Businesses are reporting a massive influx in sales during COVID-19, including anything related to virus protection and sanitization, household items, OTC drugs and groceries. My firm is even seeing an increase in new and first-time ecommerce shops opening as a way to generate additional income. And current clients reporting a high volume of sales similar to the peak holiday season.
But the longer millions are out of work, the bigger the impact on wallets, depressing sales of nonessential items. In the coming weeks and months there will be continued pressure on consumers to cut back on nonessential spending.
Whether you’re a new or existing online business, both scenarios (sales up, sales down) have ecommerce tax compliance implications you need to be aware of, so read on for some helpful tips to help you stay on top of the issue.
What to Know If You’re Way Up
If you’re seeing high sales growth due to COVID-19, or you’ve moved your physical store online, your business changes impact your tax liability. While it’s easy to get caught up in the rising numbers, you still need to maintain ecommerce tax compliance. Typically, companies hit roadblocks in this regard when expanding domestically and globally, marketing or selling online through affiliates, or adding products or services. These are all situations that can be a result of COVID-19. The good news is that suitable planning can help you avoid any sales tax obstacles.
It’s also important to understand that planning to reduce your tax burden happens during the tax year, not after it. An accountant cannot restructure your business to save money on taxes during tax season. It has to be customized and planned in advance to be effective. So, if you’re sales are up, now is the perfect time to get everything in order.
Both income and sales tax compliance problems typically multiply during growth periods, so it’s crucial to be ahead on this. Trying to tackle your taxes manually will only bog you down, so don’t be afraid to bring in outside help! You can utilize reliable software programs like Tax Jar, SaaS solutions like Turbo Tax or an accountant to efficiently automate your sales tax process.
Overall, you should outsource the detailed accounting and tax compliance work to a licensed professional so you can focus on growing your business. Especially during this already stressful time, these options will provide peace of mind that you’re staying on top of tax compliance as your ecommerce sales grow.
What to Know If You’re Way Down
Unfortunately, some ecommerce sales are tanking amidst COVID-19, and the last thing on your mind is managing your tax compliance. The changing landscape has presented more compliance obligations on online businesses, so it’s imperative to understand and manage your ecommerce tax liabilities.
To navigate during these challenging times, you should absolutely consider lending options and grant solutions to assist you with paying payroll, rent, mortgage or other high-fixed-cost business expenses. However, the SBA’s PPP funds have been quickly running out once replenished. In order to stay on top of this, you can use financial resources such as Fundera to get your application in the queue and have a better chance at securing new funding as it becomes available. There are more resources available that allow efficient access to multiple SBA lenders, increasing the chances of your application getting viewed in new funding rounds.
Many banks are only accepting applications from current customers, but companies like Bankers Trust, Bell Bank, Celtic Bank, Customers Bank, First Commonwealth Bank and more are welcoming applications from non-customers. SmartAsset has compiled a list of PPP loan lenders and their application requirements.
Some small business owners have reported success by contacting local community banks that are processing PPP applications for customers and asking to transfer their accounts to them, to have their application accepted.
Additionally, if you currently have unused (i.e. never deducted) net operating losses, the IRS is now allowing “carryback” to offset income from previous years. While the Tax Cuts and Jobs Act previously removed this provision, the financial strain caused by COVID means the IRS is now allowing loss carrybacks to give companies more access to refund cash.
Whether your ecommerce sales are up or down right now, chances are there’s a change that needs to be made when it comes to your financial health. It’s important that businesses take the necessary steps to optimize their back-end processes, like ecommerce tax compliance, to limit any potential interruptions. Checking these boxes will also help you provide a seamless customer experience and safeguard your business from the risks down the road once operations return to the (new) normal.
Chris Rivera is the founder of Ecommerce Accountants