By Christian Rivera, founder of The Ecommerce Accountants.
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E-commerce has been around since 1979; however, recent years have shown high growth with a 50% increase expected by 2025. Whether you are considering opening up a new e-commerce business or already have one established, the accounting for this business type is relatively new, meaning not all accountants will understand how to properly handle your business.
Finding the right e-commerce tax accountant should be a priority on your list. Failure to do so can land you an overstated 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 e-commerce tax accountant.
Consider Credentials
The first aspect to analyze is the credentials of your e-commerce tax accountant. Are they a licensed CPA? Having a CPA license means they went through a rigorous education and testing process and are recognized as a professional by state standards. Ideally, you want at least one person on your e-commerce tax accountant’s team to be licensed to submit tax forms and documents that require this certification.
At a minimum, your e-commerce tax accountant should have the necessary education, which is usually a four-year bachelor’s degree in accounting. This ensures they have the base knowledge to complete proper bookkeeping and accounting for your e-commerce business.
Evaluate Experience
Sometimes experience outweighs education. Your tax accountant should have experience working with e-commerce businesses as the processes often differ from working with traditional mom-and-pop shops. Accountants who specialize in e-commerce will have the applicable experience directly listed on their website; however, you may need to set up a consultation to determine if the experience level matches what your business needs.
Moreover, you most likely don’t want an accountant fresh out of college with no real-life experience. Ideally, your e-commerce tax accountant will have at least two to five years of experience working with e-commerce businesses. The more experience, the better (usually). Keep in mind that your e-commerce tax accountant must know the basics, such as proper revenue recognition, inventory and sales tax. These are key areas that your e-commerce business needs to consistently monitor to stay in compliance with regulatory agencies.
Understand Services
The services your prospective e-commerce accountant offers must match your business needs. Are you looking for someone to control your entire accounting function from bookkeeping to tax return preparation? How about preparing sales tax returns and monitoring nexus? These areas require different skill sets and services that some accountants won’t offer, making it important to know your business needs before going through the hiring process.
Before you hire an accountant, you must ensure they understand basic items related to your e-commerce business such as revenue recognition and inventory management. The amount your business receives isn’t always the amount that gets reported on the tax return, making it essential to find an accountant who understands how to properly classify revenue recognition. Additionally, inventory is a key area of running your e-commerce business. Inventory is not recognized until it gets sold, calling on the need for an inventory accountant who understands when to move expenses to cost of goods sold.
Other services offered include sales tax reporting and tax planning for your e-commerce business. Just like revenue recognition and inventory, sales tax needs to be meticulously tracked to ensure full compliance with all states. Your e-commerce tax accountant should know when you need to file returns in each state. Moreover, tax planning is vital to generate the most favorable tax liability. Effective tax planning strategies need to be implemented before year-end, so be sure your prospective e-commerce tax accountant has the availability to work with you throughout the year.
Finally, consider if your e-commerce tax accountant offers outsourced CFO services. This is everything that a normal CFO would handle, except you have an independent third party taking on the tasks. From monthly bookkeeping and financial statement preparation to accuracy within revenue recognition and the ability to ask questions, an outsourced CFO might be what your e-commerce business needs to grow and gain control of your accounting function. Be sure your e-commerce tax accountant has this capability, even if you don’t think you need the services right now. (Full disclosure: My company offers this service.)
Weigh Costs
Both new and established e-commerce businesses should look for a tax accountant who fits within their budget. The experience, credentials and industry focus determine the price the e-commerce accountant will charge; however, you can expect to pay between $100 and $300 per hour. If your e-commerce business is worried about mounting costs, consider working out a fixed price agreement with your tax accountant. This is usually done through an engagement letter that both parties sign.
Keep in mind that different services will come with specific costs. For example, preparing a multi-state tax return will be more expensive compared to filing a sales tax return. Moreover, the level of detail your business needs dictates the price. In-depth revenue recognition can become costly because of the level of detail needed for each transaction. Consider how much help you need from your tax accountant before looking to hire one and don’t get too caught up on the price. A good e-commerce tax accountant will be worth more than the price you pay in the value they provide your business on a regular basis.
To summarize, credentials, experience, services offered and costs are four factors to consider when evaluating potential e-commerce tax accountants for your business. There are other factors to consider as well, including customer reviews and location. The best fit for your company will depend on your business needs.