How to Pay Your Sales Tax for a Small Business
Learn how to pay your sales tax correctly for a small business in 2021. After 13 years in business, I've figured out you don't need an accountant for this: it's easy to do it yourself online by using affordable tax software that calculates all your online sales tax for Etsy, Shopify, and other online platforms in one place.
Today we're going to talk about paying sales tax. When I tell people that I'm a small business owner one of the first things they ask me is how do pay your taxes? This can be intimidating to a lot of people, in fact I was so intimidated by it that I paid an accountant to do it for me for years. It was great, but also very expensive! Nowadays they have tax software that makes paying your retail sales taxes so much easier. It's called Taxjar, and I'm going to show you how to use it. Taxjar imports your sales from you retail sales platforms, and breaks down the amount of tax you owe by zip code. It gives you the correct tax code for each area you need to pay for in your state, so all you have to do is enter that information into your state's Dept. of Revenue website to file and pay your taxes online quick and easy.
I'm going to show how I pay my 2020 quarterly retail sales tax. This is just my personal process for paying taxes and not considered legal tax advice. Once you start taking your business seriously, and have made enough sales to get a 1099 at the end of the year, I recommend consulting a CPA or tax expert. Especially to help you with your federal taxes. For my 2019 year end federal taxes, I went to H&R Block and met with a small business specialist. It costs around four hundred dollars for them to find all of my deductions and take care of filing for me. For a once per year expense, it was definitely worth the price.
Now back to state sales tax. I pay tax on all the transactions I have at craft shows and festivals as well as my online sales in the state that I have Nexus. Taxjar will help you figure out which state you have Nexus in. It's usually the state where you are located for me that's Washington or any other state that you have over 100,000 in sales or 200 transactions per year. So clicking on Washington they give me all the information that I need to know, this tells it tells me my Nexus requirements how to pay and more info. You can go to this resource anytime you need to, here on my taxjar dashboard they give me my estimated sales tax collected. I used to pay my accountant to file my sales tax for me which cost me around two hundred dollars a quarter and I still had to enter all the info into QuickBooks myself which took a long time.
Now that I use Taxjar, it only costs me twenty dollars a month and I don't have to enter anything. In fact, they show all of my transactions right here, you can see that everything from my Shopify sales and my selling on Etsy are recorded here. Since Etsy collects and pays my sales tax for me that's why it says Marketplace here under exemption that means that they are not calculating taxes for my Etsy sales. But they are calculating them for all of my Shopify, sales it's likely when you first start out that you'll only have to pay tax yearly.
Since I used to have a retail store that made around five hundred thousand per year I am on quarterly filing and that means that I need to pay my taxes four times a year. Usually for quarterly, it's the first three months and then it's due on the following month for example, this would be for January through March and then due at the end of April. However, due to covid, the first quarter deadline for Washington State has been extended to June 30th. Taxjar says July 31st here since that's when quarter two is due it thinks the quarter one deadline has passed; It's usually the end of April. To get more info about my tax I click on sales tax report. My gross sales is here marketplace sales from Etsy is right here and the reason why deductions and exemptions is here is because this is my wholesale sales that was collected in Shopify, that will tell you that right here.
Since some of my wholesale sales are collected through my website on Shopify, but I also have wholesale sales that I invoice stores for, I cannot have taxjar file automatically for me. However, if you only have sales through your website or Etsy or anything online and no additional outside sales you can have taxjar file your taxes for you, and that's really easy.
However, if you have sales outside of your Shopify or Etsy store, you can add them to your taxjar totals very easily. I do my wholesale invoicing, and keep track of my direct wholesale sales using an app called WAVE, it's just like QuickBooks except it's free. I highly recommend you check it out. I enter the amounts from WAVE for each of my wholesale sales into an Excel spreadsheet and total them up. Then, I add the totals from taxjar, and add them together. Next, I put the totals into the Washington State Department of Revenue website. This part, I recommend watching the video above.
On your state's Department of Revenue website, you need to put your total amount of retail sales, and then your total amount of wholesale sales to calculate your B&O or Business and Operations tax. Based on your totals, it will tell you how much tax you owe. After that, you move on to enter your deductions and retail tax owed. Be sure to add a deduction for Etsy sales, since Etsy collects sales tax for you. Enter the deduction as retail sales collected by the facilitator. Etsy, Amazon eBay, anyone that collects and pays their sales tax for you is known as a facilitator. You just put in the amount that they paid for your state and click OK. These amounts match taxjar exactly. You also want to enter a deduction for how much of your total retail sales was out of state.
Now we are at the summary, review all your totals and make sure they are correct. My total wholesale amount is: wholesale sales from Shopify combined with the wholesale sales that I put in WAVE. This is my total amount of retail sales. This is where the Etsy deduction is added, as well as the out of state sales deduction, so this is the total amount that I am paying tax on. They give you all the totals. This is the total amount of tax that I will have to pay for Quarter 1. That's really all there is to it. You can choose to have the payment taken from your bank account or put it on a credit card.
I hope you enjoyed this online selling tips on how I to pay retail sales tax for online business. If you have any questions that I didn't address in the video please put them in the comments below I always read the comments and I'd love to help you out.