tax accounting dropshipping business

Published on: January 27 2023 by pipiads

Dropshipping & Taxes: The Ecommerce Accountant Explains ALL

what's going on everybody? Scott Hills, here with you today. I have a special guest. you're not going to find this type of content, this type of solid advice on tax strategy and just accountant in general for e-commerce- dropshipping- all of your online business needs out here. Chris Rivera, thank you very much. awesome thanks for having me. man. I'm excited to be on. absolutely. he's never been to LA before, so he came out to LA just to give you guys this information. so if you could do me a huge favor, just smash that like button, at the very least hit that like button and then, if you want to go a step further, go ahead and click Subscribe. so a lot of people get into dropshipping and they get confused with the drop shipping part. they figure out the drop shipping part, they start making you know, tens of thousands dollars a month and then they get into the tax strategy part and there's really not that much good information on tax, on tax strategy, anything involving drop shipping. you'll go online and, like your symbol for this, you'll find like a reddit post, every one contradicting each other, even on YouTube, like like a drop shipping influencer like me will make a video on. this is why I haven't made a video on it because I'm like I don't even know what I'm toking about and most of those people on YouTube who are toking about it don't know. so this is the only video you should know and Trust, because you've been doing e-commerce accounting work. for how long? yeah, so, for about two years, and the tricky part with drop shipping specifically is a lot of people know to go look at Shopify for sales- very easy to go take a look at- and then, obviously, for income taxes. it's based on your profit, right- spoiler alert- your net income drives your income taxes. so, basically, what happens with a lot of drop shippers is they know that they have all these sales- oftentimes it can be in the millions of dollars- but what they don't realize is that there are so many expenses that can offset those revenues. so you have your ad, spend your cost of goods. those are the things that are completely obvious, but I see dropshippers miss things all the time, like merchant fees, chargebacks, refunds, etc. stuff that's specific to ecommerce businesses. so, yeah, it's, it's a huge problem for drop shipper specifically just because the barriers to entry are so low that you know, I have clients that literally have crossed a million dollars in sales before turning the age of eighteen. so imagine dealing with that type of client like not only do they not have, you know, income tax experience, but they're still in high school and and dealing with that. so yeah and and no business is a good business without a good tax strategy. because chances are, if you have an accountant and they're doing your, your accountant work, they're probably doing it wrong, as I found out myself, and it's not necessarily their fault. they just haven't really caught up with the times. they don't recognize certain I'm fees, tanner planes. no hate to him, but he was toking about his accountant to me and he's like, yeah, they called me up and she was like, so what's all this money you're spending on Facebook and see, it's like they don't understand. so like my personal story and how I got to working with Chris's that I got, I had that one of the best accountants in st Louis. she's done. she built up a firm of over a thousand clients and kept the top 60 and then picked up me when one fell off. so really, really good, she's been doing this since 1970. comes a quarter three- she gave me a number: four quarter, I think is somewhere like a hundred and seventy one thousand dollars just for a core three. I'm like this can't be right. and she kept saying it was. it was well. then I asked Chris and his team to look at it and apparently it was way off, because I think you guys dropped at like at least seventy percent. at least seventy percent. can you tok about that a little? yeah, so what happens a lot of times with entrepreneurs in general is you have a bookkeeper and you have a tax accountant, right? so what happens is if someone- the bookkeeper specifically- doesn't understand your business, what happens is they'll assume certain things are personal expenses and not related to your business, so they'll automatikally allocate those to owner drawers or items that are, in theory, pulling cash out of your business, even though it's an expense. so in the Tanner example that you said with the Facebook ad spend, if a bookkeeper were to deem that a personal expense, there's a strong chance that they were putting that information on the balance sheet and not deducting it. so basically, what happens is you miss out on your expenses. so your expenses go down and your profit goes up. and you know- again with the spoiler alert- but if you have a high net income, you're gonna have a tax generated on that specifically. so you definitely want to make sure that you have someone who's, at the very least, knowledgeable on your business. if they're not ecommerce specific, that's fine. just someone that understands your business specifically is important. so what kind of advice would you give us someone who? I'll give you just the profile of this person. they they started dropshipping two months ago. they're doing like maybe you know a thousand, two thousand a month, and then this month they did over fifty thousand. what would be the first thing that you would recommend them doing right? so, just in general, being a business owner, you want to make informed decisions right, and the number one way to make informed decisions, in my opinion, is understanding the financial data. so the biggest thing with dropshippers is you can have a lot of sales, but your margins might be slim. you know, if your Facebook row as isn't all that great, then your profits won't be that great. so even though you're doing two million dollars in sales, you don't know if that's, you know, 1 million dollars in profit, two thousand dollars in profit, etc. so I would say step one is making sure that your bookkeeping is in order and if you're not someone with accounting or tax experience, that's one of the areas that I highly recommend that you outsource that work, and that's also an area you want to be careful with too. you want to make sure you again have someone that's knowledgeable about your business but also someone who's qualified to do the work. you know, mom doing your bookkeeping may not make sense if she doesn't know accounting or taxes. but if you outsource to the work to someone who does have good referrals or does seem like they understand your business and seems knowledgeable with the system like QuickBooks, you know, that is, in my opinion, step one, because once you understand your profits, you understand where your risk is from it, from an accounting and tax standpoint at least okay. so second question is: what would you say the biggest mistakes you see every drop shape or every one ecommerce make right at the beginning- yeah, so missing chargebacks and merchant fees on their tax return. so what a lot of dropshippers like to do- at least when I pick them up as climb, they'll say, no, no, I'm gonna do my own bookkeeping, and they'll give me a profit and loss statement or an income statement that shows super high net income. and I know immediately when looking at the financial statements you know like, if you're missing big-tiket items: your num 1a and 1b or your Facebook Ads, ben, and your cost of goods. but then you have your merchant fees, your returns, your charge back, your charge backs, etc. so those are the big-tiket items that I see missed all the time, especially chargebacks, because they're they're easy to miss. and then, since this is a work from home business, we actually write part of my rent off, and I think 40%, right, yeah, so the the tiknical answer with how this is supposed to work and, again, every accountant is different with how they treat this, so I recommend speaking with a professional. but, tiknically, how it's supposed to work is you're supposed to deem a portion of your house as your office space and you can alloc.

Table of Contents About tax accounting dropshipping business

How to do Taxes in Dropshipping- Complete Guide for 2022
Shopify Dropshipping and Taxes Explained By An Ecommerce Accountant
Dropshipping Taxes | Full Guide On How To Run Your eCommerce Venture Legally 💼
Shopify Drop-shipping Taxes Breakdown (With an accountant)
Everything You Need To Know About Shopify Dropshipping Taxes (2022)
How to Pay Zero Taxes with an E-Commerce Business

How to do Taxes in Dropshipping- Complete Guide for 2022

all right. so in this video we're going to tok about how to do taxes with drop shipping. okay, it's a really big topic and it's really important to understand that. it's actually very important to understand this topic only after you start making sales. so if you're just starting out, if you have absolutely no idea about drop shipping, if you never have ran a store yet, don't think about that at all. okay, there's people who figured it out already. so it's possible to do it properly and you shouldn't worry about. all right, this is not going to work out for me and i have to know all the legal things before i even get started. if you haven't gotten started yet, then, number one, this video is not for you. and number two, don't worry about all the tik stuff. okay, at some point after you start making sales, you should actually start worrying about it, because it's actually pretty important to the property. so here we're going to tok about how to do it properly and what to what to focus on. all right, so the very first thing i have to mention is i am not a legal accountant, so i cannot officially advise you to do anything, so this video is going to be only based on my experience. don't take this video as a legal foundation. you should get a accountant or a person who knows what they're doing, all right. so the number one thing for taxes is: it's going to be pretty easy to to do all the tax statements and to do everything properly. if you have collected all the receipts, if you have done everything properly, if you know how much profit you made, how much loss you made, how many fees you paid, how many refunds you had, all those little things will be important and they're gonna screw everything up for you if you don't do it on a consistent basis. everything which goes into accounting is important to understand. that you should not do it in the very end and, with and like with everything, you should constantly do it as a process, okay, and at some point after you start making decent money, you can have a person who's going to calculate the things for you, and it's going to make things much easier for you, okay. so, number one: do everything properly. understand how much expenses you had, how much profits you made. all of that is going to be crucial to make it proper. and also, every single expense has to have a receipt, okay, and this is a thing which i've learned the hard way. in the beginning. i didn't collect any receipts, i didn't do anything. and what is really important to do and what's also pretty easy to do: every time you pay something, it doesn't matter if it's facebook, it doesn't matter if it's your supplier, it doesn't matter if it's a shopify app or shopify subscription- just have a folder where everything is going to be in one place and you do understand where the receipts are okay, and then, if that's already going to be ready, you're just going to give it to the accountant and everything is going to be done so much easier. the other thing is you need to have an invoice for every single person who bought from you. okay, so there's tons of softwares. in germany, we use sevdesk and it's basically a shopify app which makes invoices for every single customer which bought from you. okay, so it's going to be automatik. you don't have to do it manually and it's pretty simple to use, to set up. however, you do need to have it because if people from the government or the people who get your taxes, um, will want those, those invoices, they will need them for sure. all right, so you, officially, are obligated to have them at some point if somebody asks whenever, at a random time, that can actually happen like three years down the line, and they want receipts for 2019, okay, and then you're going to be in big trouble if you don't have that nice organized folder and yeah, that's basically important. also, two very specific things i want to tok about here is number one: get one supplier, and it's going to be so much easier if you only work with one supplier. i added this crucial mistake to keep working with aliexpress and with like a bunch of different suppliers for the first like three months of me doing well in dropshipping- okay, and that was a huge problem later on in accounting, because aliexpress is a pain in the ass for accounting and it's going to be a really, really annoying process. if you had like 20 000 orders, all right, so it's going to be a big, big problem. if you do not like real numbers on aliexpress. it's going to be annoying. so what you should have instead is one agent which is going to be an all-arounder. that person is going to have all the products you're selling and he's basically going to be the supplier which you go for always, okay, and later on you have maybe one more warehouse which you also pay, and that's it, but it's important to have this overview and not have 10 different suppliers, because it's going to be so annoying. and i had this huge issue and it took me like a month or so- and we were basically three people which were full-time working on this- to me- to work it out and do it properly, because it was just such a mess because i didn't care about anything. i didn't do anything properly and after that i felt it. so now i know it should actually be done in the in the first place and you shouldn't wait for it so long. however, keep in mind that accounting feels very productive, but in reality, it's not productive at all from a money making perspective. okay, so you're not going to make more money through accounting. however, it's just going to make your life easier in the long term and also it's going to help you not lose a lot of time at one point, because at that point you're not going to be able to make any money if you don't have any time investments at all for anything else than this accounting thing. okay, so keep this in mind: that accounting is important. you should do it one by one. however, do it only in your free time. after all, the really important things are done, okay. so all the money making activities should be always a priority, no matter what it is. and after that, after all of this is done, the next thing: in your free time, you should actually focus on the accounting. and if you do 30 minutes per week of accounting, you're probably going to be good, all right. it's like 30 minutes per week, one hour per week max, and it's gonna be off all right. however, if you don't do that for like four or five months, it's gonna be a really big problem, and i cannot emphasize this enough because it was such a huge issue for me personally and i had a really, really bad experience with that in a way like it's. it was just insane, okay. and also, if you hire freelancers, you need to understand that those freelancers- if you don't hire them through upwork or through a platform where it's super easy to get the, the receipts and the invoices, then it's going to be also a problem. if you just privately hire a person, they have no idea how to do anything and you don't really ask them for receipts and for invoices, they're not going to give them to you. and the same thing goes for the suppliers: if you don't ask the supplier for a receipt and an invoice. they're not gonna give it to you, okay. they're not gonna actively go to you and send you everything. you need to go to them and ask them: hey, every time you send this, please give me this as well. and if they don't, you have to constantly remind them, put it in folder, etc. and the last thing i want to mention here is facebook ads. so there are scenarios where you lose access to a facebook account and then all the receipts are gone. okay, so that can be a real issue. and if you have some kind of really strong block on that facebook account, you're not going to be able to access any receipts and any invoices and any anything basically at all. okay. so it's really important to keep that in mind and constantly download those receipts- obviously don't be paranoid about it- and do it every day. you basically have to have a report with all the things which facebook- uh, you paid facebook- and you have to have those receipts in a separate folder. it's super simple to g.

Shopify Dropshipping and Taxes Explained By An Ecommerce Accountant

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More:DROPSHIPPING HAS CHANGED... HERE'S HOW TO MAKE SURE YOUR SHOPIFY BUSINESS SURVIVES INTO 2019!

Dropshipping Taxes | Full Guide On How To Run Your eCommerce Venture Legally 💼

taxes. don't let that term scare you and don't go anywhere. taxes is one of the things that we have to put up with as business owners, and many people are afraid of dipping into the e-commerce scene because they simply have no idea what it means when it comes to paying their taxes and what taxes we have to pay, and that is why, in this video, i'm going to simplify the whole process for you and teach you everything that you need to know about taxes when running an e-commerce business. now, this may not be the most sexiest topic when starting your ecommerce business, but if you're here for the long run- and i really hope that you are- you need to watch this video. quick intro and let's go. [Music]. hello everyone, i'm leon from autodesk and in this video, we're going to tok about our tax obligations when running our e-commerce businesses. now, remind you, this is not financial advice, and i highly advise you to seek a professional in your country, where you reside in and get the most accurate information for where you reside. having said that, do not forget to subscribe to our youtube channel to always learn about the hottest and most important topics when running an ecommerce business, and like and share this video if you appreciate the value. having said that, let's go ahead and jump right in. drop shipping tax is a beginner's guide. everything that i'm going over in this video, you can also read about it in the blog, which i'll leave a link to right below this video. and don't forget to comment below and let me know what you guys think about your drop shipping taxes, if you're already paying taxes, and how that is going for you. now let's go ahead and begin. how do taxes work with drop shipping? to start off, it works differently in every country, but many countries have similar things that have to do with taxes, like paying your income tax, which is applicable for pretty much every country, except for a few exceptions, which i will get to soon. other taxes that we'll need to pay besides income tax is sales tax, source tax and customs duty. i'm going to go over all of that and everything that you need to know about it. for starting off, your income tax is a type of tax that your government charges, so it depends on where you live, where you reside. you'll have to pay a certain income tax for every time you make an income, so whether you're running your own online business or even if you have a regular 9 to 5 job, you are bound to pay income tax as long as you are making an income. how much tax you need to pay depends on how much you are making. there are different steps, different levels of taxes that you need to pay, and you can see, depending on your country, where you live, what are the percentage steps there and what total percentage of income tax you have to pay from your income. now, if you're working on nine to five, you have someone in the accounting department of that company that's doing that job for you. but if you're running your own business, you'll need to have your own accountant or do it yourself, which requires a lot of work and understanding. so my tip for you here is: pay your accountant from your profits and that also turns it into a business expense so you won't have to pay taxes for whatever you're paying your account. so first we've got the income tax and when you're running your own business, the income tax is not taken from the total amount of money that your customers paid you, but rather from your profits. so there's how much money you made, how much your customers paid you, and then how much expenses you had, including how much you paid for the products to ship out to your customers. you're selling channel subscriptions- if there are any- and any other business expenses, like paying your account, which i just mentioned a minute ago. so when you take your income and subtract your expenses, you'll get your profit. that is the difference between them, and from that profit you will have to pay an income tax. the second type of tax is the sales tax. now, the sales tax is what you are charging on your selling channel. now, sometimes you have control over your sales tax and sometimes you don't have control over it. it depends on what selling channel you're using. for example, if you're drop shipping on shopify or wix and other hosting platforms like that, and in general, what happens here is when you make a sell on your store, the customer is charged for tax, so there's the selling price, whatever price you're selling the product for. for example, you sold a product for twenty dollars, but instead of the customer paying you twenty dollars, you'll notike that he paid you twenty two dollars, with an extra two dollars tax as an example. now my obligation as a seller is to collect that two dollars tax and pay it to the government from where the customer resides in. so, for example, if i open a store on ebay us, i will notike that ebay is charging sales tax for every time someone buys something from my store. so let's use the example that i just used. i charge a customer twenty dollars for a product. the customer pays twenty dollars plus an extra two dollars tax through ebay. now ebay wants to send me a payout of twenty two dollars minus the selling channel fees. but let's put that on the side for now. now ebay owes me 22 dollars, for example. they're going to pay me 20 and then they're gonna deduct that two dollars tax and they will take the responsibility of paying the us government those extra two dollars sales tax. so you're collecting it from the customer, ebay is holding onto it for you and they'll deduct that tax back and pay to the local government. now, if you're using other channels, like, for example, shopify, then you can calculate the sales tax on checkout. but it really depends on what audience you are targeting. for example, if you're opening a shopify store and you're targeting a different country, like, for example, israel, and you also live in israel, then in this case, every time you sell a product and you collect sales tax on checkout, you're gonna need to collect all of the sales tax and pay it to the israeli government at the end of the month. you're going to do that with your local accountant, so it'll make everything much easier. but that is basically how sales tax works. some selling channels will collect it automatikally and do the hard work for you, while others will require you to do it with your accountant. then we've got the source tax. this is the third type of tax that we need to be aware of. the source tax is a tax that we are paying our suppliers when purchasing the products from them and shipping it to our end customers. so, for example, i just made a cell and i'm using, let's say, walmart as my supplier. now i'm purchasing the product from walmart and i'm shipping it to the end customer. but when i'm purchasing the product from walmart, i notiked that instead of walmart charging me 30, they actually charge me 33, with an extra three dollars tax. so i'm also paying walmart and extra tax. or whatever supplier i'm using, it can even be wholesale private suppliers, it really doesn't matter. i'm just using them as an example, but i'll notike that i'm also paying them a tax. so you need to add that tax on top of your source price and also on top of your break events to be able to calculate your profits accurately. the fourth type of tax that we need to be familiar with is customs duty tax, and this is a tax that we'll need to pay when we are importing and exporting goods in and outside of the country that we are targeting. so, for example, i opened a store on wix and i'm shipping products from united states warehouses to the uk audience, which is my target audience. so when i'm exporting goods outside of the us and importing them into the uk, then the uk government will expect me to pay customs duty sales tax to the delivery company in the uk. if you want to learn about all of your uk tax obligations, i'm going to leave a link right below this video to our artikle about drop shipping taxes in the uk, so you'll know all about your uk tax obligations when drop shipping.

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Shopify Drop-shipping Taxes Breakdown (With an accountant)

yo top guys, welcome back to another video, and in this video we're going to be covering taxes. lately on my channel, there's been a trend where I just post like 30 to 40 minute video on a specific topic, like Facebook Ads or branding or whatnot, and I haven't had a video like that on taxes. on top of that, I know that there's not even a lot of videos on taxes regarding dropshipping, taxes and how to do it. even the videos that are out there, I feel like most of them aren't real or up-to-date, and I figured that I could probably get some better information if I interviewed somebody that's specialized in dropshipping only and that obviously had an extensive accounting background. so that's exactly what I'm going to do. that being said, I'm not gonna waste any more time. let's get ready for Miami and let's go out there and interview. wait, we got to get ready. hold on, all right, beautiful Miami. we have to prove what we're doing. so in the last video, I went to the stores after we did market research and validated all the products that were sold out there in quarantine. so for this video, I found it only fair that we flat to Miami and interview probably the best accountant when it comes to drop shipping or e-commerce, at least the most well-known. she works with a lot of people I know he knows how to save money on taxes. he knows everything. he's the man I asked you guys for all your questions that you had on taxes on the channel and now we are going to answer all those questions. today we're gonna go in-depth and pretty much this is going to be an all in all tax video. I think we're about to go get a boat right now. we're gonna go and meet him inside right now and we will see you guys there. [Music]: sugar coming more. say in the 911. pull up in a boy shake. I ain't never losing. see from what these [ __ ] say. as you can see, we're not in my bedroom. we are actually on a boat in the Miami canal, Boca ratone, about 45 minutes north of Miami. this is Chris Revere. Chris, I'm just gonna let you introduce yourself. so I'm Chris Rivera. I am an accountant that specializes in e-commerce. we do tax accounting. you know CFO services for EECOM businesses specifically. vast majority of my clients are actually dropshippers, so I have a ton of experience in the space. before I specialize in e-commerce and had my own business, I was actually working at Ernst & Young, which is a big, poor accounting firm, one of the top four accounting firms in the world. so I was there for about six and a half years left there and I started my own business immediately and eventually, during my journey I stumble across EECOM and decided that I wanted to become more niche and and focus on a specific type of client. at first that was a generalist, so I did cryptokurrency companies, real estate- you know, you name it. but again I stumbled across EECOM. actually, my first econ client was Jared gets was very well known or you know all the things he does in the space and really when I saw all the success that he had- and you know I notiked that there were other people in the space that were equally as successful and doing big things as well. so I decided, you know, maybe this is my opportunity to kind of build a niche for myself and and focus on those types of companies. I know you're toking to Scott Hills II and you were able to save him quite a bit of money and you've actually been on this channel. you guys toked about that too. Scott story is a really, really good one, the same type of issue that I'm sure a lot of your followers are also running into where a lot of accountants don't understand the e-commerce space. that really is a huge problem. yeah, exactly so. in Scott's case, he had a bookkeeper that was really, really smart and knew what they were doing, but they were seeing Facebook charges on his bookkeeping reports and they thought it was, you know, personal spending. they thought he was buying stuff on Facebook, whereas everybody knows in the space you know, you use Facebook Ads to scale your business. yeah, so obviously you know if your bookkeeping is wrong and your profits are wrong- and we'll get into this a little bit more later, I'm sure- but your cat, your taxes, what you pay to the government, will be drastikally incorrect if you get your profits wrong. what happens is when you generate more than twenty thousand dollars in sales, those companies are legally obligated to tell the IRS how much money you're making. so basically, what I recommend is, once you cross $20,000 in sales through any single payment processor- whether it's Shopify or Shopify payments, I should say- or PayPal or stripes, etc. then you'll need to report that income on a tax return. so that's really when I recommend that you set up an LLC. to be clear, LLC's aren't super expensive to set up. there's a lot of cheap lawyers out there. they can do them very cheaply. you know there's companies like Legal Zoom that for a couple hundred bucks you can get a legal entity set up. but this is my whole spiel on legal entities, because a lot of times when you're just starting out as an entrepreneur, you know paying $300 for a legal entity might seem very expensive. but the reality is that if you have that itch or that knack to be an entrepreneur now, chances are that's never going to go away. so just having a business entity in place that gives you legal protection in business is a good idea to have, whether it's you use it now or it stays dormant and you start up a business again two years down the road. so I just think if you're interested in entrepreneurship, it's a good idea to have an LLC to always have in your back pocket. it varies on the country that you live in, but we'll tok about the us, for example, although many of the countries have very, very similar tax regimes to the US. but basically what happens is going back to what I was saying before. once you cross $20,000 in sales and, let's say, PayPal, PayPal is going to tell the IRS like: hey, you know sev has $100,000 in sales. you know, expect the tax return. so now the IRS is expecting a tax return. okay, if you don't report a tax return with those sales, the IRS is basically going to make a business decision. like you know, is it worth it to chase this guy down for back taxes if you don't file a tax return? so basically, if you file no tax returned, the IRS is gonna have evidence that you made sales and they have no record of those cells in your system, in their system. so basically what happens is if you pay nothing, don't file a tax return, you know you may get a letter in the mail saying: hey, you owe us X amount of dollars and they completely estimate the number. so don't freak out if you ever get a letter from the IRS that's like: hey, you owe $20,000. iris really has no clarity into your numbers unless you file a tax return. when they send you the letter, they'll send you what they estimate your taxes are and then they'll hit you with penalties and interest, report your actual income to correct it. as any good accountant will tell you, it depends a couple things. number one: something you should look out for is when you sell a store. there's two ways that you can tell your store: you can tell the business entity or you can sell the store itself. generally speaking, what I see in the space is people are selling their stores and perhaps even their ad account, or, if they have a very good, seasoned, vetted PayPal account, that might also be part of the deal as well. it's very likely that you do have to pay taxes when you sell your business. the good news is- and again this is for Americans that I'm toking about- the foreign people all have their own rules, but in the US there's been official tax rates for you if you sell your business and you own it for longer than a year, so that's one good thing. if you're selling your business, absolutely consult with an accountant. it's it's almost like a trend that I see in a space that everyone's saying I gotta have an LLC for every single sorta that I have, and I personally I disagree with that because it can become disorganized, you know, maintaining a bunch of different busine.

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.

How to Pay Zero Taxes with an E-Commerce Business

let's cover a topic that not that many people cover here on youtube, and that is e-commerce taxes. as you can see from my shirt- automated e-commerce. i ran a company in e-commerce. we taught over 900 people how to build six-figure and seven-figure shopify and amazon stores, as well as myself having shopify stores that i ran to over 100 000 to multiple six figures, and from that i got into the tax saving business because i wanted to lower taxes for my e-commerce and for my e-commerce consulting business, which was automated e-commerce. so i know a thing or two about lowering e-commerce taxes. there are different scenarios that you need to consider. if you are just a drop shipper, you're selling products, not even touching them. somebody else is sending those products over from china to your customers. that's going to be way easier to lower taxes than if you have a warehouse. then, specifically, if you're selling to countries like the uk or european countries- if you're selling to european countries, things get a little bit trickier depending on where you're selling them, where your warehouses are based. so let's go through different scenarios that you need to do and what i recommend as an e-commerce business owner, as a previous business owner, what i recommend my clients from all over the world and what i recommend you to do for your ecommerce taxes. first up, what i recommend is that you move your company somewhere that has zero tax. don't move it to a place that has some taxes, like five percent, seven percent. when you're dealing with e-commerce, you really want to be as simplified as possible. there are a lot of moving parts. you have a warehouse, you have a partner, you have a supplier, you have people that pack, you have people that ship a lot of moving parts. you're not just selling a service. you're not just selling something online and just forgetting about it. you're actually delivering a product to a person that needs to get to them. they're gonna be refunds as well, so make it as simple as possible on the tax side. so, for example, you can set up a free zone company or a uae company in dubai and you have that and that's a zero tax company. you can get an e-commerce license very easy. takes about 15 days to set up. very simple when it comes to actually getting payments from your customers. let's say you're doing it through shopify or doing it through amazon. what you don't want to do is use stripe and paypal or other payment processors from the ue. typically, yes, you can get an account there. a lot of my clients have stripe connected to the uae but unfortunately some transactions don't go through, specifically from the us and canada. they just don't go through because of ua stripe or uae. paypal amounts get frozen a lot more often than they would from the us and it's just a hassle to deal with it. the transactions fees tend to be a lot higher and also you'll have a harder time actually getting the account. so what you want to do, you want to have that free zone company, that uae company, but you want to have a pass-through as well. so let's say, we start a us llc in the us. you can start in wyoming and arizona, whatever state you choose. just don't choose new york, california or hawaii. they tend to be very aggressive with taxes. choose pretty much anywhere else. you can choose florida or you can choose whichever one you prefer. ideally, you're not a us citizen or a us resident. if you are, then things get a little bit more complicated. we'll tok about that in a second. i've toked a lot about us taxes, the guilty tax, how to reduce taxes. but in this partikular scenario, in e-commerce, as a us citizen, you can pay zero tax. that's the beauty of it. so if you're making money through e-commerce, you can definitely pay zero percent tax while being an american, which is beautiful. now you have the uslc, you get stripe, you get paypal, you get easy paydirect. you get many different payment processors out there that there are for e-commerce, as well as a us bank account, which you can get fully online. i got a mercury bank account. it took me about 10 days and that was all fully online. with a uslc based in arizona. you have the uslc, you have a mercury bank account. you're receiving payments through stripe, through paypal, through shopify payments, whatever it is. you're receiving money into that us bank account. what you want to do, then, is transfer that out over to the uae bank account so it pays zero percent tax. if you're a non-us citizen, non-us resident, all the money that the us llc makes will also be zero tax, but it's just better to send it over to the uae, so it's truly zero tax. in case the us changes the law or in case they need to report something, you just don't have the money in the us bank account. you have it in the uae bank account and, essentially, you have it as a pass-through. that is how the money flows. that is how the money comes from the customer. it comes to a us llc, then they get, it gets passed to a uae company and it flows very easily. what you can also do if you're dealing with european payments or uk payments. you can also have a uk lp and with that uk lp you can get a bank account through that uklp and then send money over to the ue. the problem is that they're more restrictive laws when it comes to uk lps. you will need to pay vat at a certain point. you might need to pay some taxes after, let's say, 75 or 100 000 pounds that you're making. so i tend to recommend more the uslc run in order to lower your taxes that way. that is how the financials work on it. now let's actually go into the ground and, depending on how your business works, if you're just doing drop shipping, very easy to pay zero tax- you just have your supplier in china. the supplier in china sends over the products to your customers. typically, you won't pay any tax on those products in the places where you're selling them. mainly, if you're not based in the us or you don't have a us company in a partikular state, you're not gonna pay state taxes if we're dealing with european sales. for example, i have a client that deals with netherlands. he sells only to the netherlands. he has a warehouse in the netherlands. he's not a netherlands citizen, not a netherlands resident, but everything is done in the netherlands. you might need to pay vat value out of tax to the netherlands, depending on the amount of money that you make. so you do need to look at all these laws carefully. if you want to look at them carefully with me, you can book a call. with the first thing in the description: we can look at the partikular country that you're selling to, what their vat laws are and exactly what you need to look for. but in europe, specifically and in the uk, you might need to deal with some vat if you are selling to one partikular country a large amount of sales. now let's look at where is your warehouse, where are your employees? let's say that you have a warehouse of a hundred employees that belong to your company in the united states. then we start to have issues because that warehouse might be engaged in trade or business in the united states by irs definition. so, for example, you might have a uae company with a uslc. you're a non-us citizen, or you're a us citizen that lives abroad completely and you're lowering your taxes down to zero, but in reality, that warehouse is making you a lot of money. the products are coming from china over to that warehouse. people pack them, ship them, then they send them over to your customers in the us. the customers send the returns to that warehouse. you're really engaged in trader business in the united states, and this also happens with a lot of amazon sellers. so if you're selling on amazon and you're living somewhere else but you're doing everything through amazon, depending on how your relationship is with amazon, most times you won't be engaged in twitter business in the united states, but you do need to plan this out carefully. so what you might want to do is have two companies in the us: one company that receives money from stripe, from paypal, from shopify, from amazon, and then sen.