As an eCommerce business, it's your responsibility to pay the correct amount of tax. But this becomes complicated when you've got high sales volumes and international customers. Staying compliant with tax rules and regulations is something that many eCommerce sellers worry about.
What happens if you're a UK seller with customers in the U.S, for example? And how do you know when you're liable to pay taxes?
Sales tax software simplifies the sales tax compliance process by taking over tasks like calculating your taxes, filing returns, and generating reports. Their purpose is to monitor your sales data, help keep your books organised, and ensure your taxes are worked out correctly.
Key Takeaways from this Post
eCommerce businesses are responsible for ensuring they abide by the correct tax laws according to the appropriate jurisdictions. Sales tax rates and laws vary throughout jurisdictions. Therefore, compliance is rarely straightforward when it comes to eCommerce taxes.
Using a sales tax software will help with sales tax compliance. But that's not all. It can also promote accuracy throughout your books, save you considerable time each month, and allow you to weave layers of automation throughout your accounting and tax processes.
Link My Books is a bookkeeping automation software for eCommerce businesses. It automatically transfers your sales data to your accounting software, and also accurately calculates your taxes on every product you sell. Link My Books simplifies your sales tax management.
Naturally, there's a lot of choice for sales tax software online. So I've come up with this list of what I think are the best 8 options for eCommerce sellers. Join me as I dive into each solution.
Understanding Sales Tax Compliance
Tax compliance can be viewed as a process. It involves keeping accurate records of all your sales and expenditure data, and organising this information in a logical way that you and/or your accountant can understand.
This data is then used to file your tax returns in the appropriate jurisdictions according to each one's tax laws. Finally, you must pay the taxes that you own by a certain deadline to avoid penalties and possible audits.
Triggering Nexus in a U.S State
If your business operates in one or more U.S state, you might trigger a nexus which will mean you're liable to pay sales tax in that state. In the U.S, there are two levels of taxes; federal level and state level. Federal level is consistent across the board. But different states have different rules for paying sales tax.
Your business doesn't necessarily need to be physically operating in a state to trigger a nexus. You could go beyond a set sales threshold in a jurisdiction or employ remote staff there, for example. Another way of triggering a nexus is using a warehouse or a drop shipping company in a certain state. Or even working with people in a state to promote your business and paying them on a commission basis.
As you can see, U.S tax laws are complicated and vary from state to state. A sales tax software is a game-changer for eCommerce businesses selling across multiple jurisdictions.
Benefits of Sales Tax Software for eCommerce
Link My Books has worked with thousands of eCommerce businesses over the years and we've identified five core benefits of using sales tax software:
1. Automation
Most sales tax solutions come complete with automation features that take over some of your accounting tasks. This could be calculating your taxes, notifying you if owe taxes, or compiling tax reports. They might also sync your sales data across your various sales channels to keep your books organised. Automation software will help you streamline your accounting and tax compliance activities.
2. Save Time
Automation aspects of a sales tax software will save you time. You wont need to trudge through the chore of manual data entry or reconciliation. But you'll also save time because the software will ensure your records are organised in a such a way that you can refer back to the data you need as and when it's necessary. This makes filing tax returns quicker.
With many softwares, you can prepare tax returns and even file them directly through the software. All the information you need is at your fingertips.
Tax Compliance
Link My Books has discovered that more than 75% of eCommerce businesses were making mistakes in their books before onboarding our software. This often inevitably leads to businesses paying the wrong amount of tax.
Of course, one of the main benefits of using sales tax software, whether that's a cloud-based sales tax software or on-premise, is that you'll be able to enhance your compliance with tax laws and regulations.
This reduces the risk of businesses either overpaying their taxes or underpaying them. Overpaying your taxes wastes money. Underpaying, on the other hand, could land you with fines and penalties, and even increases the likelihood of your business being subject to a tax audit.
Enhance Accuracy
Working with lots of numbers is rarely smooth sailing. eCommerce accounting is complicated because of the volume of data you have to track, store, and organise, often from multiple channels and payment processors. Mistakes can very easily find their way into your records when you do everything manually. Sales tax software can automatically record your sales data for enhanced accuracy across your records.
The Best Sales Tax Software for eCommerce
1. Link My Books
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Link My Books is a bookkeeping automation software for eCommerce businesses. The eCommerce automation software lets you put your bookkeeping on autopilot, regardless of business size. This saves you hours of time every month.
The automation software integrates with your accounting software and sales channels, and automatically transfers and categorises data. In addition to detailing revenue, expenses, and net profit, Link My Books accurately calculates your taxes every time.
Top Features
Accurate Tax Calculations
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Link My Books has a Guided Tax Wizard to ensure accurate tax calculations on every item you sell, whether you operate on a national or international level. Just fill in the short form when you're signing up and the software will do the rest for you. You can also opt for a free onboarding session to help ensure you set everything up correctly.
Summary Statements
Link My Books syncs with your sales channel and automatically displays the data in your Link My Books dashboard. But it also sends data from your sales channel to your accounting software in the form of summary statements.
These eCommerce profit and loss statements display a breakdown of your income and expenses, including sales, refunds, channel fees, taxes, and advertising fees. You can also turn on COGS tracking for this to be included in your statements.
Benchmarking
Link My Books Benchmarking is an innovative, first-of-its-kind reporting tool. It applies a cohort analysis of industry data to give users a percentile ranking for a variety of metrics based on industry averages. For example, you can see precisely where your business ranks amongst industry averages of sales growth, refund ratio, and fee ratio, amongst other metrics.
P & L by Channel
Link My Books is a multi-channel eCommerce software that encourages business growth across all your channels. Link multiple sales channels, for example Amazon, Shopify, TikTok Shop, and eBay, to your Link My Books software.
Once connected, the data from all your channels will be consolidated, organised, and displayed in your dashboard. You'll be able to compare KPIs like sales, refunds, fees, and refunds across your whole business.
2. QuickBooks
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QuickBooks is an accounting software with a wide range of features to help you take control of your business's finances. It has very reasonable prices and is suitable for sole traders, limited companies, and accountants worldwide.
Top Features
- Reporting tools and customisable dashboards to give you valuable insights into your business that'll help you make smart decisions.
- Connects directly with HMRC so UK businesses can remain MTD-compliant.
- Get cash flow insights for up to 24 months in the future. Track projects and jobs to determine where your money's coming from and how you're spending it.
- Connect your bank account for quick reconciliation and real-time data.
- QuickBooks helps you manage your expenses by pulling data from your bank account, and allowing you to store receipts and bills within the software.
3. Xero
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Xero is renowned for its user-friendliness and smooth, modern interface. Pair this with Xero's intuitive tools and features, and you've got yourself a winning accounting software. The software allows you to automate plenty of accounting tasks.
Top Features
- Helps manage and calculate sales tax according to jurisdiction. For those in the UK, Xero manages VAT returns by calculating VAT and allowing you to file your returns through the software.
- Connect Xero to your bank account for seamless syncing and transference of data. This connection is encrypted for extra security.
- Create, customise, and send invoices that allow your customers multiple ways to pay, including directly through the invoice.
- Payroll allows your employees to access their own portal to submit time sheets and update their details. Payroll calculations are automatic with liabilities like tax and pensions accounted for.
- Get personalised, detailed reports that allow you to drill down into your data to make the right decisions for your business.
4. Avalara
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Remember earlier when we talked about U.S tax nexus? Well Avalara is a software that will help massively if you're selling products in the U.S. It automates tax compliance, facilitating business growth for those ambitious sellers that want to push the borders.
Top Features
- Let's you know where you've triggered either a physical or economic nexus, and therefore have tax obligations in that state.
- Calculates sales and use tax, VAT, and GST, and applies the correct tax rules based on different factors, like item taxability and location.
- Avalara's international tax compliance solutions helps eCommerce businesses remain compliant wherever they sell in the world.
- Manage tax exemption certificates through Avalara. Request certificates and have the software automatically validate them.
5. TaxJar
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TaxJar is a tax compliance software designed and created for modern commerce. It keeps you compliant across 11,000 jurisdictions and ensures the sales tax collected on each item sold is correct. TakJar is owned by Stripe and integrates with your eCommerce platforms for a smooth experience.
Top Features
- Helps you to manage filing returns across multiple states, while calculating and applying the correct tax rates for each state.
- AutoFile automates the processes of filing and remitting your returns to the appropriate state. The automation ensures you always make the deadline.
- Huge range of integrations, from sales channels like Shopify and Etsy, to payment processors like PayPal. You can also integrate other business management systems like RIMSS and CoreDNA.
- Produces tax reports by pulling data from all your integrations. It updates every day and you can view reports on individual states and jurisdictions.
6. TaxCloud
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TaxCloud is another one for keeping on top of your U.S tax. It promises 100% accuracy for working out your tax liabilities over more than 13,000 jurisdictions. As the name suggests, TaxCloud is a cloud-based software which you can access wherever you have an internet connection.
Top Features
- TaxCloud calculates your taxes accurately every time, maximising savings with considerations like exemptions and tax holidays.
- Tracks your sales and lets you know when you're either close to triggering, or have triggered, nexus in a state for complete tax compliance.
- TaxCloud is a Certified Service Provider and is therefore qualified to manage your tax filing for you. The team also actively reduces the risks of you getting audited.
- The tax compliance software integrates with a variety of sales platforms, accounting software, and business management solutions.
7. HelloTax
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HelloTax is a tax compliance solution for European eCommerce stores. It's suitable for those who sell both physical products and digital services. You can manage the VAT throughout all European countries from your one dashboard and ensure compliance across your business.
Top Features
- Is ideal for eCommerce stores selling digital services and products to EU residents, like eBooks, software, social media management, and digital magazines.
- HelloTax automatically files your VAT returns for you with accurate tax calculations. It also keeps you informed about upcoming deadlines.
- It integrates directly with each sales channel, like Shopify, WooCommerce, and Amazon.
- Tax Letter Inbox translates your correspondents from European authorities into English, and extracts tax data and other key details.
8. Kashoo
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Kashoo is an accounting software for small businesses. It's a highly customisable solution with a strong focus on simplicity and ease-of-use. Kashoo promotes team collaboration with a range of tools and features within the software, such as rule-based permissions and the ability to add multiple users.
Top Features
- Kashoo generates a wide selection of reports including cash flow reports, income statements, and balance sheets.
- You can connect Kashoo to more than 5,000 banks for seamless reconciliation. These connections are fully encrypted for your security.
- The intelligent accounting software automatically categorises transactions for you using machine learning, and it recognises repeat vendors.
- With Kashoo's invoicing solutions, you can send and track invoices. Choose one of the free designer invoice, report, or budget templates.
5 Things to Consider When Choosing Your Sales Tax Software
Of course, there are always things to keep in mind when you're making purchasing decisions for your business. Keep these factors in mind when choosing your software:
- On-premise or cloud-based: Cloud-based solutions are normally more convenient because you can access them from wherever you are.
- Cost: You need to work out your monthly or annual budget before committing to a solution. Oftentimes, paying annually is cheaper but this isn't always viable.
- Tax features: Do you want to automatically file your returns, get access to exemption certificate management tools, or submit tax payments through the software? Write a list of the features you need.
- Returns preparation: How far does your chosen solution help with tax preparation? Consider aspects like tax calculators, automatic data syncing and categorisation, and integrations.
- Geographical location: U.S businesses will be subject to taxes like sales and use tax while VAT is payable in European countries. Look at the countries your chosen software is suitable for.
Use Link My Books For Simple eCommerce Tax Management
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There's so much for eCommerce stores to consider when it comes to tax compliance. If you want to scale your business across multiple countries and tax jurisdictions, you'll inevitably encounter increased complexities with your tax obligations. Compliance software gives you the resources to separate your VAT from your sales and use tax, and your liabilities from your exemptions.
Link My Books accurately calculates your taxes on every item you sell across your whole eCommerce business. Whether you sell on one store or ten, Link My Books helps you keep on top of your taxes and put your bookkeeping on autopilot.
Bookkeeping really doesn't need to be complicated. Get your free Link My Books trial today and simplify your tax management and accounting processes.
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