Top Tax Time Tips For eCommerce Business Owners

There’s a lot to think about for eCommerce business owners come tax time. Thankfully, there are also a lot of EOFY tax tips to help maximise your money, like knowing all your deductibles, being clued up on small business incentives, tracking key dates to avoid penalties, and keeping organised records.

Often they’re small things that add up, but knowing all the tricks of the trade is exactly why accountants are in such high demand. To make your reporting a little easier, and maybe even beef up that tax refund, here are a few tips that eCommerce business owners should know for this end of financial year.

Make Sure Your Company Is Officially Set Up With An ABN

If, like many others, you’ve jumped right into your eCommerce business without doing the preliminaries that a physical business requires, don’t worry. Setting up an ABN is quick and free. But, it is a crucial part of operating a business that’s officially recognised by the government, so make sure you get it done.

Know About Work From Home Deductibles

Working from home deductibles?

Yes – even when you’re working in the luxury of your own home you’re eligible for a handful of useful tax deductions. This includes your home office equipment like necessities such as your laptop, chair, software, or printer paper, as well as the utilities costs of the hours you work in that home office, including electricity and internet bills.

The Australian Tax Office (ATO) website marks out the relevant deductions and how much you can claim – such as 67 cents per work-from-home hour. Be sure to run the decline in value calculations for items that cost over $300 too.

Separate Your Personal Income Tax

If your eCommerce business is legally distinct from yourself – for example, if registered as a Proprietary Limited (Pty Ltd) – you will have to fill out separate tax returns for each one. This means that your personal income is counted separately from your business’s profits. If you’re running your company as a sole trader, you’ll only have to lodge one tax return, and both you and your business’s income will be considered as one for tax purposes.

How Should You Pay Yourself As Founder?

As the founder, you’re able to pay yourself in a number of ways, which all incur different taxes. These are the three ways to tackle it.

Salary and wage payments

If you pay yourself a fixed rate, for example, each week or month, either related to your hours worked or a set annual amount, your income must also follow superannuation and Pay As You Go regulations, as it would for any other employee.

Dividends

Dividends are earnings distributed among shareholders, normally at the end of each financial quarter. These are taxed differently for a number of factors, so check with the ATO which category your dividends would fall into. 

Directors’ fees

Directors’ fees are special payments that are taxed at the earner’s marginal tax rate, and which also have certain requirements. Because of these specific considerations and terms, salaries are the simplest and most common option.

Capital Gains

If your company is selling assets at a profit, these sales are subject to capital gains tax. This is not separate from income tax, but you must declare these sales to the ATO. They could include selling shares, real estate, currencies, and cryptocurrencies. 

Because of this, it’s also worth considering your net profit (including your tax payment) when selling off assets.

Know If You Need To Register For Goods & Services Tax (GST)

If your eCommerce business is not registered for GST, you won’t be taxed for the goods and services you sell. But, you must register for GST if your business is making over $75,000 a year. 

When registered for GST, your company will also have to submit a Business Activity Statement (BAS) alongside its tax return to report GST. 

Additionally, your business can voluntarily register for GST, which can be useful if the GST credits you claim would offset the GST your business will pay.

Don’t Double Count Revenue

If you’re filling out tax returns for yourself as an individual, and for your company, double counting sales or purchases is a common mistake. The problem with doing that is you’ll pay double the tax on the same item.

Take the time to separate your purchases into personal and business before doing your tax return – and double-check when it’s all done too. It’s because of this that many small business owners or first-time entrepreneurs hire accountants for EOFY in Australia, to ensure they file everything accurately… and only once!

Save To Pay For Your Taxes

Unless you’re paying yourself your salary using PAYG – which is unlikely for a self-employed eCommerce business – you’ll have a sizable tax payment to make at the end of the financial year. Because of this, you must save money during the year to pay for them, or else you’ll have the tax man knocking at your door.

So, create a separate account for your taxes, then set aside a portion of your profits based on your predicted annual salary. For example, if you’re making $4,166 a month ($50k p.a.), set aside $565 for taxes each month. 

Tax Time Tips: In Conclusion

Being proactive and accurate when declaring the cash flow of your eCommerce business is the key takeaway here. This is important whether your business is a newly hatched fledgling, about to take flight, or already a high flyer. Second to this is to know your deductibles and where you can optimise your business to manage your income tax appropriately. 

Our final tip is to understand that knowing the finer workings of the tax system is certainly a hefty challenge, so don’t expect to get it down pat during your first financial year. Working with professionals can help you learn the ropes, until you feel confident and comfortable managing tax returns yourself… or have the profits to hire an accountant all-year round.