Financial Foundations for DTC Success: What E-commerce Founders Need to Know About Tax and Accounting

This week, we’re joined by Christian Rivera, founder of The Ecommerce Accountants, a firm that specializes in tax, accounting, and business structuring for e-commerce companies.

In this episode of the DTC POD, Christian breaks down accounting issues that e-commerce businesses must address to succeed, such as sales tax compliance, revenue recognition, and inventory accounting. He also unpacks tax strategies that can help entrepreneurs set up smarter finances and maximize their profitability.

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Fav Quotes from Episode #345

Tax Risks and Accountants: “Your money is better served like hustling and growing and putting money into your ads than instead of paying an accountant to do sales tax, you know, when you don't really have a lot of sales tax risk.” — Christian Rivera, 00:08:41 - 00:08:52

Working with Tax and Accounting Experts: “Consult with a professional. Because the number one way that you're going to save money, taxes, in terms of simplicity and in my opinion, return on investment in terms of your efforts and money, it's really through a good tax structure.” — Christian Rivera, 00:40:29 - 00:40:06

Learning the Basics of Accounting: “As an e commerce entrepreneur, I do encourage you to educate yourself as much as possible on accounting. Are you going to be a tax expert? No. But understand what your accountant is doing because a lot of times if you know what you need, it's easier to find the right expert to guide you to where you need to be.” — Christian Rivera, 00:46:37 - 00:47:00

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3 Best DTC Practices from Christian Rivera

1. Don't stress about sales tax in every state right off the bat

When you're just starting out, it's easy to get overwhelmed by the idea of dealing with sales tax in every single state. Shopify and other platforms might be pushing you to register everywhere, but hold up!

Christian's advice? Focus on the states where you've got a physical presence first. That means your home state, where your team is based, and where you're storing your inventory. Get that sorted, and then you can expand your sales tax compliance once your brand is killing it and you've got an accountant.

2. Pick the right business structure to keep more of your hard-earned cash

Okay, real talk: the business entity you choose can make a big difference in how much of your profits you get to keep. If you're flying solo or working with a small crew, Christian suggests setting up an LLC taxed as an S corp.

Here's the deal—by filing Form 2553 with the IRS, you can split your income into salary and profits. The salary part still gets hit with double tax—self-employment and income taxes, but the profits? They just get hit with income taxes. So potentially, you only pay self-employment tax on a portion of what you make. This little trick can save you some serious cash compared to a regular LLC, where Uncle Sam takes a bigger bite.

Of course, everyone's situation is different, so chat with a tax pro to figure out what works best for your setup.

3. Don't blow your budget just to save on taxes

Imagine you're scrolling through Instagram, and you see an ad for a shiny new car. You start thinking, "Hey, if I buy this, I can write it off on my taxes!"

Not so fast. Spending money just to get a tax break isn't a great idea… Unless that car is going to help you make some serious sales, it's not worth it.

Instead, put your energy into creating a biz that's profitable and ready to scale. Invest in marketing that actually works, keep your inventory strong, and make sure your customers are taken care of.

As your brand starts to scale up, that's when you can sit down with a tax pro and come up with a tax optimization plan to help keep growing.