eCommerce Trend Report: 2020 Recap & 2021 Forecasts
Editor’s Note: This post was originally published in March 2020 and has been updated for accuracy and comprehensiveness. For all the challenges the economy faced in 2020, it may come as something of a surprise that overall domestic retail sales saw their highest rate of growth in over two decades during 2020. What probably isn’t much of a surprise to anyone who has been paying attention is that that strong growth was driven entirely by eCommerce trends in 2020, with online sales accounting for 101% of that growth. The COVID-19 pandemic drove more and more shoppers to online retailers in lieu of brick-and-mortar stores, and the good news is that that movement shows no sign of slowing down in the eCommerce trends for 2021. The bad news is that sales tax compliance continues to be a thorny issue for online retailers as they struggle to keep up with state regulations. Figures represent US domestic sales unless specifically noted as global figures. Consumer Migration to E-commerce Overall retail sales in 2020 topped $4.04 trillion, representing a 6.9% increase over 2019 sales of $3.78 trillion. That was driven by a massive 44% increase in online shopping, nearly three times the previous record eCommerce year-over-year growth 2019 of 15.1%. A significant portion of that increase was also due to first-time online shoppers. E-commerce market penetration leaped from 15.8% in 2019 to 21.3%, representing a sharp increase from its previous trend of 1-2% growth per year. In 2020, eCommerce transformed from being a convenient alternative to brick-and-mortar stores for some consumers to an essential part of daily life in an age of pandemic. Holiday Shopping Following the overall trend toward online shopping, domestic holiday shopping showed similar rates of year-over-year growth. Out of $861 billion spent online in 2020, over $200 billion of sales occurred during the holiday shopping months of November and December. Thanksgiving Day online sales rose 21.5% to $5.1 billion Black Friday online sales rose 21.5% to $9 billion Cyber Monday online sales rose 15% to $10.8 billion Total Cyber-week domestic online sales reached $60 billion Hottest E-commerce Segments in 2021 Fashion and online apparel remained the largest segment of online shopping globally in 2020, followed by toys and electronics. Online apparel sales rose 15% to $760 billion globally, projected to reach $1 trillion by 2025 Toys rose 12% to $590 billion in global online sales, projected to reach $766 billion by 2025 Consumer electronics saw $542 billion in global online sales, a 28% increase over 2019. Food and personal care items came in fourth at $468 billion Furniture and household appliances totaled $362 billion globally. Largest Retailers Unsurprisingly, Amazon retained its throne as the undisputed king of online retailers, with a whopping 38% of all domestic sales, down slightly from its 2019 share of 43.8% share in 2019. Other online retailers like Walmart and Target managed to chip away at Amazon’s lead, but are still behind by a wide margin. Amazon – 38% Walmart – 5.3% eBay – 4.7% Apple – 3.7% Home Depot – 1.7% Smartphone Sales Smartphones continued to increase in popularity as a platform for online shopping, representing 54% of online sales in 2020 and projected to reach 73% in 2021. 79% of smartphone owners have made at least one online purchase with the device, and 80% of smartphone owners have used a smartphone to look up product information or reviews while shopping in a traditional brick-and-mortar store. It’s clear that the prevalence of smartphones will continue to be a driving force in eCommerce for the foreseeable future. Trends to Watch Whether you have something like a Shopify store or sell through your own website, it’s imperative to stay on top of technology and predict online consumer product trends so that you can stay one step ahead of the competition. To that end, we’ve identified some eCommerce future trends that are definitely worth keeping an eye on in 2021. BOPIS (Buy Online, Pick-Up In-Store) and Curbside Pickup This trend dominated much of 2020 because it combined the convenience of online shopping with the immediacy of in-store shopping. While some shoppers will revert to in-store shopping, this trend is here to stay. Augmented Reality (AR) Augmented reality emerged as a player in eCommerce in 2020, with, for example, some furniture retailers allowing consumers to upload a photo of their living room and see how a particular piece would look in it. Digital Wallets & One-Touch Purchase Many consumers have been hesitant to make the move to online shopping due to concerns about fraud, while others were put off by the inconvenience of having to enter a credit card number. Digital wallets like ApplePay and GooglePay have alleviated many of those concerns by making secure one-touch purchases from smartphones. However, most security concerns are pushed to the wayside for convenience, and this eCommerce trend is probably here to stay. Cryptocurrencies Although controversial and not widely adopted currently, cryptocurrencies are poised to become a force in eCommerce in the not-too-distant future. Because Bitcoin is both a currency and a payment processor, it can facilitate secure transactions across borders at transaction fees of 1%, as opposed to the typical 2-3% merchant fees charged by credit card processors. Some large online retailers like Overstock.com already accept Bitcoin. More Sales Tax Headaches In response to declining state sales tax revenues from the move to online shopping, the US Supreme Court ruled in South Dakota v. Wayfair (2018) that each state could tax online retailers to create a replacement revenue stream individually. Online retailers must now monitor and comply with 50 different sales tax laws, creating enormous accounting overhead. This is yet one more reason to outsource your bookkeeping service and accounting to a professional firm like xendoo as a cost-effective solution to this regulatory nightmare. Sales tax processing is just one of the many affordable services available in xendoo’s small business offerings. xendoo can also ensure you are getting all the eCommerce tax deductions you are entitled to as an online retailer.
Pass-Through Deductions: What It Is and Who Qualifies
One of the best small business-friendly aspects of the Tax Cuts and Jobs Act (TCJA) is the 20% deduction you can take on your income tax if your business is a pass-through entity. Here’s what you need to know about it. What Is the Deduction The TCJA was passed in 2017 and first applied to 2018 tax returns. Provision 199A of that law states that you can deduct 20% of your “qualified business income” which was earned from a “qualified trade or business.” What Is a Pass-Through Entity Any business structure that allows you to receive income as an “owner’s draw” rather than as a regular employee is a pass-through business. The money is “passed through” from the company account to your personal account. You only pay income tax on it with your personal return; you don’t have to file a separate return for the business. Pass-through entities include: • Sole proprietorship • Partnership • LLC (limited liability corporation) • S-Corporation However, there are some restrictions. Taxable Income Restriction • Less than $157,500 (single, married filing separately, head of household) or $315,000 (married filing jointly): you qualify for the full 20% deduction. • $157,500 – $207,500 or $315,000 – $415,000, respectively: your deduction may be less. • More than $207,500 or $415,000, respectively: you are not eligible for the deduction. Specified Service or Trade Restrictions What your business does may disqualify it from the deduction. Here’s the list of excluded fields, as issued by the Treasury Department in August 2018: • Health • Law • Accounting • Actuarial science • Performing arts • Consulting • Athletics • Financial services • Brokerage services • Any business where the principal asset is the reputation or skill of one or more of the employees or owners • Any business that consists of investing and investment management, trading or dealing in securities, partnership interests or commodities But don’t give up if you see your business in one of these categories, because there are numerous exceptions. For example, in the Health category, healthcare providers who provide services directly to patients — such as doctors and dentists — are not eligible. On the other hand, health clubs, spas, medical research companies, and those who sell pharmaceuticals or medical devices may qualify for the deduction. In the case of businesses who both provide services and sell products, eligibility is determined by sales: • Less than $25 million in gross receipts and less than 10% of your business comes from disqualified services; or • More than $25 million in gross receipts and less than 5% of your business comes from disqualified services Employee and Property Restrictions There are two further conditions that could affect how much of a deduction you can take. They are: • Business that pay W-2 wages • Business that owns “qualified property” such as real estate or other tangible assets that can be depreciated If your business fits either of these descriptions, your deduction will be the lesser of: • 20% of qualified business income (or the “tentative deduction”); or • The greater of: o W-2 wages paid x 50%; or o W-2 wages paid x 25% + the unadjusted basis (cost) of your qualified property x 2.5% Still confused about the pass-through deduction? Your xendoo small business expert can clear things up, answer your questions, and help you get every tax break you deserve. [av_sidebar widget_area=’Blog Post Disclaimer’ av_uid=’av-om2w’]
eCommerce Sales Tax: 5 Steps to Making It Worry-Free
Selling online used to be a breeze. Get the order, collect the money, ship out the product. No hassles with sales tax like a brick-and-mortar retailer have to deal with. Nowadays, unfortunately, it’s up to 46 times more complicated for an eCommerce business. That’s because 45 U.S. states plus Washington, D.C., now require you to collect and submit sales tax — each with its own set of laws that you need to follow. The process can be daunting — and time-consuming — for a small business. Here’s how to make it more manageable. 1. Determine which states you need to collect tax in. As of June 21, 2018, that’s any state where you have customers. Before that date, each state had a set of criteria known as “sales tax nexus,” which determined whether you would have to collect tax in that state. The criteria included such things as the physical location within the state, distributor, or sales rep location and total sales value. However, the old rules are now out the window. With the Supreme Court’s decision in favor of South Dakota (in the case of South Dakota v. Wayfair), physical presence in the state is no longer required. Many questions on how this will play out remain unanswered. For example, the decision includes language that the state tax system should not discriminate against or place an “undue burden” on out-of-state businesses. It may take states a year or even longer work out their new rules. In the meantime, learn more about sales tax nexus here. 2. Determine which products qualify as taxable. Again, rules vary by state. Some of the most common non-taxable items are: • Grocery food • Clothing • Certain types of books (textbooks, religious books) • Prescription and non-prescription medicine • Magazines and subscriptions • Digital products (books, music, movies) 3. Register for state sales tax permits. In each state where you’ve determined you need to collect sales tax, apply to the state’s department of revenue for a sales tax number. You need this number in order to legally collect tax from customers. Make a note of each state’s tax due dates. You may have to file monthly, quarterly, or annually. This information will be included with the tax permit the state sends you. In most states, your sales tax permit is also a resale certificate. That means you can buy items tax-free at retail, as long as you intend to resell the items. 4. Update your website’s shopping cart to collect sales tax. For sales within the state where you’re physically located, check whether your state uses origin-based or destination-based taxation. • Origin-based: You charge the state, county, and city rates that apply to the location you’re shipping from. • Destination-based: You charge the rates that apply to the shipping address. In some states, shipping charges are also taxable. Most shopping carts allow you to add this function. If you use drop shipping, you’ll have to work with your dropshipping supplier to decide who will be responsible for collecting sales tax. 5. File your return. File a return for every state and every due date, even if you had zero sales in that state or time period. If you don’t file, you could be slapped with a penalty, or even lose your tax permit. Be prepared to fill in the tax return form by county, city, and other special taxing districts. This is where automated software can make your life a lot easier. Save money by filing on time or early. Some states give a discount for filing on time. And some need a few days to process payments. So even if you file on the due date, the money won’t reach the state’s bank on that day and you will be charged a late fee (plus interest on the amount of tax due). xendoo makes processing sales tax easy for eCommerce businesses. By integrating with both your business software and your bank, transactions are entered automatically in your books. Plus, each entry is tax coded as it happens, so there’s no last-minute rush at filing time. With the hassles out of your way, your time and energy are free to focus on growing your business. [av_sidebar widget_area=’Blog Post Disclaimer’ av_uid=’av-om2w’]