charging tax on shopify
Published on: February 2 2023 by pipiads
Table of Contents About charging tax on shopify
- How To Charge Taxes On Your Shopify Store | Easy Method
- Taxes for Shopify Store Owners
- Collecting Sales Tax in Shopify | Out of State Requirements
- How To Charge Taxes On Your Shopify Store | Easy Method
- Everything You Need To Know About Shopify Dropshipping Taxes (2022)
- Shopify Tax How and When To Collect Sales Tax [NEW FEATURES]
How To Charge Taxes On Your Shopify Store | Easy Method
how do you charge sales tax on your shopify store, how do you pay your sales tax and all that stiky stuff coming up in today's video? hello, hello and welcome back to the channel. if you're new here and we don't know each other, you've never met me. my name is carrie, i'm the founder of shirt school and i created this channel to bring you the best strategy, secrets and hacks to grow your online t-shirt apparel or print-on-demand business, and in today's video, we're once again toking about my favorite thing in the world: taxes. if you're anything like me, taxes just give you a headache and they're just constantly frustrating and it just feels like i'm always paying taxes, so taxes really stink. but luckily, today we're going to specifically be toking about sales tax on your shopify store and i'm going to show you the easiest way that i've found to collect it and actually pay it to your state and how that all works. this is a question i get all the time like gotta be. one of the most asked questions is about sales tax and how to collect it, when to collect it and how to pay it- all that kind of stuff. so hopefully today i can bring some clarity to this question and help you out. the first thing i want you to know about sales tax is that you only pay sales tax on sales that you make inside your state. okay, that's one of the beauties that we have being an online business is that we don't just sell in our state, locally. we sell all over our country and maybe all over the world, and we don't have to pay sales tax on any sales outside of our state of residence. they call this sales tax nucleus, and so you have to pay taxes in any state in the united states where you have nucleus. now that basically means you just have to have like an office or some kind of residence there, right? so for most online businesses, especially small businesses, you're only going to have that nucleus in one state. wherever your business is located, even if you're running from your home, you're going to have to have a physical address, and so most likely for most of you, that's going to be inside your state only. to use amazon as an example, amazon has fulfillment centers and offices all around the united states, so amazon has to charge taxes in most states in the united states. that's why, even though amazon might be based in a certain place, they have, since they have facilities all over the us. they have to pay sales taxes on all the sales in those states, but luckily, since we have a small online business, you most likely only have that one location and so you're only going to pay sales tax on the sales that you make inside your state of residence. okay, the last thing i want to say- and then we'll get into the tutorial on actually how to set this all up in shopify- is that i've said it a lot and it's another question i get that's very related, and i recommend that you don't get your llc or your business licenses before you actually have some sales under your belt. right? i recommend that you get started on shopify without doing all of the the llc's and business licenses and sales tax permits. go ahead and get a few sales under your belt before you actually get your business license and you start paying your sales taxes. you want to make sure this is something that you want to continue with. so a lot of people really stress out when they're first starting and luckily you don't need to stress because you can actually claim: you know, put your under your social security number on your taxes. you can put your sales under there. you don't have to worry too much about sales tax when you're just starting out. but once you have some sales and you know that this is going to be something long-term for you and that you're going to stik with, you want to make sure you do get your llc, get your business license, get your sales tax permit and you start paying that sales tax each month. if you are just starting out, you're brand new and you're watching this video and you're like: i don't have my business license. okay, i recommend that you go ahead and set up sales tax in your shopify account so that you are collecting it. but go ahead and just set it aside. hold on to it, just in case you need to pay those sales taxes later. that's what i recommend. you don't necessarily have to do that, but even if you don't have your business license, i would just turn it on, collect it, put it aside, maybe in a separate account, so that you're not tempted to spend it, and just so you have it there in case you need to come back and pay those sales taxes. hey, if you're getting value out of this video, smash that like button and also make sure you subscribe to the channel and hit that bell icon. when you subscribe and hit the bell. you're gonna get notified each week when we put out videos. now, as much as i hate toking about taxes, i know you love hearing about it, so i plan to put out more videos related to this kind of content. so if you want to see that, make sure you subscribe back to the video. okay, jumping into shopify inside of uh test account that i have here. i want to let you know setting up sales tax in shopify is actually a very simple process. a lot of people get really scared of how to do this, and it's- it's actually pretty simple. so all that you want to do is go to your settings here and you're going to want to go to taxes right there, right, and so we have, uh, some different options here. you're welcome to look through these and see if you you want to use any of those options. what we're going to want to do here in the united states, we're going to want to go right here and hit setup. okay. now the great thing about shopify is, once you set this up, it's going to automatikally calculate all the sales tax for all the counties in your state and it's just going to do all the hard work for you. so you're going to hit this collect sales tax button and you're going to select your state of residence- and i will select oklahoma, right here- and then we're going to simply hit collect sales tax. okay, you don't have to put in your uh, your actual sales tax id. you can go ahead and start collecting it without that and put that in later, as you saw me do there. so after you've done that, that's it. that's all you have to do in shopify. so after this first step, your customer is going to have to pay the additional sales tax on any purchases that they make if they are inside of your state. this is not a big deal. if somebody, if you go down to the convenience store, you buy something, you're going to expect to pay sales tax. so here in oklahoma, for instance, if i have somebody joe down the street that buys something from my store and he's in oklahoma and i'm in oklahoma, he's going to expect to, say, pay sales tax. so once you've set this up, your store is already collecting sales tax. you don't have to do anything else on your shopify store to actually collect the money. i do want to make sure you understand that shopify will not pay your sales taxes for you. they are simply going to collect it from the customer and give it to you and it's just going to get lumped in with the revenue that you're making and you're collecting from your sales. so you're going to have to actually put it aside and not spend it, so that you have the money there to pay your sales tax. step number two: you're going to want to find where you pay sales taxes inside of your state. now, keep in mind: you only want to do this if you already have your llc, your business license and your sales tax permit. okay, you have to have that before you can do this. so make sure you get your business license, get your sales tax permit. then you're going to want to find where you pay taxes. okay, here in oklahoma, it's okay, tap. this is the website i know most of you guys aren't watching from oklahoma, but just to give you an idea of what this looks like. now, here in oklahoma, we have to remit our sales tax every single month by the 20th of the month for the previous month. so all you're going to want to do here is simply get your- uh, your account set up with whatever, whatever website for your st.
Taxes for Shopify Store Owners
taxes. they are not fun, but they are a very important part of e-commerce because you need to be collecting sales tax for different orders and you'll also have taxes that you need to pay to your own government. so in this video, we are going to go over the different taxes for small businesses and how to make sure that you are staying within the law for all of that and paying on time, okay? so since we are toking about taxes, let's start out with a huge disclaimer for this video: that i am not a tax accountant. i am not a cpa. i have no certification for toking about taxes. i am just toking as an e-commerce entrepreneur and a small business owner myself, and i've been paying taxes for over 11 years for my small business. so i'm toking from my perspective here. so make sure that you still contact a tax accountant in your area and you verify everything with them to make sure that everything is set up correctly and that you are paying your taxes correctly, okay? so now that that's out of the way, i want to tok about the different types of taxes that you have to pay whenever you're doing an e-commerce store. so, first off, you do have sales tax that you need to collect, and this is going to be depending on where your location is and what country. so i'm going to have this video toking specifically about the us, so it's going to be different depending on the country that you're in or that you're selling in. however, in the us, you need to be collecting sales tax anytime you have a physical location in a state. so that could be that your office is in one state and your fulfillment center is in another state. you would need to be collecting sales tax in both of those states because you then tiknically have a physical presence in both states. you also have to do sales tax collections based off of an economic nexus, so there are different requirements for different states based on if you have so many transactions in a state or if you have a certain dollar amount that you have sold online in the state. so this can get a little bit confusing. so we'll go over the best way to do that in just a minute. but this is a newer tax thing that has been added in the last few years that you want to make sure, if you're doing a higher volume of e-commerce sales online, that you're being really mindful of. so, first off, when you're setting up charging sales tax by a physical store location. you can do this inside of the shopify backend, so you would just go to settings and then taxes and you can add in your tax location there. so you would add in your zip code, so it'll add in the correct tax information based on the state that your physical location is in. so this is an important one to make sure that you have set up so that it's just calculating taxes overall based on the physical location. but, as i mentioned before, you also need to keep in mind the economic nexus. so this is different for each individual state, which can be a little frustrating since the us has so many states to keep up with and shopify really isn't set up for going through and keeping track of all this information. plus, shopify does not file any taxes for you, it's just charging the customer and it is on you and your responsibility to make sure that you are setting aside that money for taxes and paying that correctly to each individual state. so for this i really recommend a third-party app called tax jar. so tax jar lets you actually see the economic nexus so you can see how much you are getting close to that of needing to collect sales tax in partikular states, so it'll keep track of how many transactions you've had in a state, how much revenue you've brought in in a state, so it's really helpful for keeping track of all of that information so that you don't have to have a huge spreadsheet that you're constantly updating with every new order. also, with the tax share app, they do automatikally file taxes for you once you've got that set up. so, once you have registered that you need to file sales tax in a state, you can then put all that information into tax jar and get that set up. so it's a lot easier for you, especially if you end up having to file taxes in a lot of states based on your online orders and revenue. so i definitely recommend taking a look at tax jar if you are expecting a high volume of orders and you are expecting to have more things that you're qualifying for in terms of different states that you're needing to pay taxes on. i'll put a link to it in the description below, but definitely an app to check out. so that's just the sales tax portion of it all, though you, as an individual, will have to pay taxes on any income that you have received from your business, so this is going to depend a lot based on how you have your business set up. if you are set up as a sole proprietor, so as an individual, if you are an llc, a single member, llc, an, s, corp, a, c corp- however you have set up your business entity, that really depends on how the taxes that you are having to pay are structured out. so i'm not going to get into all of that again. make sure to reach out to a tax accountant and make sure that you're paying the correct taxes for you. but overall, you need to pay taxes on any income that you have received from the business. so you can write off things like expenses, so your cost of goods, of any kind of cost of actually shipping out the or fulfilling the product itself, of the shipping cost, any marketing costs like paid advertising or if you've hired independent contractors to do designs for you, you can deduct all of those as expenses from the business account and you don't have to pay any taxes on that income. that is. there also any income that you leave inside of the business for future months of running expenses. you don't have to pay any income tax on that as well. it's just the money that you're taking out personally as profit from the business and again, that does vary really wildly based on the entity structure that you have set up for your business. so, overall, you just want to make sure that you are reaching out to a tax professional in your area and that you have everything set up. the last thing that you want is to be hit with a huge tax bill that you weren't expecting and you don't have the money set aside for that. one's gonna hurt really bad and it's going to hamper your business growth if you're then having to take additional money from the business or from your own personal accounts to pay off taxes that you hadn't prepared to pay for. so you want to just make sure that you're thinking ahead and setting aside whatever money that you're collecting for taxes- whether it be sales tax or income tax- that you're going to pay personally. so i hope this video was helpful for you in deciphering a little bit more about the different taxes that you have to pay for a small business and for e-commerce stores. we've got a couple more videos over here all about growth strategies, so how to actually grow your shopify store for 2021, and if you haven't yet subscribed to this channel, make sure to hit that subscribe button below. we post videos every week all about shopify and how to grow your online store.
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Collecting Sales Tax in Shopify | Out of State Requirements
[Music] foreign collecting sales tax in Shopify. this confuses a lot of people. does Shopify have a setting where you can immediately collect sales tax from your customers when they make a purchase? should I collect sales tax in every single state that I receive an order from? these are the types of questions that I will be addressing today in this video, but before I begin, I do want to throw out out a little disclaimer that I am not a public accountant and you, of course, should always consult with your own accountant to make sure that you and your business are collecting sales tax in the correct way. but in this video today, I do intend to give you a little bit of insight so that you can go into that conversation with your accountant, understanding some of the basics. so let's begin. does Shopify have a setting to immediately collect sales tax from your customers when they make a purchase? yes, should I check to see what my settings are set to because they might not be correct? yes, should I collect sales tax in my own state from day one? yes, unless you live in Delaware, New Hampshire, Montana or Oregon. should I collect sales tax from every single state, from every Shopper in all of the states, when they make orders from me. well, that depends, and let me explain why. so you, as a business owner, need to collect sales tax from customers and states where you have a tax Nexus. let me explain what that means. tax should be charged in the state you are registered in and any other state that you sell high volume to. next, this is based on number of sales and or dollar amount of sales. let me break this down further for you and then I will show you how you can check your own state requirements and requirements for other states you sell to. when you're starting out and haven't made very many sales in other states, you should only charge tax in the state that you have a physical presence in, unless you live in Montana, New Hampshire, Oregon or Delaware. if your sales are low in another state, then you have not yet qualified for tax Nexus. so that means that in your Shopify settings you should only list your own State as the state to collect sales tax in. now an important note: if you do not have a sales tax permit in a state and you charge sales tax for Shoppers in that state, you can get audited. let me repeat that if you do not have a sales tax permit in a state where you have shoppers shopping from you and you still charge sales tax to those Shoppers, you can get in trouble. you tell Shopify which states to collect sales tax in now. if you're receiving an order from someone who lives in another state than you and you do not have a presence in that state and it is your first time ever receiving an order from a person in that state, then you do not need to collect sales tax now. eventually, when you start to grow and your volume and your sales increase, you need to be on the lookout for when it is time to start collecting sales tax, and that will depend on the threshold for the state. so every state has different requirements based on certain thresholds. let's walk through an example. I live in Georgia and let's pretend that it's my first year in business. I could either be online only and shipping products to people in other states, or I could have a physical brick and mortar in the state of Georgia. this scenario applies to either situation. so let's pretend that I start to make sales to Shoppers in the state of Florida. I've only made twenty thousand dollars worth of sales in Florida. at this point, I do not need to obtain us sales tax permit in Florida yet because I have not met the threshold to need one. I have not met the tax Nexus in Florida yet, but let's fast forward four years. let's say that it is year four. I have now sold a hundred twenty thousand dollars worth of Revenue in the state of Florida and at this point I officially need to obtain my sales permit in Florida and I need to start collecting charging sales tax to Shoppers in Florida, because the threshold for Florida is one hundred thousand dollars worth of Revenue. once Nexus is achieved, you do need to start charging sales tax and you need to change your settings in Shopify to make sure that it is immediately collecting sales tax in the states that are applicable now. each state is going to have their own thresholds. let's change up the scenario. let's pretend I'm still in Georgia, but this time I am making sales in Ohio 's thresholds states that I must start collecting sales tax when I've made a hundred thousand dollars in revenue or if I have surpassed 200 transactions. in this case, if I had only collected eighty thousand dollars in revenue from Shoppers in Ohio, but I have had 200 transactions, then I need to start collecting sales tax and obtain my sales tax permit. so it is important to understand the thresholds for each state. New York, for example, has has a threshold of five hundred thousand dollars in revenue or 100 transactions. another example would be: if I have a physical brick and mortar in the state of Georgia and Florida, then I need to collect sales tax in both States, regardless of my revenue and regardless of how many transactions I've done. if you are still confused or you just want to check out which thresholds apply to you for each state, there is a website that you can use that will walk you through an assessment to determine which states you need to collect sales tax in. I will demonstrate it now and I will link to it down in the description bar as well. but once again, I just want to call out that it's really important that even after you've gone through this assessment, you should still tok to your accountant to make sure you are setting everything up correctly. okay, so what you're going to do is come to this website and you're going to scroll down until you see: take the free assessment. so I'll go ahead and click on that. from here. it's going to say that I can start my free Nexus assessment. I'll click get started first up. it's asking me where I currently collect and remit sales tax. notike that Delaware, Montana, Oregon and New Hampshire are not available choices because you would not be collecting sales tax there. so let's pretend that in this scenario I am based out of Kentucky, so I'll click that. if I was currently based out of two locations or I was already collecting sales tax in another location, I could select it. but I'm going to go ahead and click next. now it wants me to select where I make sales but don't collect sales tax. so if there are states that you sell to more frequently, you can select those. I'm actually going to go ahead and select all so we can demonstrate what that looks like. but once again, you'll just select the states that you already have purchases from. now I'm going to click next. and here it's asking me: how much do you sell in these states? so it if I were to have sold more than 250 000 dollars in total revenue in Alabama, I would select Alabama. if I were to have sold more than a hundred thousand K in total revenue or had more than 200 transactions in Alaska, I would click Alaska and I would continue on selecting all of the states if I've met that threshold. if I haven't met the threshold in any of the states, I will not select any. I will leave them all blank and I will click on get your results. now it's going to ask me to fill out my information to show me the results, and now it's showing me that I have not exceeded the annual threshold in any of the states. but I do need to watch all the states in yellow and I currently collect and remit sales tax in Kentucky and if I were to scroll down, it would show me all of the states that I'm approaching the threshold in. so remember I haven't met the threshold on these yet, but I need to keep an eye out for when I do so. this information here is very useful and and you should refer back to it because there are a lot of details about the threshold that you can read through for each state and make sure that you work with your accountant to make sure that you are doing everything correctly. [Music] [Mu.
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How To Charge Taxes On Your Shopify Store | Easy Method
in this video, i want to teach you how to set up your taxes settings, which is really, really easy. you're going to be able to do it very quickly. you may not even have to edit anything, because the default settings are very close to what my settings already looks like. so, to get to the taxes settings, you're going to click settings at the bottom left here, which will bring you to this page. then you're going to click taxes right here, which will bring you to the taxes settings. before you do that, however, go to your general settings and make sure you have a correct address in there. so, for example, i live in california, within the united states, so my address is california and in the united states. right, then go to your taxes settings. the reason i want you to set your address correctly is because taxes are calculated based on where you live. so i'm going to click taxes now and it's going to bring me to this page. okay, so for the most part, these are your default settings. please keep in mind that i live in the united states, so my taxes page looks like this. if you live in a different country, for example, if you live in mexico or you live in, say, somewhere in europe, then your page may look very different than mine, but for the most part, i think it should be the. the guidelines and concepts here should still apply to you, so let's take a dive in. so you got tax regions and tax calculations. the regions here are the regions for which you would tax if someone from that region came to your store and bought an item. so i'm in the us, i s, let's say, i sell t-shirts and someone else from the us comes to my store and buys one of my t-shirts because they're in the united states, they i would collect taxes when they buy that one product. you'll notike here that says the rest of the world, meaning everywhere outside of the united states, and it says not collecting. so generally, my settings do look like this. i want to point out that that for most countries, if you sell products, you're going to have to pay taxes in some form. in the us, it's very, very common for someone to buy a product online and then have taxes added to that product when they check out. the reason i don't collect taxes from people in other parts of the world is because i sell to a lot of people from all sorts of different countries and i don't know the culture for each country. i sell to some countries, you know they don't pay taxes on the products they buy, so i don't want to collect taxes from everybody, because if i, if i collect taxes from someone that's from a country where they don't generally pay taxes on products they buy online- they me- they may be very upset and i don't want to upset any of my customers. so, for the sake of not upsetting any of my customers, i simply don't collect taxes from any other countries. but i do collect taxes from people from the united states. you may be wondering: well, doesn't that mean you'll be losing money at the end of the year when i file my taxes? yes and no, although i don't collect taxes from the rest of the world, i set my prices, my profit margins, large enough and high enough so that i make such a large revenue on each product i sell that when i go to pay my taxes at the end of the year, i will have enough revenue to pay for those taxes and still make a profit. so if you're worried about how, if you're worried about making a profit and not collecting taxes, just make your price large enough to incorporate any taxes you'll have to pay back later. um to your government. okay, tax calculations. so earlier i said to make sure to set your pricing in the general settings. i'm sorry, set your address correctly in the general settings and that's because tax calculations are based off where you live. okay, so there's a couple options you can choose here. i don't, i don't check back, i don't check any of these things. the first one is: show all prices with tax included. what does that mean? this means that taxes are included in the prices when someone visits your online store. i never, ever, include the taxes in my prices because in the? u, the united states, it is not. that is not common practike generally. if you're, if you have online business and let's say, i sell t-shirts and i i sell each t-shirt for ten dollars, exactly. if someone were to come to my store and they saw the shirt for ten dollars and they put in their shopping cart and they went to go check it out and taxes were then added on top of that ten dollars, that customer would not be upset, because in the united states that is very common for taxes to be added on when you go to check out online. so it is very common in the united states to not include taxes in the visible prices of your store. taxes are always added when you check out later. uh, charge tax on shipping rates? uh, because we're drop shipping. i don't charge tax on shipping rates because you know we're drop shipping. we, we don't have to package up the product. we're not responsible for shipping. someone else is going to drop ship that product to the customer for us and we've already set profit margins and prices that incorporate that shipping. so i'm not really worried about taxing my customers for shipping rates. the less you could, the less you tax your customers, i feel, the more happy they will be, the more you know, because they're not going to get any price that's unexpected. the price that they see online will be close to the price that they'll see when they check out, and i think that's a good thing and it makes your customers happy. and then this last one you can ignore, because this is more for digital products and we're not selling digital products. so, like i mentioned, for the rest of the world, i do not collect taxes from them. so i don't. i just leave this as it is for the united states customers. i do collect taxes from united states customers. i'm going to click edit to go a little bit further, just to show you. but you don't really have to do anything in here. shopify already calculates taxes automatikally and they calculate it based on the address which you set up. in the general settings, which i mentioned a couple times already, i put, i put my address here as california and you'll see that the word the, the state california, shows up here, because this is where i live and my taxes are going to be calculated based on the fact that i live in california. if i lived in new york, which is a different state in the united states, then my taxes would be very different, because in the united states each state- california, new york, florida- they all have separate federal. they have, they all have separate, they all have separate state taxes. so in california, i guess, the state tax is 7.25 percent, um, so i just wanted to point that out, but that's pretty much it. it's very, very straightforward. you'll notike that i didn't really edit anything. if i wanted to, i could add a text for the rest of the world customers, but i'm not going to do that because, again, i don't know if it's common to tax people from every single country, because i'm i don't, i have not lived in every single country, so i don't know what the expectations are, so i'm just going to leave it as is. you could even remove taxes from the united states if you wanted to, to make your customers even happier, but i think it's pretty common in the us to pay for your taxes when you buy a product online, so i would just leave that and not worry about it. and there you go. now that you're charging taxes, at least in parts of the world, you're going to use that tax money to help pay off taxes at the end of the year and it's going to help you a lot. all right, guys, i hope that was useful. i'll see you on the next video. i almost forgot to mention another reason i'm not really worried about collecting taxes from the rest of the world is because most of my marketing channels- so, for example, my facebook advertising- they're all directed at the united states. generally, i market to united states customers. the reason i do that- and i'll get that, i'll get more to that during the marketing section- the reason i do that is because i'm f.
Everything You Need To Know About Shopify Dropshipping Taxes (2022)
[Music]. what's going on, guys? so there is so much confusion with drop shipping and taxes that most beginners, or even advanced drop shippers, have no idea how any of this works, and that's why i'm bringing on one of the most knowledgeable people in this field, who's been a tax expert for over 10 years, so i'm super excited to be sharing this information with you. um, give them a little introduction of who you are. hey guys, i'm chris rivera. i'm founder of a firm called the e-commerce accountant's name kind of says it all. uh, we're an accounting firm that specializes in online sellers. um, i throw around e-commerce very loosely, um, but mainly we deal with entrepreneurs that are in e-commerce. so i've been an accountant for 10 years, like you said, and i've been niche down in e-commerce for about four years- awesome, so yeah, guys. so i asked you on my instagram a few days ago on what questions you guys wanted to hear from him. so i have a bunch of really cool questions, but i also want to start off with him giving a little overview of what drop shipping taxes are, because i think people in general have a lot of confusion, whether you're a new entrepreneur or you don't know what's going down. chris is going to give you the lowdown on this. the way i like to break it down is into two separate categories. so, if you're an online seller, the risk is really centered around income taxes and sales taxes. so income taxes are name kind of says that all it's a tax based on your income or your profits- right, and we can dive into that in more detail if you'd like. and then sales taxes is something that is confusing to a lot of entrepreneurs, because it's actually not a tax that the entrepreneur tiknically pays. it's a tax that your customer pays. so if you're in the business of e-commerce, those are the two things in terms of taxes that you should really be focused on: income taxes and sales taxes, okay, cool. so i think one of the largest questions that i had- a lot of you guys asked this- is: when do you actually need to pay taxes as an e-commerce business owner? because most people are completely lost on this. a lot of entrepreneurs- not just e-commerce entrepreneurs, but entrepreneurs in general- think that april 15th is when you pay your taxes, which is definitely not true. april 15th is when you file your tax return, which tells the irs how much money you owe in taxes. basically, realistikally, how it's supposed to work is you're supposed to pay taxes quarterly or four times a year. uh, and the whole idea there is. you know, for those of you who have had a w-2 job before, when you get a paycheck, taxes are getting taken out of your paycheck and the irs is getting paid sporadically, bi-weekly, monthly, however often you're getting paid. but for you as an entrepreneur, if you're making 10 000 on shopify, let's say, taxes aren't getting withheld out of those payments, the irs is not getting paid. so the way that they counteract that is, they force you as an entrepreneur to pay taxes quarterly, which is, you know, every three months. you're supposed to stop, calculate your profits, estimated tax, pay it into the irs. and that's the main reason why i always tell entrepreneurs, you know, don't wait till tax season to hire a good accountant, wait till you're actually making substantial amounts of income, then hire someone to make sure that you mitigate your risk from a from a tax standpoint. absolutely, guys, you need to be listening to this because there is just so much confusion in this space and i think chris is really going to clear a lot up over here. so one thing that i think would be really beneficial to people watching this, because i know a lot of the viewers are primarily in the beginning stages. what piece of advice could you give to someone who's just getting into this field? they want to start making money but they're just not sure how this works like. what advice would you give them to make sure they're doing this properly? i'm a firm believer in when you're an entrepreneur, just focus on making money and the rest. as you become more and more successful, the rest will work itself out. uh, let's break this down into legally and tax wise. i'm not a lawyer by trade, but i know enough to kind of give some advice. i definitely recommend, in the beginning, getting an llc, because that at the very least, gives you uh, legal protection, but also it gives you the opportunity to structure to save money in taxes later on. so setting up an llc, i believe, is super, super important, and that goes for both american entrepreneurs but also non-american entrepreneurs as well. on the tax side of it, i think that in the beginning just focus on making money. you know it's taxes are very complex and professionals that specialize in giving tax advice are also very expensive. so in the beginning, just focus on making money and then, as soon as you have budget to pay a professional to help you mitigate or reduce risk for taxes? definitely do so. so, to break that down, you know 20 000 or more per year in sales. that's when i recommend that you hire an accountant to, at the very least, do your tax return. and then, once you're doing 30 000 or more per month in sales, that's when i recommend you hire someone to strategically help you tax plan. so what could people do at home right now to prepare, because obviously there's some actions that they could be doing themselves right. yeah, so i am a firm believer in having good data. so doing your own bookkeeping accounting in the beginning, it's safe. you know, i always tell entrepreneurs that as you're starting to scale up, don't undervalue the importance of bookkeeping, because bookkeeping gives you financial data which is super important to making decisions for your business, but also feeds directly into your tax return. i mean, i said before you know your income taxes are based on your income or your profits, right, and if your profits are wrong, you know your tax number is going to be wrong and that could be a very substantial amount, absolutely so my recommendation is, in the beginning, definitely focus on getting your accounting and bookkeeping in order, and that doesn't always necessarily mean outsourcing that work. but again, as you start to generate more and more substantial amounts of income, it becomes more of a high risk area. so, uh, in the beginning just focus on the data, the numbers, get book keeping, accounting in order and, uh, you know again, once you hit that 20 000 sales threshold in a year, hire a tax professional to help you, at the very least, report things correctly. absolutely okay, cool. so what company structure do you recommend for e-commerce businesses and at what stage? because you know, i know a lot of people are starting off with a sole proprietorship. like, what do you recommend for beginners doing this, or even more advanced people, and when should they consider the next approach? so, legally i, pretty much across the board, recommend having an llc for an e-commerce seller. now i see it all with you know people coming in the funnel saying, hey, another account told me a corporation or partnership or whatever for e-commerce. llc is the way to go, whether you're an american or a foreign entrepreneur, because the tax treatment of an llc is super flexible. you can literally submit a piece of paperwork into the irs saying, hey, i have an llc, but i want my tax treatment to be an s corp or a c4 or whatever. um, so llc is a really good idea, uh, in terms of your legal structure. now, the other thing i'd love to find- the person who, like, started this whole rumor or this trend in the space is. i get people all the time saying: you know, every single store i set up, i want to have a separate llc right, and while that does provide legal protection, the issue is that the space we're in- especially drop shippers or, i guess, e-commerce entrepreneurs in general- is it's transient in terms of the stories. you can have a store that does super well for six months. then it fizzles out. then you have a legal entity that's out there that you should resolve. you have to do tax return, you know, so it can get quite comp.
Shopify Tax How and When To Collect Sales Tax [NEW FEATURES]
All, everyone Christian here- did you know in the US alone, you need to ensure that you're properly collecting taxes across 46 states and 11,000 different jurisdictions, And if you don't, you have to pass, go and go directly to prison. Okay, That last bit was a little bit extreme. but let's tok about the super sexy topic of taxes. US sales tax is very complex and it can be discouraging for a lot of you folks out there. Now Shopify in the recent months have overhauled their tax features to make things a little bit smoother for merchants, And you might have already seen a little bit of this. but now they're actually giving it a proper name and it's called Shopify Tax. So what is Shopify tax? So Shopify tax puts sales tax insights and collection in your control and makes everything manageable from your Shopify admin. So at a glance you'll know when you're liable, with a state by state overview. It also reveals where you're approaching a tax threshold, so allowing your business to actually prepare for the taxes that are going to be coming. with Shopify tax, You can also apply the right taxes at the right time, with calculations based on the buyer's precise address. There's also known as workshop accuracy. Shopify takes care of all of this in the background, so you don't have to do a whole lot of things Now. they also make sure to collect the right taxes for the right products. So adding product categories is going to be an absolutely crucial part of the process of adding new products to your store, And we'll tok a little bit more about this here in a second. Now, before we move on, I just want to say my name is Christian Keenan, one of the co-founders here at that brand, or an e-commerce growth entity that specializes in helping clothing stores grow and scale profitably online. We do have new videos every week, so make sure that you hit that Describe button- Turn on notifications so you don't miss out. Now let's tok about pricing. Nothing in live is free, right. So Shopify tax is going to be a new service that automatikally gets added to your store and you cannot really turn it off Now. for the rest of 2022, you won't have to pay anything extra that size of what you're currently paying right now for your Shopify subscription. It is going to be free forever for the first $100,000 in US sales each calendar year. after the $100,000, a point 35% fee or 4.25% fee for plus merchants will apply for subsequent orders that calculate sales tax in the US online. also, as a promotion for the next year, 2023,, the total annual Shopify tax costs will be capped at $5,000.. Now, the only bad part is that this is just for Shopify plus stores, So anyone below there won't be a cap for next year. Now another question that you might be asking is: what about outside the US? While Shopify tax is built right now exclusively to manage your US sales tax obligations, hopefully in the future they will manage international and global taxes, But right now, it just seems like they're really harping on focusing on US sales tax obligations. I believe, from what I've read, that they want to become very an all encompassing platform. So adding taxes globally and managing that will probably be something that they add sometime in the future- Not even close, but sometime in the future. Now, managing numbers and data and all this stuff can be very cumbersome. Now I want to let you in a little secret. It's not tax related, but it's all an analytiks and metrics related right. We're using a tool called trivia wealth for all of our client and group coaching members, And this tool allows us to see the lifetime value of a customer at 30,, 60, 90 days, But we're also very excited about the estimated action of customers. So just a slight little feature in there. So imagine being able to send out email campaigns or ad campaigns to customers who are actually likely to buy from you a second or third time And knowing when to exactly send out these marketing messages. after the will of super, super powerful, it centralizes all of your metrics all into one place. They simplify, inform and save you time. So make sure to check out the link in the description below. There is a slight little discount code in there for you. If you want to try this, try out triple. Well, for the first time- now we've toked about a little bit of product Categorization is going to be very important moving forward. So let's tok about product categorization. So, is a hot dog distinguish? as a society, we may never agree on the answer. I believe Erin is in the camp of it's a sandwich. I don't think it's a sandwich. What do you? what do you think? Let us know down in the comments below If a hotdog is a sandwich at Shopify, they can help you categorize your hot dog, for tax purposes at least. So they may not have that answer, but they'll be able to help you categorize that. So, for example, if you live in New York, you may find that you pay a tax when you buy a hot dog from a local stand, but not when you buy a pack when you're doing your neighborhood barbecue. So in each state different rules of the amount of tax that needs to be charged will be different on a per product basis, right, or what you use the product for. So that's where smart categorization comes in And this new feature helps you figure out these rules when you add new products to your store And really the smart categorization based on the titles and the description of the actual product that you're putting in Shopify will automatikally recommend you a product category. So once you approve or modify, then it will automatikally assign a proper tax rate based on local regulations. So if you're adding shoes and you're typing in the product title that this is a Nike Air Force, whatever, and the description it toks about being a shoe, then the product category- you will see that it will showcase it's a shoe, right, And all you have to do is just approve it or potentially modify it Right, depending on on your store and what you have currently. And if you like what you see, please consider clicking on that like button. It really help us out at all One of my YouTube videos without an actual sprint reporting, Right? So let's jump in and kind of show you around a little bit of the tax and duties section. So right now, if you go to your settings and then you go to taxes and duties, you will see this brand new banner and here it will say: stay compliant in the US with Shopify tax. and you might actually see some notikes in here. So this one says you're not charging taxes on some product variance and this one says you may have sales tax liability in four different states. So all these things you need to make sure that you're checking inside of your admin settings, taxes and duties. I'm going to click on Review US tax settings here for the new Shopify Tax And in here you'll see like there's manage a tax collection, tax rate exemptions reporting, manage your tax collection. It will actually give you, like I said, a state by state breakdown of where you're actually liable for taxes or blur some of these things in here. So you know that and then categorize your products for tax purposes. So in here you see we have 1400 products that we need to review for this store. So again, it's time consuming process and you have toward the end of this year really to kind of figure all these things out, because it will start 2023. So it's very important that you have all these things figured out Now. when you manage categories here for the products, you will see right within here It will actually show you the products and it will give you the product category, So very quickly you can actually at a glance change things around And, like I said, obviously there's a smart categorization So it will automatikally tell you what that, what it thinks that product is. All you have to do is just approve, deny or modify it. All right, So there you have a Shopify tax. They're actually making it a lot simpler for you t.