What Records Should TikTok Shop Sellers Keep?

Operating a TikTok shop is often a fast-paced, casual endeavor. You upload content, make sales, receive payouts, and jump on the next trend. The Internal Revenue Service (IRS), however, is indifferent to the means of generating sales; its concern lies with the income accrued, the expenditures incurred, and the substantiation of both. Should an audit ever occur, the distinction between a profoundly stressful experience and a manageable process typically hinges on a single factor: the quality and completeness of your documentation. Please continue reading as we outline the essential records TikTok Shop sellers must maintain, the required retention period, and effective organizational strategies to ensure preparedness in the event of an IRS inquiry. Contact a TikTok Shop Business Accountant today for guidance. 

Why is Accurate Record-Keeping So Important for TikTok Shop Sellers?

When filing your tax return, you assert a series of claims: your total earnings and your permissible deductions. During an audit, the IRS requires documentation to support these figures; your words alone are insufficient. For TikTok Shop sellers, meticulous record-keeping is critical due to several factors:

• Income often originates from various streams
• A significant portion of expenses is digital or intermingled with personal use
• The boundary between business-related “content creation” costs and “personal spending” can be ambiguous

Accurate records serve as the essential evidence verifying the accuracy of the numbers reported on your return. Failure to substantiate your income and deductions can lead to the IRA taking the following actions:

• Disallowing a portion or all of your claimed business expenses
• Increasing your total taxable income
• Levying additional tax payments, along with penalties and interests

Effective recordkeeping achieves two vital objectives:

• It safeguards your rightful deductions, preventing you from paying more tax than legally owed.
• It minimizes the difficulty of an audit by allowing you to quickly and clearly provide documentation in response to inquiries, rather than struggling to piece together information long after the fact.

What Are Key Records for TikTok Shop Sellers?

As a TikTok Shop seller, your gross income comprises more than the final direct deposit to your bank account. For the IRS, you must diligently maintain the following records:

• TikTok Shop Payout Reports: Documentation detailing each payment, inclusive of fees, refunds, and adjustments.
• Platform Statements: Statements from all integrated secondary sales channels (e.g., Shopify, Amazon, Etsy) that contribute to the TikTok business operation.
• 1099 Forms: Tax forms issued by TikTok, like the 1099-K or 1099-NEC, payment processing services, or sponsoring brands.
• Records of Brand Deal and Sponsorship Income: Comprehensive documentation, including executed contracts and payment confirmations.

It is imperative to maintain a clear audit trail that connects the following elements: customer orders, platform reports, payout reports, and bank deposits. This comprehensivelinkage will allow you to substantiate the total income reported, should the IRS initiate an inquiry.

To deduct a business expense, it must be ordinary and necessary, as well as properly documented. TikTok merchants must retain:

• Receipts/Invoices: For inventory, packaging, shipping, props, and equipment.
• Contracts/Invoices: From third-party professionals.
• Proof of Payment: Financial records correlating with receipts.
• Bills/Statements: For recurring costs (internet, phone, software).

Ideally, you need both a receipt/invoice and proof of payment. Furthermore, specific deductions require supplementary documentation:

• Home Office
• Business vehicle
• Travel/Meals

Content creators must meticulously document and explain expenses for items like professional apparel, cosmetics, and production props to establish their essential business link.

For assistance with your TikTok Shop, please don’t hesitate to contact an e-commerce business accountant from eBiz Accounting.