E-commerce as a small business: accounting for Shopify, Etsy & Co.

Do you run an online shop as a small business or as a part-time job? Read here what you need to pay attention to when accounting for your online shop and which accounting programs are best suited for e-commerce.

Table of contents:

1. Small business in e-commerce
2. Accounting online stores
3. Accounting software for online shops
4. Accounting for online shops with GetMyInvoices

Questions and answers on the subject of accounting for e-commerce and online shops

E-commerce is booming! In 2021 alone, gross sales in e-commerce in Germany rose by 19 percent compared to the previous year - and the trend is rising. As in real stores, accounting is an important area of business activity for founders of an online shop on Etsy, Shopify and Co. But be careful: online shop accounting is often much more complex than in brick-and-mortar stores and there are some special features to consider.

What is a small business in e-commerce?

The term e-commerce or electronic commerce means “electronic commerce” or “online commerce” in German. This involves the digital purchasing and selling of products and services over the Internet.

Anyone who runs an online shop has registered a business and has to pay taxes at the end of the year. There are three types of taxes that can apply to an online shop:

• Income tax
• Trade tax
• value added tax

Small business owner of an online shop can be exempt from sales tax. Whether the small business regulation applies to you depends solely on your annual business turnover.

The choice to be a small business owner or not is only available to those who, according to Section 19 UStG (Sales Tax Act), achieved an annual turnover of no more than 22,000 euros in the previous calendar year and are unlikely to earn more than 50,000 euros in the current calendar year. In practical terms, this means that you do not have to collect and pay sales tax. The legislature enacted the small business rule in order to provide tax and bureaucratic relief for founders who generate little turnover from their business.

** This is how you apply the small business regulation for your online shop**

As soon as you decide to become self-employed and report it to the tax office, You can take advantage of the small business regulation. You are therefore free to choose whether you want to pay sales tax or not, provided you do not exceed the annual turnover mentioned above.

If you choose the small business rule, you must have one on every invoice Add note that they are after § 19 UStG does not contain sales tax.

Accounting in e-commerce

As with any other company, the iron principle applies to the accounting of online shops: No booking without a receipt! This means for every sale you have to make one The invoice issue, receipts about revenue and fully manage expenses and store them for the tax office for ten years. In a small business online shop such as Etsy or Shopify, the following documents are most common:

• Outgoing invoices: Any invoices you send to your customers after a product has been purchased.
• Incoming invoices: Any invoices you pay for products or services related to your online store that constitute an expense to you.
• **Bank receipts: **All documents showing booking history, such as bank statements or PayPal statements.

It is best to collect and archive these documents digitally. You also have to calculate your profit at the end of the year in order to correctly pay income tax to the tax office. Here, too, your annual turnover decides which method you use to calculate your annual profit: either with the income-excess calculation (EÜR) or with double-entry accounting.

Accounting as a small business owner for online shops

Regardless of whether you only sell a few products a year or only run your online shop as a part-time job: the tax office always requires a precise overview of all income and expenses. For a small business, simple accounting for online trading is usually sufficient.

The basis for this is the income and surplus statement, which you use to calculate your shop’s profit at the end of the year. The legal basis of the EÜR is this Income Tax Act Section 4 Paragraph 3 .

You can use the EÜR under these conditions:

• Your online shop is not registered in the commercial register. This applies to both Sole proprietor as well as for the GbR. A GmbH, a UG or even an AG may therefore not apply the EÜR.
• Your income is no more than 600,000 euros per year
• Your annual profit is no higher than 600,000 euros
• They are Freelancer according to Section 18 EStG . It doesn’t matter how high your profit and sales are.

Double-entry bookkeeping for online shops

If the requirements described above do not apply to your online shop, you are obliged to keep double-entry books. To do this, you have to create a balance sheet at the end of the year to determine your profit. You can find out more in our detailed guide article everything you need to know about double-entry bookkeeping .

**Accounting software for online shops **

Compared to brick-and-mortar retail, business transactions in e-commerce are significantly more complex. Order volume can increase quickly and each sale triggers more processes. There are also packaging and shipping costs and returns and credit notes must be processed. In addition, you must create invoices and deliveries, record receivables, Reminders and rebook this upon receipt of payment.

These functions are essential in accounting software for online shops:

In our opinion, powerful accounting software for online shops is essential. But what should accounting software for e-commerce be able to do?

• Reliably process large numbers of bookings in the shortest possible time
• Intuitive and easy to use
• Automatically recognize, manage and assign receipts to bookings
• Synchronization with business email and other online portals
• Receipts GDPR-compliant and in the best case scenario archive digitally
• Connection to your online shop system and other accounting software via interfaces
• DATEV interface and online interface for tax advisors and tax offices