How Your POS Can Help With Taxes

Tax season is always stressful, but learning how to utilize your POS system to assist with tax prep might help ease the burden.

WRITTEN & RESEARCHED BY
Kymberlin Bush
Expert Contributor

Last updated onUpdated July 3, 2024

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Lead Staff Writer

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Key Takeaways

Your POS system's reporting suite can help you streamline your business's tax situation by keeping track of all your deductions like employee benefits and write-offs.
Your POS should integrate with popular accounting or payroll software and have robust built-in functionality.

A point of sale system can help with taxes because the software records sales and expense information that small business owners need to file their tax returns. POS systems can also help you find tax deductions that will save you money, minimize the amount of time you spend filling out tax forms, and reduce costly human errors.

Don’t have a POS yet? Check out the best POS systems for small businesses to get started.

Table of Contents

Using Your POS For Help With Taxes
How To Choose A POS System To Help With Taxes
Point Of Sale Tax FAQs

Using Your POS For Help With Taxes

Your POS system is software that, when combined with a card reader or virtual terminal, allows you to accept digital payment types such as debit/credit cards and mobile wallets like Apple Pay and Google Pay.

With a good POS system, you can generate POS reports on expenses (such as inventory) and profits. These reports help you find small business tax deductions and are vital to accurately calculating your total taxable income.

The following basic POS reports are beneficial for all small business owners come tax time.

Income Reports

Every time you sell an item or service at your POS system, the total sales amount is added to a running income report. Any returns are subtracted from your income report. You can view your total sales income for a certain time window by generating a report for a specific set of dates.

You need to integrate your POS with third-party sales platforms (e.g., Etsy or DoorDash) to automatically include sales from third-party sources. Otherwise, you’ll need to manually add sales from these platforms to get an accurate view of your total income.

This can get a little tricky if you have multiple sales platforms, but there are plenty of point of sale options that can simplify the process. You can integrate all your sales channels in one place and get an overall view of your sales income.

Note: You may write off payment processing fees, which can usually be found in your POS reporting suite near sales reports.

Sales Tax Summary

You can set a certain tax rate for each item or service you create in your POS system. The tax rate varies depending on the location the product is sold, the type of product sold, and (at times) the kind of customer or organization making a purchase. When you make a sale, you collect sales tax on behalf of state and local governments and must pass those taxes to the right governing bodies when filing your taxes.

A sales tax summary shows how much you have collected in taxes over a set period, which you will report on your tax return.

Cost Of Goods Sold Reports

The cost of goods sold is the total amount you spend on labor and materials to make or assemble a product or service. You can deduct the cost of goods sold on your tax forms to reduce your overall taxable income.

Every time you order packaging for a product, add raw inventory to your kitchen, hire labor to complete a repair job or purchase any other product or service required to create a finished product you can sell, record it in your POS system as a certain kind of inventory.

Employee Payroll & Benefits Summary

Small business owners can deduct wages and employee benefits such as health insurance, retirement plans, life insurance policies, sick leave, vacation pay, and bonuses.

You can choose a POS system that integrates with payroll software or a system that has a built-in payroll and employee benefits monitoring solution, to get a full view of expenses related to your employees.

You should keep track of expenses such as utilities, rent on commercial properties, vehicle expenses (gas, maintenance, insurance, etc.), office supplies, expenses on travel, equipment repair costs, and software subscriptions to qualify for more specific tax deductions.

Most POS systems are not equipped to efficiently take in all this data independently. So, you will need to integrate accounting software like QuickBooks to keep track of expenses over time. Alternatively, you can save your receipts and manually add all your expenses when filling out your tax forms.

How To Choose A POS System To Help With Taxes

To choose a POS system that helps with your taxes, look for software that:

Integrates With Accounting Software: The best accounting software for small businesses provides a more in-depth tax management solution than most POS systems. If your POS system integrates with your accounting software, you can automatically feed sales numbers, employee hours, inventory counts, and more to your accounting software. You’ll save a lot of time and reduce the chance of human errors with automated data imports.
Offers Detailed Inventory Management: You should always get the most detailed inventory and cost of goods sold information to maximize your deductions. A good POS inventory management system allows you to create tax rules, perform inventory counts, add packaging and labor costs, account for product losses, and more.
Includes Employee Management Solutions: Some POS systems include employee management features such as built-in employee time clocks, tip monitoring, commission tracking, and paid time off. Other POS systems integrate with employee management tools and HR software. Find a POS system that has the right amount of employee management for your tax filing needs and budget.

Want more help? Check out our article for help with choosing a POS system for more information. Also, check out our small business tax preparation checklist to help you file your taxes with minimal stress and no mistakes.

Point Of Sale Tax FAQs

How do you import tax information from your POS to QuickBooks?

You can manually export POS information as a spreadsheet and import the spreadsheet to QuickBooks, or choose one of the best POS systems that integrate with QuickBooks so that your POS and QuickBooks software can share information automatically.

Are POS systems tax deductible?

POS systems are a tax-deductible business expense. A POS software subscription is a recurring software expense, while POS hardware purchases are an equipment expense.

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Kymberlin Bush

Expert Contributor

Kymberlin earned her Bachelor of Arts in Creative Writing from Pacific University in 2020 and resides in Portland, Oregon.

View Kymberlin Bush's professional experience on LinkedIn.

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