How Shopify Sellers Can Stay Tax Ready Year Round

With platforms like Shopify, setting up an online business has never been so easy.

Entrepreneurs can launch an online store, ship products worldwide and collect payment with ease-all in a few clicks.

But although opening an online store is easy enough, the business structure and its financial and legal aspects are just as crucial, especially come tax season. Business formation and state business structure can not only aid Shopify sellers in complying with tax laws but can also potentially result in lower taxes.

For many entrepreneurs beginning an online store, the sole proprietor structure is the easiest way to get an online business up and running. It involves the least amount of paperwork, but often, as the business matures and expands, owners formally register their business in one of the many states. Known as business formation, or incorporation, common business structures are a Limited Liability Company, or LLC, or a corporation.

Forming an LLC is particularly favorable for ecommerce merchants because of the separation it offers between a business owner’s personal and the company’s liability, thereby protecting the owner’s personal assets from potential lawsuits and creditors.

An important part of business formation is deciding which state to incorporate. Many small business owners will form a company in the state in which they already reside and operate. Since they are already paying state taxes and are already aware of its regulations and compliance issues, doing so simplifies the entire compliance process for the business owner.

However, certain businesses might incorporate in states like Delaware and Wyoming, states which are well known for their business-friendly laws. But for many of the small Shopify owners, registering a business in their own home state would eliminate the extra requirements and registration fees needed to be incorporated elsewhere.

Tax season makes the importance of the business structure more apparent. For example, the LLC tax status grants an owner the benefit of pass-through taxation, meaning profits and losses from the business pass directly through to the owner’s individual tax return- instead of being taxed at both corporate and individual levels, such as is the case with a corporation. This business structure has benefits for a lot of online merchants looking to simplify the filing of their taxes.

An online merchant will need to be knowledgeable in keeping track of revenue, expenses, and applicable sales taxes. Though a website is the easiest tool to help entrepreneurs organize all their sales transactions, it is important not to forget to organize revenue, expenses, and sales tax obligations correctly. Expenses can include marketing, shipping, online software, etc., and these business expenses can often be deducted to lower the overall taxable income.

With tax season fast approaching, it is important for every Shopify store owner to take the time to review his/her business structure and financial accounts. The help of an accountant or tax professional can guide an online entrepreneur toward correctly complying with federal and state requirements.

Proper planning will allow merchants to spend less time worrying about taxes and more time growing their business. Please don’t hesitate to contact our firm for more information.

Mistake #1: Forgetting about Amazon fees

You see your sales dashboard and think you’re thriving, but fulfillment fees, referral fees, storage fees, and ad spend are quietly stacking up.

If you’re only tracking revenue, you’re missing the full picture. Here’s the Fix

Check your settlement reports consistently and track every fee category. The number that actually matters is your profit after expenses, not just your sales total.

Here’s How to avoid it. Regularly review settlement reports and break down every fee category. Make sure your bookkeeping system captures net profit after all platform- related costs.

Mistake #2: Mixing business and personal money

If your payouts from Amazon are going into the same account you use for groceries, subscriptions, and weekend spending, things can get messy really quickly. [It makes taxes, expense tracking, and financial reporting way harder than it needs to be.] Here’s what to do

Set up a separate business bank account and card. It keeps everything organized and makes it much easier to see how your business is actually performing.

Mistake #3: Ignoring inventory tracking

Inventory is not just products sitting in a warehouse to collect dust. That is money tied up in your business. If you are not tracking product costs and stock properly, your profit numbers can be completely off.

Use inventory tracking or accounting tools that connect with your store so you always know your real costs and margins.

If all of this feels overwhelming or you just do not have time to manage it properly, that is where AVASK helps e- commerce sellers stay organized, compliant, and confident in their finances.

If you want help setting up your bookkeeping the right way or making sure your Amazon business is financially healthy, reach out to AVASK for guidance.