather than just tracking your revenue with WooCommerce, you can easily track your cost of goods sold and your profitability as well. It has several outstanding features such as:
- Add cost of goods sold to each product and variation
- Add cost of goods sold to previous orders
- Get profit reports by date range, products or categories
- Export data to CSV/ Excel for deeper analysis
2. Stay up to speed with your taxes
Taxes is one of the most ignored areas by WooCommerce store owners. If you don’t want to end up in trouble with the tax authorities, keep track of your taxes. Understand the tax laws in the jurisdiction that you operate in.
There are many types of taxes, however, in most cases, you need to take care of sales tax and income tax at least. Sales tax is almost always automatically applicable. Even though for some products such as textbooks, the sales tax rate might be 0%, you will still need to stay up to speed with this.
You will need to figure out your tax rules and set them up in WooCommerce. If you are unsure of the % of GST or VAT then it would be useful to consult a tax expert or a CPA.
You can easily start charging sales tax by configuring your WooCommerce store. You will need to enable the tax option in your WooCommerce settings. This will give you access to the taxes tab. From here you can easily configure WooCommerce to handle your taxes.
In some regions, you will need to provide a VAT number. For example, in Europe, your invoices should have a VAT number. In such cases, there are plugins that can help you set up your VAT process. The Yith WooCommerce EU VAT can collect and validate VAT numbers for various EU countries.
Download : Yith WooCommerce VAT
Since 2015 the EU has introduced new tax rules for the sale of digital goods in the EU. The Yith plugin will help you easily adhere to these rules.
For other regions and countries, there are similar plugins easily available on the market.
3. Have some money set aside for taxes
Whether your business makes a profit or a loss. You must deal with taxes. In case of making profits, you will need to pay taxes at some point. In some countries income tax is required to be paid monthly, in others it is quarterly, and in most, it is yearly.
Even though you don’t incorporate your business and run it as a sole trader, you will still need to pay income tax. If you incorporate the business, you will pay taxes on your profits. If you run it a sole trader or partnership the amount of income you receive will be taxed.
One of the best things you can do for your business in this case is to hire an accountant/tax expert/CPA. You will need their services to be able to calculate how much tax to pay. They can also help reduce your tax liability and will be able to keep you up to speed with tax deadlines.
When tax season comes around you will need to pay the taxes you are liable for. It would be difficult to cope with a sudden liability that you had not prepared for. Hence, we suggest to always set some money aside for taxes.
How much you will need to set aside will really depend on the country that you are paying taxes in. For most countries, however, as a general rule, you can set aside 30% of your profits. This should be sufficient for most businesses. It would be useful to set aside this money every month in a savings account. Make sure you get some interest on it as well.
This way when tax season comes around you will be prepared to pay for it and the interest you earn will also be a bonus for you. You will be at ease as you will have taken care of a major burden by saving upfront.
4. Connect WooCommerce with an Accounting Platform
QuickBooks is one of the most widely used accounting platforms. It’s an excellent solution and works perfectly for most businesses. It’s user-friendly and the price is fair. QuickBooks can easily take care of your sales, purchases, overhead expenses, margin calculations, inventory valuations, etc.
One of the reasons for its popularity is its user-friendliness. You don’t need to be an accountant to use it. There is a desktop and a cloud-based version available for QuickBooks.
You can easily integrate QuickBooks with your WooCommerce store through plugins. There are several of them available. This can allow you to automatically sync your QuickBooks with your WooCommerce store. This will give you a better grip on your numbers and you can judge the financial health of your business at any given time.
It also saves you time when tax season comes around as your data is already in QuickBooks and you don’t need to enter it manually.
QuickBooks Sync for WooCommerce is an exceptional plugin that automatically syncs your WooCommerce data with QuickBooks. The best part is the plugin is available for free.
5. Keep note of your deadlines
Missing a tax deadline is worse than missing a birthday. Search for your tax deadlines where you operate, keep note of them, mark them on the calendar, and set reminders for them. Late filing can result in hefty penalties. Again your accountant should come in handy here.
These 5 tips will make your life easier. You will be up to date with your numbers, you will have saved for paying taxes, you will have no manual entries to do. Overall, you will be better prepared for tax season.