4 Accounting Tips To Keep In Mind As You Start An At-Home Retail Arbitrage Business

Retail arbitrage, the process of purchasing retail items at a discount and selling them online, can be a very lucrative business if you set everything up correctly. If you are in the process of setting up an at-home retail arbitrage business, you need to make sure that you have your accounting set up properly and your eventual tax returns in mind. Here are four accounting tips to keep in mind as you start up your retail arbitrage business.

Determine How To Use Your Space

One of the first things you need to do is determine what physical space you are going to use to get your at-home retail arbitrage business up and running. If you are just starting out, you may be able to work out of a room in your home if you have some extra space. If you decide to work out of your home, you need to be thinking about how you can deduct that off your taxes from the get-go.

It is important to note that in order to deduct your home-office space on your taxes, you have to use that space 100% for your business. The room you use cannot also double as your kid's playroom; it must be used only for business purposes. 

You can choose to go with the simplified reporting option when you file your taxes; this option will allow you to multiply the square footage of your office by the standard rate for home office deductions that year.

Or, you can do the regular method. If you choose to do this method, you need to keep track of all your expenses to your home: mortgage, insurance, utilities, repairs, etc. When tax season rolls around, you will need to add up all your expenses and figure out which percentage applies to the area of your home that you use as your work space for your retail arbitrage business. 

Open A New Bank Account

The next thing you need to do is open a new bank account just for your business. It can be tempting to just use your personal bank account, and it is relatively easy to do if, for example, your personal bank account is already linked to your Amazon account where you plan on doing most of your retail arbitrage. However, it is essential that you set up your own business account. This will allow you to more accurately track the money that your business brings in, the money that you spend keeping your business going, and what you take out as a salary. You will not have to wade through your bank statements come tax time to determine what expenses were personal and which were business related. 

Set Up A Paycheck Schedule

When running a retail arbitrage business from home, it can be tempting to go out and purchase new merchandise every time you make a sale. However, you really need to make sure that you are crafting a budget and a schedule that allows you to be sustainable. You cannot spend everything you make on obtaining new merchandise; you also need to budget for business expenses and for your own paycheck or salary.

With programs like Amazon, you can cash out pretty much whenever you like. However, that does not necessarily make it easy for accounting purposes. Instead of cashing out every day, cash out on a set day of the week, for example, Tuesday. Then, on Wednesday, purchase any necessary new supplies you need, pay yourself, and set aside a specific amount for purchasing new retail merchandise. Setting up a solid system of cashing out and managing your funds up-front will help you in the long run. 

Set Up A Tracking System

Finally, you need to make sure that you have an effective tracking system set up. Set up a system so you can keep track of when you purchase an item, what you paid for that item, when you sold the item, how much you sold the item for, and your overall net earnings for that item. 

This is essential if you want to keep track of profits and losses. Sometimes, an item you thought was a great deal might end up selling for less than you bought it for, resulting in a loss. If you keep track of your losses, you can write them off come tax season.

Even though you can run a retail arbitrage business out of your home, make sure that you treat it like a real business and create a strong accounting plan from the start. You can do some business consulting with an accountant to help develop a plan for your unique retail arbitrage needs.