How Does Ecommerce Work with Taxes?

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Mar 30, 2025
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Running an ecommerce business comes with exciting opportunities—and important tax responsibilities. Whether you sell through Shopify, Amazon, Etsy, or your own website, understanding how ecommerce works with taxes is crucial to staying compliant and avoiding penalties. Here’s a breakdown of what you need to know:

1. Report Your Income

All income earned from your ecommerce business must be reported to the IRS (or your country’s tax authority). This includes sales from all platforms, even if you’re just getting started or selling as a side hustle. You’ll typically report this income on Schedule C if you’re a sole proprietor or on the appropriate tax form for your business structure (LLC, S-Corp, etc.).

Most platforms like Shopify or Etsy may issue you a 1099-K if your sales exceed certain thresholds (e.g., $600 in gross payments in the U.S. starting 2024), but you’re required to report all income, even if you don’t receive a 1099 form.

2. Collect and Remit Sales Tax

In the U.S., most states require ecommerce sellers to collect sales tax from customers if you have nexus—a significant presence in that state, which could be based on your location, inventory storage, or sales volume.

Platforms like Shopify provide tools to help automate sales tax collection. Some marketplaces, such as Amazon and Etsy, may collect and remit sales tax on your behalf in certain states. However, it’s still your responsibility to know where you have nexus and comply with local tax laws.

3. Make Estimated Tax Payments

As an ecommerce seller, taxes aren’t withheld from your income like they would be with a traditional job. Instead, you’re responsible for paying estimated taxes quarterly. These payments cover your income tax and self-employment tax.

Failing to make estimated payments can result in penalties, so it’s important to calculate your estimated taxes accurately or work with a tax professional.

Final Thoughts

Taxes can feel overwhelming, but staying on top of income reporting, sales tax collection, and estimated payments is key to running a successful ecommerce business. Keep detailed records, set aside money for taxes, and seek professional advice to ensure you’re compliant—and profitable.