By Christian Rivera, founder of The e-commerce accountants.
E-commerce has been around since 1979; however, recent years have shown high growth with a 50% increase expected by 2025. Whether you’re considering opening a new e-commerce business or have already established one, accounting for this business type is relatively new, meaning not all accountants will understand how to properly run your business.
Finding the right ecommerce tax accountant should be a priority on your list. If you don’t, you could end up with an overcharged tax bill and the IRS knocking on your door. Credentials, experience, services offered and costs are factors to consider when it comes to hiring an ecommerce tax accountant.
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The first aspect to analyze is your ecommerce tax accountant’s credentials. Are they a licensed CPA? Having a CPA license means they have gone through a rigorous training and testing process and are recognized as a professional by state standards. Ideally, you want at least one person on your ecommerce tax accountant’s team to be licensed to file tax forms and documents that require this certification.
Your ecommerce tax accountant must have at least the necessary education, usually a four-year bachelor’s degree in accounting. This ensures that they have the basic knowledge to complete proper accounting and bookkeeping for your ecommerce business.
Sometimes experience outweighs education. Your tax accountant should have experience working with e-commerce companies, as the processes are often different from working with traditional mom-and-pop stores. Accountants specializing in e-commerce have listed the relevant experience directly on their website; however, you may need to arrange a consultation to determine if the experience level matches your business needs.
Plus, you most likely don’t want an accountant who just got out of college and doesn’t have any real experience. Ideally, your e-commerce tax accountant will have at least two to five years of experience working with e-commerce companies. The more experience, the better (usually). Keep in mind that your e-commerce tax accountant should know the basics, such as proper revenue recognition, inventory and sales taxes. These are important areas that your ecommerce business must consistently monitor to remain compliant with regulatory authorities.
The services your prospective ecommerce accountant offers should match your business needs. Are you looking for someone to take care of your entire bookkeeping, from bookkeeping to preparing your tax return? What about preparing VAT returns and monitoring the nexus? These areas require different skills and services that some accountants don’t provide, making it important to know your business needs before going through the hiring process.
Before hiring an accountant, make sure they understand the basics related to your ecommerce business, such as revenue recognition and inventory management. The amount your company receives is not always the amount stated on the tax return, making it essential to find an accountant who understands how to properly classify the recognition of income. Plus, inventory is an important part of running your ecommerce business. Inventory is not recognized until it is sold, requiring an inventory accountant who understands when to move costs to cost of goods sold.
Other services offered include VAT reporting and tax planning for your e-commerce business. Like income and inventory recognition, sales tax must be tracked accurately to ensure full state compliance. Your ecommerce tax accountant should know when to file returns in each state. In addition, tax planning is essential to generate the most favorable tax liabilities. Effective tax planning strategies should be implemented before the end of the year, so make sure your future ecommerce tax accountant can work with you year-round.
Finally, consider whether your ecommerce tax accountant offers outsourced CFO services. This is everything a normal CFO would do, except you have an independent third party to take on the duties. From monthly bookkeeping and financial statement preparation to accuracy in revenue recognition and the ability to ask questions, an outsourced CFO could be what your ecommerce business needs to grow and take control of your accounting function. Make sure your ecommerce tax accountant has this capability, even if you don’t think you need the services right now. (Full disclosure: My company offers this service.)
Both new and established ecommerce businesses should look for a tax accountant who fits within their budget. The experience, credentials, and industry focus determine the price the ecommerce accountant will charge; however, you can expect to pay between $100 and $300 per hour. If your ecommerce business is concerned about rising costs, consider setting up a firm-price deal with your tax accountant. This is usually done through an engagement letter that both parties sign.
Keep in mind that different services have specific costs. For example, preparing a tax return for multiple states will be more expensive than filing a sales tax return. In addition, the level of detail your company needs determines the price. In-depth revenue recognition can become costly due to the level of detail required for each transaction. Consider how much help you need from your tax accountant before looking for one and don’t let the price guide you too much. A good ecommerce tax accountant will be worth more than the price you pay in the value they provide to your business on a regular basis.
In summary, credentials, experience, services offered, and costs are four factors to consider when evaluating potential ecommerce tax accountants for your business. There are also other factors to consider, including customer reviews and location. What’s best for your business depends on your business needs.