New merchants often have a lot of questions surrounding getting started in e-commerce. Besides deciding what to sell and how to stock inventory – taxes are a concern. There’s a lot of confusion surrounding how Shopify handles taxes – and we’re here to clear things up.
One of the biggest questions we hear is, “Does Shopify report to the IRS?”
The short answer is yes. Shopify annually reports to the IRS about all their account owners and transactions. If they suspect you are hiding your profit – they will compare the IRS report to your Shopify income. Always be honest when reporting your income and paying taxes to avoid this complication.
Read on to learn all about how Shopify handles taxes – and how to avoid getting in trouble with the IRS.
Shopify and the IRS
If you’re a merchant on Shopify and you sell more than $20,000 worth of goods in a calendar year – you’ll receive a 1099-K.
As of this year in 2022 – the threshold is set to drop to $600. That means even smaller merchant stores will need to file taxes in the future.
Contact Shopify if your business earns more than that but hasn’t received a 1099-K. You must accept this form to pay taxes and receive a return. Shopify issues these forms each new year before January 31st. They go to every account owner who meets their requirements. A copy also goes to the IRS.
If you have multiple Shopify stores – you’ll need to fill out a 1099-K for each one. You can’t represent numerous stores with a single tax form – even if they sell similar products.
Where to Locate Your 1099-K Tax Form
Shopify will email you the 1099-K form in January before the 31st. For your convenience, you can also access it from your admin panel. Since tax forms are sensitive forms of information, only the store owner can view them.
If you aren’t sure where to find your 1099-K form – here’s how to find it.
- Log in to your Shopify account (make sure you are the administrator).
- Go to Payments.
- On the top left corner – click Documents.
- If your store qualifies for a 1099-K – it will show up in the Documents folder. You’ll be able to view and download it.
Once you have your form – you can file for your tax return. That will come in handy, especially if your store does a considerable amount of revenue.
What if Your 1099-K Form Doesn’t Show Up?
If you don’t see a 1099-K form on your account – your store may not qualify for one. Remember, you’ll need to have at least 200 transactions with $20,000 in revenue to qualify. As of 2022, the income must exceed $600. That could be the culprit if you’re scratching your head on why you don’t see a 1099-K form.
Even if you don’t qualify for a 1099-K – that doesn’t mean that your store is exempt from paying taxes. Also, Shopify will still report your income to the IRS. That’s why it’s imperative to understand how to pay taxes through your Shopify store. You’ll still need proper tax documentation if you don’t qualify for a 1099-K. Here’s how to find it:
- Log in to your Shopify account (must be the administrator).
- Go to Reports > Finances.
- You’ll be able to see a report of your gross sales and view your payouts.
No matter what kind of Shopify store you operate – you’ll need to charge and file proper tax rates for your area. If your region doesn’t charge sales tax – then you won’t have to worry about it.
Setting Up Taxes on Shopify
Here’s a simple guide on setting up and charging taxes through your store. First, if you’re running an online store, you still need to set up the countries you’ll ship to the most.
If you’re using Shopify POS or Shopify Lite to sell in person – you need to set up tax rates based on where you are. The default POS rates will reflect your geographic location – but double-check it to make sure it’s right.
Do you sell digital products through Shopify? If so, you’ll need to set up the proper tax rates for them.
Some regions don’t require tax for the sale of digital products. Yet, if you live in the European Union, you’ll need to pay a value-added tax for digital goods. Even if you’re selling from a different location – you’ll still have to pay this tax.
US Taxes on Shopify
Shopify is a convenient tool in that it helps you automate sales taxes. Yet – it won’t file or remit your taxes for you. As such – you’ll need to figure out that information on your own. It’s up to you to determine if you’re responsible for charging taxes or not.
Do internet searches to discover if your state or territory requires sales tax. If so, you’ll need to set that up on your Shopify store. Here’s how to do that:
- Log in to Shopify, and go to Settings > Taxes.
- Under Tax regions, click Set Up beside the United States.
There’ll be a sales tax collection section; click Collect Sales Tax under it.
- Enter your sales tax ID in the field Sales Tax ID. If you don’t have one yet – leave this field blank for now.
- If you need to charge shipping tax, go to Advanced Options. Next, enable Shipping Tax and set the rate.
- Click Start Collecting Sales Tax.
That’s all you need to do to start charging sales tax on your Shopify store. That will ensure that you stay in good standing with Shopify and the IRS.
Closing Thoughts: Does Shopify Report to the IRS?
By now – you should have a better understanding of how taxes work on Shopify. While the platform has some automated features to help out – you still need to file and remit your taxes yourself. Remember, Shopify annually reports to the IRS about its users each year. As long as you properly set up sales tax in your region – you won’t run into any problems.
For more great content to help you develop your Shopify strategies, check out the rest of the merchant posts on the site. If you want to see a list of our top recommended Shopify apps visit this link here.
