How to file taxes for dropshipping or eCommerce?
Here's everything you need to know about filing taxes for your Shopify store, dealing with the IRS, and whether a minor could file taxes and how.DOWNLOAD TEMPLATE
Here’s how to file taxes for your eCommerce store.
Does Shopify report to the IRS?
Yes, Shopify is required to send a 1099-K tax form to the IRS on an annual basis. As soon as you get this form you should reach out to your tax accountant and start the process of filing your taxes for the year. If you don’t take care of it, the IRS will
Who gets the 1099-K tax form?
Historically, store owners who have processed more than 200 transactions and have made over $20,000 in Shopify Payments or in their PayPal account, get the 1099-K form. That threshold is set to drop to $600 in 2022.
Shopify is required to send the form before January 31st and every store gets a separate 1099-K form. So if you run multiple stores you will get multiple tax forms.
Where can you find your 1099-K?
If you qualify to receive the 1099-K you will get an email from Shopify with it. The way to access the form is to:
- Log in to your Shopify admin account
- Go to the payments section
- Click on documents in the top left corner
- Download the 1099-K form
How should a minor entrepreneur go about filing taxes for dropshipping or eCommerce?
According to the IRS, a minor entrepreneur is only required to file taxes if they earn more than $12,400 in income in a given year. That means that if they make less than that they are exempt from filing taxes and can continue growing their business until they reach that threshold. Once they hit $12,400 they should get an accountant to do their annual filing.
In terms of launching and running the business, a minor entrepreneur needs a form of payment. They can either use their parent's card or get a prepaid card through a local bank (that would require the parent's signature).
The rest of the process is the same as a regular business. The purchasing of the domain, buying & sourcing the products, and paying for packaging, storage, and shipping. It can all be done regardless of age and minors have an advantage in that they have more years to perfect and grow their business.
Is drop shipping legal as a minor?
The answer is no, a minor is not able to sign most paperwork and be legally responsible for a drop shipping business. But that doesn’t mean that you can’t run your own business as a minor. You would just have to get your parents’ consent and use their identity and payment methods to pay for the various expenses and marketing tools.
How do you set up Shopify as a minor?
The way to set up Shopify if you are under 18 is to make your parents or someone over 18 the account owner and use their SSN for the registration. You then work out the payment situation with them.
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