Don’t Make This Mistake When Paying Your Shopify Taxes…
You are running your store, making 100/day, 1000/day, oh man, 10,000 a day….and you are dreaming about that Ferrari….you’re going to buy and then…
(STOP SIGN SOUND)…the IRS COMES HUFFING AND PUFFING AND BLOW YOUR DOOR DOWN.
Because you probably assume…
Yeah, Shopify doesn’t pay your taxes. We do.
Hey guys, Alan Chen, CPA, here. In this video, we want to go over a simple but often mis-google question. Yes, I just came up with the term Mis-google. It means when you try to google something, and you believe the first answer that Google gives you when that may not be the correct answer.
So many online businesses come to us thinking that Shopify submits taxes on their behalf. Maybe they think so because Shopify has a Sales Tax Remitting function, or they sent you some tax forms during tax season last year and reported your revenue there.
But nope, that tax form is for informational purposes only and just aids in you filing your taxes because it is your responsibility to pay the appropriate amount of taxes to the various jurisdictions.
Since we are here, let’s talk about all the taxes you, as a Shopify owner, need to be worried about.
- Federal Income
- State Income Tax
- LLC Tax Fees
- Sales Tax (Home State)
- Sales Tax (Economic Nexus)
- Sales Tax (Physical nexus)
You should focus your attention on these categories to ensure you can cover your basis when thinking about what part of your profit you should reserve for your taxes.
Is it essential to set aside a 20%-35% of your profit in a separate bucket or account just for your potential tax payment? That is highly encouraged.
Another tip would be to start making estimated payments to the IRS.
What does that mean?
A common mistake business owners make is assuming that tax time is only on April 15th. Well, for Business owners earning 6 figures and more, this becomes less and less accurate.
The IRS expects you to make quarterly payments for the 6 figure plus business owners. That means every 3 months; you should be thinking about how much profit or revenue your business will make and what tax bracket you will fall into and make an estimated tax payment to the IRS and your state government if you live in a state that collects state income tax.
This is important as the IRS looks down upon underpayment of tax and will charge you a penalty during tax time if you do not make quarterly payments.
To avoid this, make sure you start submitting your tax payment every quarter!
Now that covers #1 and #2 above. What about LLC tax Fees? Business owners often forget the LLC tax fees, but it is important to keep track of if you have to register in a state with LLC tax fees. If your LLC makes more than $250,000, you must pay a fee. LLCs must estimate and pay the fee by the 15th day of the 6th month of the current tax year. Let me show what California is (shows charts)
As you can see, it can be quite steep, and if you don’t pay it on time, you will be subjected to penalties and interest.
Now we will turn our attention to sales tax. We already have several sales tax videos on this channel,, so I won’t go too deep here. But the idea is that you have to have a good grasp of the timing of each state’s sales tax rule to ensure you comply with all the conditions in which you have a large concentration of customers.
This way you will ensure you won’t have to pay too much in sales tax and can avoid paying unnecessarily to states with more lenient sales tax rulings. Make sure you also do this check every quarter, as some states have rules that as soon as you cross the sales tax threshold for that state, a familiar figure is $100,000; if you travel $100,00 for a particular form, you may have to start remitting sales tax immediately.
So what’s the takeaway here?
The takeaway is not relying on Shopify to handle your tax situation. Even if they could, I wouldn’t rely on them. They are not professional CPAs; even if there is a function built in to help you prepare your taxes, I would highly recommend you take those figures to a CPA that specializes in the business you’re in to ensure you are getting back every single penny you deserve.
That’s the kind of boss move you should make for your business as a CEO or founder to keep your cash flow flexible and use it to create more revenue opportunities for your business to scale it to an even higher level. TO the moon (Elon meme here)