Small Business Selling Online and Taxes Guide

As a small business owner selling online, navigating taxes can be a daunting task. You need to understand the different types of taxes you'll be responsible for paying, including sales tax, income tax, and self-employment tax.

Sales tax is typically the most straightforward, but it can still be a challenge to get right. You'll need to register for a sales tax permit and collect tax from customers in states where you have nexus.

One of the key things to keep in mind is that you're required to collect sales tax on online sales in states where you have a physical presence or a significant economic presence. This is often referred to as "economic nexus."

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If you're selling online, you're likely familiar with the importance of taxes. In California, online retailers are required to collect use tax from customers and pay it to the California Department of Tax and Fee Administration (CDTFA).

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You're considered engaged in business in California if you own or lease tangible merchandise, such as a computer server, in the state. Alternatively, you may be considered engaged in business if you maintain a permanent or temporary office, warehouse, or other physical place of business in California.

Here are the specific scenarios that indicate you're engaged in business in California:

Marketing for online businesses requires attention to sales tax laws. Some states require online companies to collect sales tax, while others exempt them.

To avoid confusion, it's best to contact your state's department of revenue for guidance. This will help you understand your specific sales tax obligations.

As an online business owner, you should be aware that some states consider online merchants as mail-order businesses, exempting them from sales tax collection.

Online business and taxes can be a complex and confusing topic. You're considered a multichannel seller if you sell products from your own website and/or in a store in addition to sales made via a marketplace facilitator. This means you'd need to collect and remit state sales tax for sales made in your shop or on your website.

If you only sell products via a marketplace facilitator and at special events, you may not be considered a multichannel seller. Special events are defined as events held in the same location 1 or 2 times per year.

Here are some examples of who is or isn't a multichannel seller:

As an online retailer, your sales tax responsibilities are the same as a brick and mortar retailer. This means you'll need to collect and remit sales tax on sales made from your own website.

Internet sales are treated just like sales made at retail stores, by sales representatives, over the telephone, or by mail order. This means you'll need to collect and remit sales tax on sales made to California consumers, unless a specific exemption or exclusion applies.

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If you're an online business selling in California, you're responsible for collecting and paying tax on your Internet sales. This includes sales made through Internet shopping platforms, Internet auction sites, and your own website. However, if you're a marketplace facilitator, you may not be responsible for collecting and paying tax on sales made through your platform.

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Starting an online business can be a thrilling venture, but it's essential to understand the tax implications.

You can deduct business expenses on your tax return, including the cost of a home office, equipment, and software.

As an online business owner, you may be eligible for a home office deduction, which can save you hundreds or even thousands of dollars on your tax bill.

The IRS allows you to deduct a specific percentage of your rent or mortgage interest as a business expense, but you'll need to keep accurate records to support your deduction.

Keep in mind that you'll need to file Form 8829 to claim the home office deduction, which can be a bit complicated, but it's worth the effort to save on taxes.

As your online business grows, you may need to hire employees or contractors, and you'll need to understand your tax obligations as a business owner.

You'll need to obtain an Employer Identification Number (EIN) from the IRS, which is required for tax purposes.

The EIN is like a social security number for your business, and you'll need to use it to file taxes and report employee wages.

As a business owner, you're responsible for paying self-employment taxes, which include both the employee and employer portions of payroll taxes.

You'll need to make estimated tax payments throughout the year to avoid penalties and interest on your tax bill.

It's a good idea to consult with a tax professional to ensure you're meeting your tax obligations and taking advantage of all the deductions available to you.

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As a marketplace seller, you're likely familiar with the idea of selling products online through a platform like Etsy or eBay. However, did you know that your sales tax responsibilities are actually quite different from those of a multichannel seller?

You are not required to collect and remit state sales tax for products sold through a marketplace facilitator. This is a change that took effect on October 1, 2019, and it's a big relief for many online sellers.

If you only sell products through a marketplace facilitator and not through your own website or store, you don't need to worry about collecting sales tax. However, if you do sell products through multiple channels, you'll need to collect sales tax on those sales.

Here are some examples to help illustrate who is or is not a marketplace seller:

The early days of online shopping were quite different from what we're used to today. Most sellers only collected sales tax in states where they had a physical presence.

Before the Supreme Court's ruling, businesses didn't have to collect sales tax from out-of-state buyers. The Supreme Court had ruled in the early 1990s that a business had to have a physical presence in a state to be forced to collect sales tax in that state.

Buyers were supposed to fill out "use" tax returns and pay the applicable taxes themselves. Most people have never heard of use tax, so the tax mostly went uncollected.

Many online sellers didn't have physical locations in every state, so they didn't collect sales tax from buyers in those states. Instead, they relied on buyers to self-report and pay the use tax.

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If you're a small business selling online in California, you'll need to register with the California Secretary of State's office and obtain a seller's permit from the California Department of Tax and Fee Administration.

You'll also need to collect a 7.25% sales tax rate from customers, which includes a 1% local tax rate.

To ensure compliance, you'll need to file a sales tax return and pay any taxes due on a quarterly basis.

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If you're selling tangible merchandise to customers in California, you're likely required to register with the CDTFA for a Certificate of Registration—Use Tax. To be considered engaged in business in California, you must meet one of the following criteria:

You can check if you meet these requirements by reviewing Regulation 1684, Collection of Use Tax by Retailers, and publication 77, Out-of-State Sellers: Do You Need to Register in California?.

You'll need a seller's permit if you sell tangible merchandise in California and make three or more sales in a 12-month period. This applies to both retail and resale sales.

To get a seller's permit, you'll need to register with the California Department of Tax and Fee Administration (CDTFA). You can find more information on registration in publication 107, Do You Need a California Seller's Permit?

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To register for a Certificate of Registration—Use Tax in California, you must be a retailer engaged in business in the state. This includes selling tangible merchandise to customers for storage, use, or other consumption in California.

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You are considered engaged in business in California if you own or lease real or tangible merchandise, including a computer server, in the state. This can be a permanent or temporary office, place of distribution, sales or sample room, warehouse, or storage place.

If you have people operating in California under your authority for the purpose of selling, delivering, installing, assembling, or taking orders for industry/out-of-state-retailers/tangible merchandise, you are also considered engaged in business in the state.

In addition, if you derive rentals from a lease of tangible merchandise, including vehicles, vessels, or aircraft, situated in California, you must register for a Certificate of Registration—Use Tax.

A key threshold to consider is the total combined sales of tangible merchandise for delivery in California, which must exceed $500,000 during the preceding or current calendar year, starting from April 1, 2019.

Here are the specific requirements to consider:

Prior to October 1, 2019, you were generally considered the retailer of retail sales made through an Internet auction site, regardless of who collected payments from the buyers.

If you were registered or required to be registered for a seller's permit or Certificate of Registration—Use Tax, you were required to pay or collect and pay tax on your retail sales to California customers through an Internet auction site.

Being considered the retailer meant you had to follow California's specific requirements for retail sales, including paying or collecting and paying tax on your sales.

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Taxation and Rates can be a complex topic for small business owners selling online. You'll need to navigate sales tax, income tax, and other rates to ensure you're in compliance.

In the US, sales tax rates vary by state, ranging from 0% in Oregon to 7.25% in California. This means you'll need to research the rates for each state where you sell.

As a small business owner, you're required to file a tax return each year, typically by April 15th. This includes reporting your business income and expenses to the IRS.

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Income is a crucial aspect of taxation, and it's essential to understand how it works, especially for online businesses.

Businesses of all types, including one-person Internet-based businesses, are required to pay income tax. Even the smallest online companies are not exempt from this requirement.

Smaller online companies are often operated as a sole-proprietorship, and income is taxed as a self-employed individual. This means that income from online business transactions can be tracked and may result in fines and criminal penalties.

Online business income is not exempt from taxation, and attempting to "fly under the radar" is illegal and can lead to an Internal Revenue Service investigation.

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The use tax rate is the same as the sales tax rate for any given California location. You can find the rates on California City and County Sales and Use Tax Rates.

In California, transactions that are exempt from sales tax are usually exempt from use tax. This means you won't have to pay use tax on things like groceries or prescription medication.

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As a small business owner selling online, it's essential to understand which taxes you're exempt from. Some states offer sales tax exemptions for online businesses, but only if you meet specific requirements.

In Washington state, for instance, online retailers are exempt from collecting sales tax if they have no physical presence in the state. This exemption applies to businesses like Amazon, which has no physical stores in Washington.

However, even if you're exempt from collecting sales tax, you may still need to file a tax return in states where you have customers. For example, if you have customers in California, you'll need to file a tax return with the California Department of Tax and Fee Administration.

In California, online retailers with annual sales of $500,000 or more are required to collect and remit sales tax. This is a significant threshold, and businesses should carefully track their sales to avoid missing this deadline.

Keep in mind that tax laws and regulations can change, so it's crucial to stay up-to-date on the latest requirements.

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Reporting and Compliance is a crucial aspect of selling online as a small business. Some states, like Colorado, have laws that require remote vendors to file a report when a customer spends more than $500 in a year.

This means you'll need to keep track of your sales and report them to the relevant authorities. For example, if you're selling to customers in Colorado, you'll need to file a report if a customer spends over $500 with you in a year.

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If you make retail sales in California from a place of business located in a taxing district, that district's sales tax is generally due on your retail sales of merchandise.

You must collect district use tax from your customers if you're an online seller and you're "engaged in business in a district" imposing a district tax. This tax applies to sales of tangible merchandise for delivery in the district.

District sales tax does not apply if your retail sales are for delivery outside of the district where your place of business is located.

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Shipping charges are not always tax-free.

Tax does not apply to separately stated charges for delivery of tangible merchandise from the retailer's place of business.

The exclusion for delivery and shipping charges only applies to the cost of the transportation paid by the retailer.

Handling charges are taxable when related to a taxable sale.

Please see publication 100, Shipping and Delivery Charges, for more information.

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District sales taxes are imposed on retailers, not on the consumers. If you make retail sales in California from a place of business located in a taxing district, that district's sales tax is generally due on your retail sales of merchandise.

Retailers who make sales in a taxing district and have their place of business there must collect the district's sales tax from their customers. This applies even if the sales are made online.

District use tax is imposed on consumers when district sales tax does not apply. This happens when merchandise is purchased from a retailer for storage, use, or other consumption in a taxing district.

If you're a retailer, including an Internet seller, and you're engaged in business in a district imposing a district tax, you're responsible for collecting the district use tax from your customer.

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As a small business selling online, you need to understand how local and internet transactions affect your tax obligations.

You're generally required to collect and pay sales tax on online sales if your business has a physical location in a state that collects sales tax.

Local taxes are sales and use taxes imposed by local jurisdictions, usually cities or counties, and the statewide sales and use tax rate is 7.25 percent, which includes 1.25 percent of local taxes.

You're required to allocate your sales among local jurisdictions when filing your sales and use tax return, either directly or through a countywide pool.

The 1.00 percent portion of local taxes goes to the city or county where the sale or use occurs, while the .25 percent portion always goes to the county where the sale or use occurs.

Internet sales are treated just like sales made at retail stores, by sales representatives, over the telephone, or by mail order, so your retail Internet sales are subject to sales or use tax if they take place in California or are for delivery in California.

As an online retailer, you're required to collect, report, and pay tax like other retailers, but how you allocate your Internet transactions can depend on several factors.

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The Supreme Court changed its opinion on internet sales tax requirements in 2018, declaring states can collect sales taxes on internet sales from out-of-state sellers in certain circumstances.

This ruling, in the case of South Dakota v. Wayfair Inc., allowed states to require sellers with more than 200 orders or over $100,000 of sales in the state to collect sales tax.

Small businesses with just a few sales to the state aren't required to collect and remit sales tax, which is a relief for those with limited sales.

To navigate the complex world of sales tax, you need to keep track of more than just sales thresholds for each state, as some charge income tax on retail sales of goods only, while others tax both goods and certain services.

Some states charge income tax on retail sales of goods only, while others tax both goods and certain services. You need to keep up with what is taxed, what the tax threshold is, and any changes to these laws for each state you make sales to.

You can use e-commerce platforms that simplify the sales tax collection and remittance process. These platforms may collect and remit sales tax on all U.S.-bound orders based on the laws of each state.

Businesses can also use sales tax tools to integrate into their existing e-commerce platform to assist with the sales tax processes and rules across multiple states.

As of October 1, 2019, a marketplace facilitator may be considered the retailer if they enter into an agreement to facilitate your sales of tangible merchandise through a marketplace.

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The Supreme Court has made significant changes to the rules regarding e-commerce sales taxes. In 2018, the court issued a ruling in South Dakota v. Wayfair Inc. that allowed states to collect sales taxes on internet sales from out-of-state sellers in certain circumstances.

This change was a major shift from the previous rules, which were less restrictive. The new rule requires sellers with more than 200 orders or over $100,000 of sales in the state to collect sales tax, but small businesses with just a few sales to the state are exempt from this requirement.

The Supreme Court's decision has had a significant impact on online businesses, particularly small ones. This change has forced many online sellers to adapt to new sales tax requirements, which can be complex and time-consuming to navigate.

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