When managing your store, the first thing you should think
about is whether you need to charge and collect sales tax. Which states need
you to pay sales tax is the second issue you should think about.
A pass-through tax is the sales tax. This means that, if
necessary, you will directly collect sales tax from your clients before paying
it to the state.
Since sales taxes are managed at the state level, each state
has its own tax laws and regulations.
Sales Tax Nexus: You must first identify whether you have a
sales tax nexus in order to determine which states you must pay sales tax in.
A sales tax nexus is generally defined as having a presence
in more than one state, while each state has its own definition of the term.
An office, a warehouse, staff members, or even affiliates
could all constitute a presence.
If you find that you have nexus in more than one state, you
must apply for a sales tax permit (also known as a sales tax license) in each
of those states. Additionally, you must start obtaining sales tax from that
state.
You are only required to collect and pay taxes in your home
state if you decide that you have no nexus in any other states save the one in
which your firm is registered.
If your company is based in New York, for instance, and you
have no ties to any other states, you would then:
·
Obtain a Certificate of New York Sales Tax
·
Obtain sales tax from orders going to New York.
Paying New York state sales tax Sales Tax Rates:
The location in New York where your merchandise is shipped
to in the aforementioned example determines how much sales tax you must pay.
For instance, the tax rate for an item shipping to zip code
11561 would be different than that for an order shipping to zip code 10010.
A solution like TaxJar, which can automatically add sales
tax to your customers\’ orders based on their addresses, can save you a lot of
time while still allowing you to look up sales tax rates by address for every
state.
How to Set Up Your Company to Save on Corporate Taxes:
Please be aware that establishing a corporate company has
many advantages, but for the sake of this piece, we will only discuss the tax
advantages.
Solo Entrepreneurship
Being your own company is what it means to operate as a solo
owner. As a single proprietor, you will be able to deduct all of your regular
business expenses, but there are no tax advantages.
LLC
The benefit of personal asset protection from your business
is provided by creating a single member Limited Liability Company (LLC), but
there is no tax benefit. An LLC is a pass-through entity, which means that your
personal taxes are charged directly on the business profits.
You can deduct all of your typical business expenses, just
like if you were a lone proprietor, but the money is still shown on your
personal tax return.
S-Corporation
Your corporation has the benefit of restricted personal
liability and may also offer some tax advantages if you elect to form a
\”S-Corp\” (Form 2553).
·
This is so that you, as the company\’s owner, can
be treated like an S-Corp employee.
·
You can receive a reasonable market compensation
from the S-Corp as an employee.
·
You must pay payroll taxes on your wage when you
file your personal taxes.
The remaining business earnings (or loss) will subsequently
be distributed to your personal taxes. While you will still owe taxes on the
distribution, you will avoid paying the 15.3% payroll tax on the portion of
your income that was dispersed.
Comparing All Three: Assume your company made $300,000 in profits
in 2018.
You\’ll receive $300,000 on your personal tax return if
you\’re a lone proprietor or a single member LLC. On the entire $300,000,
payroll tax (15.3%) will be your responsibility.
Payroll tax will be due on $80,000 if you operate as an
S-Corp and pay yourself an annual salary of $80,000. The remaining $220,000 in
income will be distributed to you. You won\’t owe the 15.3% in taxes, but you
will still owe the rest.
Potential Tax Breaks
With an accountant\’s assistance, you ought to be able to
claim the most of the significant tax deductions related to Shopify. But just
in case you want to handle your own taxes, I\’d like to highlight several
potential tax breaks for your online store.
Office at home
There are a few deductions available to you on your Shopify
taxes if you run your company out of your home office.
The workspace\’s size will determine how much is deducted.
You must adhere to the following rules to be eligible:
You must only conduct business at your workspace.
The majority of time spent in the specified area must be
used to concentrate on your eCommerce business. Your office must be your
primary place of operation.
There cannot be a different workstation for you.
The total deduction is determined using one of two
techniques, one of which utilizes $5 per square foot up to $300. You can also
subtract that proportion from your total rent or mortgage and utilize the
standard method, which is based on a percentage of the square footage used for
your office.
Therefore, you can deduct 15% of your mortgage interest on
your tax return if you use 15% of your living space as an office.
Utilities
You can also subtract utilities utilized (heat, water, and
electricity) using the same square foot proportion.
Along with these fundamental deductions, you may also
deduct:
·
Bank fees and business interest
·
Commercial Insurance
·
Fees for a bookkeeper, accountant, and tax
advisor
·
Legal costs
·
Independent Contractors
·
Benefits and Compensation for Employees
·
Services & Tools for Marketing
·
Cost of advertising
·
Travel costs for business
I sincerely hope that this article was useful to you as a
starting point for Shopify taxes! But keep in mind that there is no substitute
for a professional accountant, and if you\’re considering becoming one of their
clients, you may frequently speak with one for free.