Step-By-Step Guide On How To Do Bookkeeping For Tiktok Shop Sellers Accountant For USA Companies
The exponential growth of TikTok as both a social media platform and a prominent e-commerce destination has prompted the need for diligent bookkeeping practices amongst its business users. By the third quarter of 2023, total sales revenues surpassed $100 million in a single month for TikTok Shop sellers in the United States alone. Indeed, TikTok itself aims to achieve a staggering $17 billion in annual Gross Merchandise Value for 2024 - representing exponential year-over-year growth.
As TikTok continues emerging as a preferred online sales channel for American enterprises, careful bookkeeping has become increasingly pivotal. Properly maintaining financial records ensures compliance with local taxation standards and provides financial transparency. In this guide, we have explained the step-by-step fundamentals of how to do bookkeeping for TikTok shop sellers based in the United States to support sustainable commercial evolution over time.
Step 1: Choose an Appropriate Accounting Method and Software
Initially, selecting an appropriate accounting method is fundamental. Most TikTok retailers utilize either cash-basis or accrual-basis accounting.
The first method registers earnings upon receipt of payment and expenditures upon release of funds. Regardless of payment, accrual-basis accounting logs revenue during income and expenses when incurred, offering an enhanced financial perspective, particularly for larger operations.The accrual method is particularly useful for determining ROAS and tracking inventory fulfillment.
Additionally, choosing accounting software compatible with small business management is important. Intuitive programs like QuickBooks, Xero, and Wave frequently include features for sales tracking and inventory handling tailored to the needs of entrepreneurs..
Step 2: Understanding Different Tax Regulations and Documents
Comprehending pertinent tax forms and regulations is equally vital, as is familiarizing oneself with common tax documentation required by the IRS.
United States sales tax regulations are intricate, changing by state, county, and even city. As a TikTok Shop seller, you must gather sales tax on each buy founded on the purchaser's spot.
The US Supreme Court's 2018 choice in South Dakota v. Wayfair, Inc. implies that even merchants with no actual existence in a state may need to gather sales tax if they meet specific sales limitations.
Self-employed folks and single-member LLCs must deliver Schedule C with their private tax returns to report income and expenses. This form highlights the net profit or reduction from the TikTok Shop, which then might be subjected to self-employment tax.
If your TikTok Shop is organized as a company, you'll need to deliver Form 1120 (for C Corporations) or Form 1120S (for S Corporations). These forms report income, deductions, and credits, with the business paying taxes straight or passing them to stakeholders individually.
Step 3: Keep Track of Earnings and Spending
Accurately documenting income and expenses is the nucleus of bookkeeping. For TikTok Shop sellers, this means chronicling each transaction, like:
Sales Revenue: Record all details of sales driven particularly by TikTok Shop ads and UGC (user-generated content) videos, including the amount received and any related sales tax. This will help you determine the ROI and understand how well your TikTok Shop business has been able to use its assets efficiently.
COGS: Calculate and record the cost of goods sold, like purchase price and any manufacturing expenses. This figure helps you determine whether you are succeeding at inventory fulfillment and is vital for determining gross profit.
Operating Expenses: Carefully tracking all costs associated with running the business, such as promoting the products via TikTok Shop ads and paying various creators for UGC videos, is crucial. Properly categorizing different types of expenditures facilitates claiming tax deductions.
For example, if a TikTok creator sells homemade jewelry pieces, total income consists of all revenue generated from sales. The cost of goods sold involves materials like beads and string and the time spent crafting each accessory. Additional costs can incorporate advertising on TikTok to gain followers, fees charged by the social media platform for using their storefront, and shipping products to those who purchase items.
Step 4: Navigating Complex Sales Tax Obligations
For American TikTok Shop owners, one of the most daunting aspects of bookkeeping involves adhering to sales tax regulations. To ensure legal compliance:
Determine if your online business reaches the threshold requiring payment of state sales taxes. Nexus establishes a connection between a seller and location, obligating the collection of taxes. It results from a physical presence, such as warehousing or economic activity, like surpassing certain sales volumes in an area.
Obtain permits for collecting and remitting sales tax from each state department of revenue where a company meets nexus standards. Without authorization, charging buyers sales tax is prohibited.
Use accounting applications to automatically calculate appropriate tax amounts for each transaction based on the rate for that location. Rates differ significantly, so digital tools prove essential for calculation.
Deposit collected sales tax amounts with state authorities every month or quarter. Late or incomplete filings may cause penalty charges and interest assessments.
Submit sales tax returns on a regular schedule to all states where nexus exists. Returns itemize total sales, taxable sales, and tax amounts gathered in the filing period.
Example: A TikTok Shop artisan in Colorado (with a statewide sales tax rate of 2.9%) sold an intricate handwoven carpet valued at $500 to a collector in New York City (where the current combined city and state sales tax is 8.875%). As the seller, she was responsible for collecting and remitting the appropriate New York sales taxes.
Step 5: Reconciling Accounts Monthly
Monthly reconciliation of accounts ensures that bookkeeping records align with statements from banks and credit cards. This process involves:
Bank Reconciliation: Compare recorded transactions to bank statements, checking for discrepancies like omitted transactions or errors.
Inventory Reconciliation: Confirm inventory ledgers coordinate with actual stock levels. For TikTok Shop sellers, where inventory turnover frequently accelerates, reconciliation is particularly pivotal.
Expense Reconciliation: Match recorded expenses for TikTok Shop ads and more against receipts and invoices, guaranteeing all calculations remain accurate. Tax deductibility compliance hinges on meticulous documentation.
Step 6: Preparing for Tax Season's Complexities
As tax season looms, readying books is essential to sidestep last-minute panic. Review transactions for the year, making certain income, expenses, and tax obligations received accurate bookings. Create profit and loss documents, balance sheets, and cash flow reports. These documents provide a comprehensive overview of fiscal health essential for tax filings.
Step 7: Retaining Pertinent Records
Finally, preserve all bookkeeping records for at least three years, as required. These include:
Sales and Revenue Records: Invoices, receipts, and payment records substantiating earnings.
Expense Records: Receipts, invoices, and proof of payments, including ad spends and creator fees for all company costs.
Tax Returns and Forms: Copies of filed returns, 1099-K forms, and sales tax submissions.
Proper record retention remains crucial for IRS audits or other financial reviews.
Struggling with the Bookkeeping Requirements of Your TikTok Shop Business? Contact SamsCashflow Agency!
Keeping up with the bookkeeping needs of your TikTok Shop business can be difficult due to the complex laws in the US. If you need expert assistance, visit https://www.samscashflow.com/#book and book a call with the professionals now.