Is Your Shopify Business Ready for Tax Season?

The tax season is here, and business owner,s small and big, will have to file their taxes during this period. Many business owners also use Shopify to create online stores, streamline operations, and manage sales.

Owning a business is great, and running one on Shopify is a challenge that owners face every hour of the day. That is, until tax season hits and all of a sudden, your relaxed entrepreneur’s spirit is tested. The good news? Preparing for taxes goes a long way. 

If you’re a Shopify Business owner, here is what you need to know about taxes and preparing them (without the accountant-voice, of course).

The first thing you need to know is that sales tax is not automatic everywhere. That is right. Shopify can collect sales tax and calculate it for you. However, you are responsible for knowing where you’re required to collect it. In the United States. This comes down to “Nexus,” which means having an economic or physical presence in a state where your business is. If you hit certain sales thresholds in a state, you may owe sales tax there. The Shopify platform will not know this unless you tell it where to collect.

Shopify has reports, and they are very useful. They are built-in finance and tax reports that show sales, collected taxes, refunds, and much more, which are available without a charge. These reports will save you hours when you are preparing your taxes or working with an accountant. For these reports, it is best to get into the habit of pulling monthly reports in real time instead of waiting until tax season to doom-scroll these to find transactions while panicking days before the deadline.

The 1099-K forms get sent out by January 31st. That means, depending on your payment processor, you may receive this form reporting your gross sales (Not net). Keep in mind that gross sales are not the same as profit. Return fees and expenses are not deducted on the 1099-K form, so do not go into a frenzy if the number looks bigger than expected. Your books tell the facts of that story!

Within these reports, it is crucial to think about income taxes. Sales taxes are just one piece of the large puzzle, as you will still owe income tax on your profits for the year. That means tracking expenses like advertising, website themes, and transaction fees. Apps, and shipping costs (Especially during the current state of the tariffs situation).

While on a related topic, taxes get tricky when selling internationally. If you sell to customers outside of your home country, you will need to think about GST, VAT, digital product taxes, and customs duties. With that in mind, Shopify can help with GST and VAT collection on a case-by-case basis. However, cross-border tax rules vary depending on the jurisdictions in which these businesses operate.

The next tip is to automate what you can, as there are Shopify apps specifically built for tax tracking and filing. Syncing transactions to accounting software, automating sales tax calculations. And setting aside a chunk of money for taxes can prevent surprises later that you do not want to come to light. 

At the end of the day, preparing taxes does not have to be brutal or time-consuming to the point where you must take out one whole day to do them. Always stay organized, review your numbers, and don’t be afraid to bring in a tax professional when things get way too complex to understand. Connect with our firm today to schedule a consultation with one of our experts, as AVASK can handle this for you.