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taxes in dropshipping

Published on: February 9 2023 by pipiads

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.

The Perfect 0% Tax Structure for Online Businesses

hi, it's the wealthy expat here. obviously in this channel we tok about lowering taxes legally so you can get more freedom, keep more of your own wealth and money, and a lot of times we tok about investments, crypto, how to lower taxes on the capital gains side. but we also have a lot of people that run online businesses. maybe you're a marketing person, you're running a marketing agency, you're doing consulting, you're running a youtube channel, doing any type of business where you're generating business income and you can use that income online. so basically clients pay you that money through stripe or paypal or easy pay direct or any other payment processor like that. you're looking at a place like dubai, uae, to lower your taxes, establish a company, and obviously that is the best way to lower your taxes down to zero percent. but how do you also keep the payment processors, how do you also keep clients happy when they're paying you to your account? because maybe some clients of yours are in the us, in canada, in the uk, anywhere all over the world- they maybe don't want to pay to a ua account. i have a client in germany. his german clients don't want to pay to a uae bank account because they feel like, hey, this guy is maybe doing something shady in dubai and uae. we don't want to pay that, and it's just the stigma, it's just the prejudice that a lot of these countries have. how can you deal with this? how can you make your clients happy, paying you to a company that is in another country and makes them more comfortable? and you can also use stripe and paypal. i'm going to show you how i've done it, how i did it last year with multiple hundreds of thousands of dollars, and how you can do it all legally and pay zero percent tax. let's first start off with the structure. this partikular structure would have two different entities. it would have the uae company and then a company somewhere else to have the payment processors and the payment methods. your uae company, the free zone company. you could start it as a marketing management company, which is the one that i have, and then the other company would send money to your marketing company in the uae and it would pay zero percent tax. so how would it look like? i'm going to show you right now my llc documents in the united states. the united states is actually the best place i recommend for us citizens and non-us citizens- doesn't matter where you are from the world to have an intermediary company, to have an intermediary step between your clients, payment processors and then your uae company, even if you're a us citizen, as long as you don't live in the united states. if you live in the united states, that's a whole different story. but if you don't live in the us and you have a company in dubai in the uae, you could still pay maximum or minimum 10.5 percent tax because you have the guilty tax for everybody else in the world. you would pay zero percent in dubai and then use the us llc as a way to send money through your clients all the way over to your dubai company. i'm going to show you the document right here for my llc in the united states, my marketing company, central marketing services. we made a lot of money through this company. essentially this is the operating agreement and you can see at the bottom. i'm just going to scroll through. it's just a regular operating agreement where we go to the members page. after the signatory page you will see that the owner of this company is a free zone company: central marketing services, fcco. when you incorporate a marketing company or any type of company in the ua, you will have an fcco, especially a free zone corporation. that free zone corporation can then own the us llc by a hundred percent, like it says here: 100 percentage interest in the uslc. then what you would do is you would get an online bank account for this company, like with mercury. i've toked about them many times and they're a bank account that you can open even if you're not in the united states and even if you don't plan on visiting the united states. when i was doing this setup for myself, i did a free zone company in the uae. i then had my uslc, but i couldn't get a bank account for the uslc because chase capital, one bank of america, all these companies- they want you to be in the us applying for the bank account. i did not want to travel there because of the things happening around the world and also because i just didn't want to go to the united states, maybe get stuck there for more than 30 days and have to pay more taxes to the us, since i'm a us citizen. so you can do, you can get a bank account from mercury, unless you're from a war within country or country like iran, which is very stigmatized and has a lot of sanctions. you can get a bank account with them and then what you do is you receive money through stripe, through paypal into this bank account and mercury for your us llc, and then from this mercury bank account, you send money from your us llc to your uae company, just like you can see here. so, for example, you'll see a lot of transfers in 2021: 15 000, 15 000, 10 000, 8 000, 20 000, 8 000, 5 000- and this is money that is profit in my marketing company, my uslc, sending money to my uae company and it's receiving that profit tax-free. or in the case of a us citizen that has no other partners, then it would pay 10.5 because of the guilty tax. but if you're from anywhere else in the world and you have the uae company, as long as you're not living in your origin country, if you're living in france with a uae company but you're doing all this and you're still living in france, then obviously you would still pay taxes in france. but you need to follow my other rules and the other videos that i tok about here for this to work. you could send that money, receive it in your bank account in your uae company and that's pretty much it. it would pay zero percent tax and the uslc. it's also important to know that uslcs owned by non-us citizens or non-us residents pays zero percent tax as well. so even if you keep the money in the uslc, this wouldn't work if you're a us citizen. but if you're a citizen of anywhere else in the world, like canada, uk, you could keep that money in the uslc and it still wouldn't pay tax. i would still recommend you, if you're using uae as your tax residence place- if that's where you're paying zero tax- to do all these transfers, because then the money is arriving in ua. it's not arriving in the us. the us might think that you're a tax resident there, that you want to actually live there. so maybe just better send all the money over to the ua so it pays zero percent tax. and this is a structure that i use and this is the bank that i use: emirates mbd. i've toked about them many times. so i connect stripe, paypal, easy pay direct- many different payment methods. i send money to the uslc for my clients, so the clients actually pay over to the mercury bank account. they pay anywhere with stripe or paypal. that money is received in the mercury bank account, then for mercury it's sent over to emirates mbd. you could use any bank in the ua, maybe abu dhabi commercial bank, maybe islamic banks, whatever you want to use mashreq, but this is the one that i recommend and then you receive the money there and then you use it for your business and for your personal expenses. so this is the structure that i use to pay zero percent tax. many people use it, and people that are very well known in the industry, like iman gaji, for example. he's a very famous youtuber and marketer. we actually are doing a partnership together to help his clients lower their taxes. this is the structure that he uses and his best clients use to lower their taxes down to zero in dubai. do it properly, absolutely legally, and not have troubles with clients being unhappy that they need to send money to dubai. another very important note before we close off this video: be careful. who does this structure for you? there's a lot of people out there that do uae, free zone companies, that do us llcs, that have no idea how to set this whole thing up.

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Everything You Need To Know About Shopify Dropshipping Taxes (2022)

so the next section we're going to jump into: professional advice and taxes. so if you're young, you've never set up a business before or you just completely oblivious to how this all works, this is an important section to run through so you don't lose more money or overspend money and don't file it later when you reach some success. okay, there's so many people that spend a ton of money, they outspend the means and then the tax man comes and gives them a huge bill and they're in big hot water. so I want to show you guys what to do so you don't get in that same position. so when starting out, you can act as an individual- an individual person in terms of taxes, because you're not going to be profitable initially, but after making around one thousand dollars in profit- I know right, it's a low figure, but we want to be careful and do this the right way. it's important to then set up a company- this could be an LTD or an LLC, a limited company or an LLC- and sign up as a company on your country's tax platform. so for me personally, I'm from the United Kingdom, so this would be the hmrc- and then you make tax contributions every annual fiscal year for the tax on the money in terms of your incomings you've actually acquired from your business. this is really important because later they'll eventually do an investigation on you and find you've been either a virgin or by accident not paying taxes, and then you'll receive a bill. so that's important. most of the Shopify payment processors do also usually ask for this business information too. so it's important just to set up a business that you can pay taxes with, so your store also looks professional and so Shopify will actually deal with you. so basically, you'll pay what's called capital gains tax on the income which comes in from your store. right, taxes are paid upon your business's profits- the profits from your income, AKA capital gains- and this tax is actually paid upon the takeaway profit value from your store. so remember to write off and Report any business expenses. it's important to check on individual videos and research of your own to find out how to do a tax return and how to file your taxes as well, because you'll know how the process works in more depth. but basically, you need to report and write off any business expenses, such as the cost for your advertising campaigns with your dropshipping store, the cost of ordering any products and product samples and any transactions related to them or any service fees that you're gonna have to pay for, any subscribe descriptions to things like Shopify and any apps that you pay for as well later, any costs under your business and those that may lower your profit margins- and this is going to be- so you don't actually overpay taxes. these are called tax write-offs okay, so that's pretty important. you can also set up vat and sales tax on your products a little bit later, after making those consistent sales in accordance to your regions requirements and laws, so that's also really important too. so do look into that, guys. even if you are a young person- maybe a young adult or late teenager- it's still important to verse yourself with those things, because they'll be useful later in business and also you'll avoid a big financial crisis later. for example, if you want to be one of those people gets really rich and you get lucky, or you do really well and you go by Ferrari and realize that half of that's owed in taxes, you're going to be in a lot of trouble, so don't skip over this section. foreign. [Applause] [Music].

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Paying TAXES as A Dropshipper

[Music]. how do I pay taxes for dropshipping? now, before getting all this stuff, guys, I'm not a CPA. you want actual professional advice. go find an accountant you know near you- family accountant, whatever you know. you can listen to what I'm saying, but don't take it as professional advice because I'm not an accountant. in one day I'm having to pay tax- on Monday, April the 15th, you know one thing is sort of dread, but there's two things that are guaranteed in life when were born, which is taxes worn and death. number two. so you know you just have to go through it. but I wish I learned about taxes and you know business formations and things of that nature way earlier on. and for just answer quick, a lot of people ask me: should I start an LLC corporation desk or you know what should I do? don't worry about that stuff until you have some momentum. I would tell you this: for any business you know, to start a dropshipping store, you can just start, you know, as a sole proprietor with your social security number and just do that instead of having to worry about an LLC and all this stuff, because you know why, go through all the trouble and money to start all these formations and then you know you don't like drop shipping or you don't, you're not really into business. you just wasted that time and money when you don't necessarily need it for here in the United States you have to pay tax based off of your profit. so let's say, if I have a drop shipping store that did a hundred thousand dollars in revenue and I had 30,000 in costs, including add spin product fees, whatever- and then I'm left with $70,000 profit. so then I'm gonna have to pay federal income tax and maybe state income tax, depending on where you live, maybe even county, depending again where you live- on that seventy thousand dollars. so I don't pay on the whole hundred thousand dollars I pay. I'm not seventy thousand dollars. and now when you're doing this stuff, you can expense other things. you know meetings, travel, you know as long as it's for business, and you keep all the receipts and things like that. now that's what I want to tok to you guys about. it's just my accountants office a couple of days ago for a couple of hours going over all my taxes for this year, things like that, and I did not have everything that I needed. you know you do not want to get audited. you know when you get audited. basically the the government looks at your taxes. I say, uh, we want to know more about this. and then people- by the way, you can't just get audited, it's not just like they do it only on your current taxes. they can go five years back and say, oh, we want to see more about you know $50,000 on travel five years ago, on how all those are business expenses and how you expense a private jet and all this stuff. so you do not want to get audited by the government because they're gonna come to you in person, by the way, maybe expected, maybe unexpected, and they're gonna be asking you a lot of questions. and so we want to minimize our risk of getting audited as much as possible. and the way to do that is to keep track of everything, because the government wants to see proof of you know doing different things and paying for these different expenses. because if you're not paying, like sometimes- let's say, for example, you know you have a hundred thousand dollars in revenue on a job shipping store and you spend a hundred thousand dollars in expenses, then you're not gonna have to pay any tax on that hundred thousand dollars because you know it's not profitable. now, of course, this depends on where you live. like I said, I'm not a CPA but you're paying money on your profit. now, as far as sales tax goes, I've never actually paid sales tax or charge sales tax from my dropshipping stores and the reason for that is because I don't actually have inventory. I have four stores that I do in-house, but for things that I'm shipping directly from China, you know I'm not paying that, that sales tax or charging sales tax, because tiknically I'm not the actual person or manufacturers sending it out. you know the suppliers sort of help you out with that. you know you're paying them and then they're paying their taxes in China. but you know, when they're shipping the same to another country, from China to the United States, then they're gonna have to pay taxes on. you know, going into the country and custom fees and stuff like that. but a lot of times you'll see, if you've ever ordered a product from Aliexpress, you know maybe it cost you 50 bucks but on the packages they declared it's like five bucks and the reasoning behind that is because they want to minimize the risk of, you know, getting expect inspected in, getting charged more tax or paying more custom fees because to more expensive value. so I don't want to dry out this video any longer. if you guys have any specific questions, just drop them in the comments below and I'll make sure to get back to 300 this video. make sure to leave a like, comment and subscribe, peace.

MAJOR UPDATE: How to Pay Tax When Dropshipping (How to Pay Sales Tax with Shopify)

Question one: what taxes do I need to pay when dropshipping? When dropshipping, there are two main types of taxes that you need to pay. The first is income tax and the second is potentially sales tax. Income tax is the easiest, so let's start with that first. How do dropshippers pay income tax? Income tax- for those of you that don't know- it's a tax that you pay on the profit that your store makes for the year. That profit is your income. The same goes if you have a job. If you had a job, then you will be paying income tax on your wages, and with dropshipping, we pay income tax on the profit of our store. So if you don't make a profit, then you don't pay any income tax. In fact, you can often claim your losses as a tax credit. One of the most common tax questions that we get asked here on this channel is this: if I live outside the United States- maybe I live in Australia, but my customers are based in the USA- Who do I pay my taxes to? Do I pay my income taxes to the USA government or do I pay them to the Australian government? The answer is that you pay to your government. so if you live in Australia, it doesn't matter if your customers are in the USA. you pay your income tax to the Australian government. You may also live in a country like the USA where you not only have to pay income tax to the federal government, but you also have to pay it to your local state as well. If you live in a country like that, then, yes, you are obligated to pay income tax to both the government and to the state. Of course, you can live in a country like New Zealand where we don't have states and you don't need to worry about that. Ad, please, please, please, do not ask me what your local income tax laws are. I get asked questions like: "Sarah, what are my tax obligations if I live in Iceland". Honestly though, I don't know, because I live in New Zealand, I don't live in Iceland. I don't know every country's income tax laws. so, please, please, please, do your own research here. So that's your income tax obligations. Let's move on to the trickier issue, which is sales tax. Question two: what is sales tax and do I need to pay it? For those of you that don't know, our sales tax is when a governing body places a tax on goods or services sold within their jurisdiction. In New Zealand, it's our federal government that does this, and our sales tax is called GSTE. The New Zealand government requires us to collect and pay it to them. In the United States, though, it's different. It's not the federal government- ie the one that Donald Trump is the president of- that manages sales tax. Instead, in the USA, it is individual states that do this. Each state can sit their own tax rate and they can also, within reason, set their own tax laws, And there are some states in the USA that thus sales tax havens. No one is required to collect and pay sales tax within them. Yay, But of course, if you may have suspected, the majority of states in the USA are sadly not sales tax havens. Now here's where things have changed from my previous video. In the USA, there used to be a law that required you to have to have something called nexus with an estate before you were required to collect and pay sales tax to it. Nexus, for those of you that don't know, is a legal term. it means that you have a sufficiently large physical presence within a state to be required to collect and pay sales tax to it. To better explain nexus, let's use an example. Let's say that you are a citizen of the United States and you live in Arizona. Well, you have a house in Arizona, You live in Arizona. that's a pretty big physical presence, right? Well, that means that you have nexus within it. and so because you've got nexus in it, it means that you are required to collect and pay sales tax. In the past, you only had to pay tax to states that you had nexus in. So, let's say, a customer comes to your store who also lives in Arizona, and they buy a mug for $15.. Well, you are required to charge and collect sales tax on that order because you have nexus in Arizona. Your sales tax rate is 5.6%. So in this case, here, the text to collect is 84 cents. You are required to pay this 84 cents to the state of Arizona when tax time comes around. But in the past, let's say that you got a second order and this time your customer had come from Texas. Well, you didn't live in Texas, You owned no property in Texas. In fact, you had nothing to do with the state of Texas. Because of this, you had no physical presence in Texas and thus you didn't have nexus in it. The sales tax rate for Texas is 8.25%, but because you didn't have nexus in it, you didn't need to collect and pay any sales tax on that order. This meant then that if you didn't live in the USA- maybe you lived in the UK- that you usually had no nexus in any state, so you usually weren't required to collect or pay any sales tax at all for USA customers, which was a really nice bonus. This law was set in 1992 after a different Supreme Court case, Quill Corp versus North Dakota. It was ruled that nexus was required to collect and pay sales tax, but that law was recently abolished by the new Supreme Court ruling on June 21st. Here's what happened In 2016,. South Dakota passed a Kill Quill bill In. it required out of state vendors, regardless of nexus, to collect and pay sales tax if they were making over $100,000 a year in sales or doing more than 200 transactions in the state of South Dakota. Well, the online furniture retailer Wayfair was not happy with this new law and they took South Dakota to court over it and, of course, they lost. In a five to four decision, the Supreme Court ruled that the previous 1992 ruling was out of date with the current age of the Internet and said that South Dakota was allowed to pass their bill. Question three. does this now mean that I have to collect and pay sales tax within all the states in the USA? No, no, no, It doesn't. The South Dakota versus Wayfair ruling sets two very important precedents. Firstly, yes, it does set the precedent that states are now allowed to pass your own bill that will require out of state vendors to have to collect and pay sales tax. However, it is important to note that until states have passed legislature, the old rule still applies, and most states have yet to actually do this. So, yes, that is one precedent, But it sets another. The South Dakota versus Wayfair ruling was affirmed by the Supreme Court, but that bill was aimed only at large online retailers. Again, to be eligible under this new law, you've either have to be doing over 100,000 dollars a year in sales and South Dakota or be doing over 200 transactions. When other states passed their own laws, they will need to be aimed at large online retailers as well to meet this precedent. If they want to expand that to include everyone, a new court case will be required. So here's the thing: If you are new to dropshipping, then you are not required to collect and pay sales tax within any state that you don't have nexus in, so don't worry about it. Once you get to the stage of this law impacting you, you will be making more than enough money to hire an accountant to manage all of this for you, and the chances are even after all the states have passed their own version of this bill. you're probably only going to be collecting and paying sales tax to a small percentage of the states anyway, Most likely the larger ones like New York. So let's calm down and figure out how most of you should be collecting sales tax by asking yourself one important question Question: do I have nexus in any state in the USA? For most people, the only way that they're gonna have nexus in a state, as if they live in it or if they own property in it. There are some more obscure ways that you can have it, so if you suspect that you might be under these clauses, you should be sure to to seek an accountant, And if you live outside the United States and you don't have nexus in any state, then simply don't worry. ab.

How I Do My Taxes As An Online Business Owner & Content Creator (E-commerce, Dropshipping, etc.)

hey, buddy and business family. my name is isabella. i am the owner of two six figure earning online businesses and today i'm gonna be toking about the subject that you guys have been dying to know about, which is how i do my taxes as an online business slash online. if you guys are new to my channel, you guys know i give you guys so many ideas and i even show you guys step by step how to start making money online. but i realized that a lot of you guys had so many questions about the tax side of making money online. i think a huge reason of why people don't want to start their online business, or a huge barrier that holds people back from starting their business, is the subject of taxes and people being afraid that once they get the money, they're not gonna know what they have to do next. so hopefully, this video will clear a lot of these concerns up for you so you can follow your dreams and start that business that you've always wanted to start. before we get into this video, make sure you guys smash that like button for the youtube algorithm and hit that subscribe button so i can continue to make videos just like this for you guys. now, this video is not meant to be instructional. as i am not a cpa, i am not legally allowed to give you any tax advice, and this video is not advice at all, although i wanted to share what i personally do and that can hopefully guide you guys so you will not be afraid to start that online business that you've always wanted to start, or start making money online. if you are unfamiliar with what i do online, not only do we make money from our videos and content creation, but we also make money from our ecommerce stores. so just to give you guys a background and basis of where i'm coming from, i do live in the united states. i live in florida. something about florida is that we don't pay state tax. we only pay federal tax. state tax can be different depending on your state. every state is different and these are the states that do not make you pay state tax, so i do save on taxes yearly because i only am responsible for paying the federal tax. now, first of all, let me just say this: you can make money online without having, like, any sort of license or registration or whatever you'd like to call it. let's just say you just got invited into the reals bonus program on facebook, and before you start accepting payments from facebook, you have to fill out this type of form. so don't let this kind of thing intimidate you. whenever you make money online, 90 of the time they're going to have you fill out a form. so this is what that looks like. some social media sites will allow you to fill this out electronically. some will have you actually upload this and you can get a blank one from the irs website directly. it's obviously an example, but this is what i always select when i'm filling these out. typically, what you're going to put for this is sole proprietorship. this is if you were to get paid for your videos via facebook or instagram, for example. so as a sole proprietorship, and when you are a sole proprietorship like, you don't have to get anything. of my knowledge, you don't have to get anything to become a sole proprietorship. you are a sole proprietorship because the definition of sole proprietorship is a single person running that business. i personally did not get my llc until i was already making consistent money and knew i wanted to keep the business long term. i didn't want to legalize anything just because i wasn't even sure if i was even gonna make money in the beginning, and once you get an llc, it is a commitment, because you do have to pay yearly for the llc and there's other responsibilities that come along with that. so that's another thing that for me personally, if i were to start from scratch, i would still do that. i would wait till i start making consistent money and then get my llc now. obviously, a sole proprietor means that you would be liable. this is why an llc is important. that is why i now have an llc, because the loc makes your business limited to just your business, so in the case that you would get sued, they can't come after you or your personal assets. this is just how i think of it. again, you guys, nothing in this video is legal advice, so take everything that i say with a grain of salt. i'm just sharing my personal view and what i have done. so even if you do identify as a sole proprietor and say you want to start your business as a sole proprietor, which is tiknically allowed, like through big cartel- like, for example, when you're signing up for your payment options through big cartel, which is paypal and stripe, big cartel is the free website host that i recommend on my channel all the time if you want to go and check that video out. but those payment options allow you to use sole proprietorship in order to start collecting payments. what that means is, at the end of the year, you are going to receive 1099 forms, and this is for any money that you make online. 10.99 forms is pretty much what i have always received from my payment processors that i use. for example, facebook pays us for reals. they send us a 1099 form at the end of the year, so the 1099 form shows the money that we have made in total. but this is the beautiful thing about being a business owner or functioning as a sole proprietorship is that you can do write-offs. so, even though they are sending you a 1099 form showing you how much you made in total, you're gonna take that 1099 form. you can upload it. i've used turbotax in the in the past and like other websites like that. they've helped me um like basically just walk you through doing taxes if you're making like a smaller amount and you're not using an accountant yet. i've used those systems and they worked pretty well for me. those systems will walk you through your write-offs and, like if you work for an accountant, for example, that accountant is gonna also give you a worksheet stating all of the things that you can write off. now, this is another reason why it's really important to keep everything on a credit card or debit card somewhere recorded- like never buy stuff in cash or through paypal account- because you want to make sure you're recording everything that you're spending money on, just so you're able to track that in order to do these write-offs. there are so many pages of the irs tax code, and that is why it's so important to hire a cpa accountant that knows online business to do your taxes. i personally did not hire an accountant until i was already making over a hundred thousand dollars online to ensure that i was doing my taxes correctly. i personally did not know anybody in my circle that had an online business, and i basically just googled accountants in my area. so that's highly what i would recommend for you too. um, because every state is different. every country is different. so just google accountants near me and i guarantee you one will come up that it is an accountant that is experienced in business, because there's actually a lot of accountants that they are not actually cpas, so they don't really have experience with businesses. so that's just one thing to keep in mind. i'm going to share something with you guys that this is probably the reason why i'm committed to being an online business owner for the rest of my life and being my own boss for this reason alone. say: you become a doctor and you're working for a hospital. say you make 300 000 a year. so we have a doctor that made three hundred thousand a year. and then we have a business owner that made three hundred thousand a year. so that doctor, because they're employed and working for a hospital, they have to pay a hundred thousand dollars in taxes because their tax bracket was in the tax bracket to where they have to pay a certain percentage for the money that they made. they cannot dispute that. they cannot do write-offs because they're an employee, even though they're a doctor. if they don't have their own practike, if they're under somebody else, they cannot do write-offs. on the other hand, a business owner can do multi.