A Comprehensive Guide for your Dropshipping taxes.

A Comprehensive Guide for your Dropshipping taxes

You have to tell me in advance how much you hate taxes. Fortunately, meeting your tax obligations as a carrier is surprisingly easy. Why this is so in this post covers your tax liability when using Chinese based drop shipper AliExpress. We will also see what the new print on demand merchandise means to you and an easy way to collect taxes from the shopper.

Before we move on, it is worth mentioning that we are not a CPA, an accountant or a lawyer. None of this is official legal advice, and as always, we recommend that you seek an accountant's advice and do not rely on the advice we provide. Now, a quick break on the two types of taxes you need to know: income tax and sales tax.

What tax do I have to pay?

During dropshipping, you have to pay two types of taxes:  Income tax  Sales tax

As a business owner, you have to pay both taxes. Let's start with the first simple description: income tax. Most of the advice when selling custom merchandise online to customers will be aimed at your tax liability. In general, the bulk of drop shipping sales come from the U.S., so it makes sense to cover such a broad topic from a neutral vision.

What is income tax?

Income tax is when you pay tax on profits made by your store in one year. That profit is the "income" of your business. It feels like when you have a job: you pay income tax on your salary. Your store's profit is the "wage" on which you will pay income tax. If you make no profit, of course, you pay no income tax. You can often claim your loss as a tax credit. But, the most important question is, where do I pay income tax?

The answer is the country in which you live. For example, you pay income tax to your local government. Therefore, if you live in Germany, you will always pay your income tax to the government. Your customers in the U.S. It doesn't matter if you are in the U.S. or not. If the government does not pay income tax, you will deliver it to the government.

There are rare cases like this, where you have to pay income tax to both the federal government and your local state. However, if you live outside the U.S., probably.

Irrelevant to you, as most countries do not have conditions. Fortunately, income tax is not a burden, and it is much easier for custom printed merchandise if you know how it works. But now, the difficult issue: sales tax.

What is the sales tax?

Sales tax is when the Board of Governors imposes a tax on goods or services sold under its jurisdiction. Translation: You pay taxes on goods or services sold in the state.

Each state manages its own sales tax, e.g. Tax rates and (to some extent) their own tax rules. Therefore, instead of imposing tariffs on the federal government, the state takes this responsibility into its own hands.

We call these states "tax havens" because you don't have to collect or pay sales tax on any of them. While it would be a dream that every state would have a tax haven, most states would not. And you will need to pay the highest sales tax.

In the past, the law required that you be required to attach to a state before paying sales tax in that state. Nexus is the legal term when you have a physical presence that is large enough in the condition that you need to collect and pay sales tax.

To better explain Nexus, let's use an example. If you lived in Germany, you would have a very large physical presence to be linguistic. This means that if a customer (who lives in Arizona) comes to your dropshipping store and asks for a mug from you, you have to collect sales tax on that order.

Germany's sales tax rate is 16%, so how much sales tax do you have to pay to collect and pay to the government. Now imagine this time, your customer was from Texas. Just because you don't live there (or have a physical presence in Texas) means you don't have a Nexus in Germany. This meant you didn't have to collect sales tax on that order and pay the government. If you don't already know, it also means that if you live outside the U.S., you won't have to pay any sales tax! You don't live in any state, so you have no connection in the first place. The answer is no. To deposit and pay this, the following will be required: 1. The state must pass a law that would go beyond the basic Nexus law (most states have not yet given a bill).

2. You will need to be a big seller (the current baseline is 100,000+ sales in a state or 200+ transactions in a year).

For most established stores, this means they'll have to start levying potential sales tax in only a small percentage of states - possibly larger ones like New York City.

But, if you're a new drop shipper, you don't have to worry about this until you start making a lot of money and selling a lot.

For now, you only need to collect and pay sales tax on orders made in your states (which, for most people, will only apply to the state where they live). Fortunately, Shopify makes such a difficult task much easier.

Shopify to collect sales tax for you If you have a store shop, you can collect sales on every transaction you make. Shopify automatically collects the appropriate amount of sales tax on orders.

This is easy for some states because the amount of sales tax you pay depends on the city in which your customer lives. Although both locations were in New York State, the sales tax was different for each order:

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Like a job, you have to pay income tax on the profits of your business. It is delivered to your government (wherever you live) and is usually paid annually.

Online sellers are required to collect and pay sales tax in any state where they have an affiliation. If you are outside of any Nexus State vendor in a given form, you do not need to pay or collect any sales tax (unless you fall under the above two requirements).

Hopefully, this post will help you break your tax responsibilities in a simple, easy way.

Source: https://www.reddit.com/user/on-demandprint/comments/mgd2ww/a_comprehensive_guide_for_your_dropshipping_taxes/