You are the owner of a Shopify e-commerce store and you are wondering an obvious question. And that is, “Does Shopify report to IRS?”. The simple answer is a yes and you will know the detailed answer further in this article. With the massive growth of e-commerce businesses, Shopify has become a widely employed online store builder. Providing over 377,000 online sellers with a platform to trade their goods, Shopify accumulates more than $29 billion in sales. Allowing no less than 70 payment modes, Shopify feels itself responsible for taxes.
That’s why Shopify compares its revenue with IRS reports so it could see any hiding. You as sellers might get emails from Shopify to show some tax records. In this article, you will come to know about Shopify sales tax reports. You will also learn to report tax on Shopify. And in the end, you will learn to download and report the 1099-K form on Shopify payments. You need to spark a little bit of interest and these things will not be boring at all. Are you ready for that? Let’s dig deep without further ado.
Shopify Sales Tax Report
There are several tax reports but we will focus on the Shopify sales tax report here. It helps to understand your sales tax. You can always export the report as a CSV file and use it to understand how taxes work. It includes everything related to your sales from orders to taxes and from billing to shipping. You must always choose the correct time period to get the exact and correct sales tax report. And you need to click on the ‘Full report’ to export it. The report does not only help you pay the correct taxes but also it helps you analyze your accountant’s work.
Inclusions of Shopify Sales Tax Report
When you do the bookkeeping for your online Shopify store, you always need some sales values to analyze your business. You are a digital entrepreneur and we understand that you might hate numbers. But, you must learn three numbers. They are a must to keep in mind.
- Total turnover or revenue
- Gross and net sales
- Gross and net profits
And Shopify sales tax report lets you know these important numbers to analyze your online business. The report actually comes up with detailed sales in a selected timeframe. If the order has more than one product, the report at the Shopify shows the report as a separate sale. You can always track the order by its number in the Shopify admin panel. The sales finance report shows the following details:
- Sales or return date
- The order associated with the sale
- The product associated with the sale
- Gross sales which come at the product price multiplied by the number of orders with no discount, returns, taxes, or shipping cost included
- Discounts on particular products during special occasions
- Returns of products, with a negative value
- Net sales which equate to gross sales minus the discounts and returns
- Taxes associated with a sale or return
- The shipping cost associated with a sale or return
- Total sales, of course
The sales finance report serves as a description of net sales made of a store in a decided timeframe. Different products are facilitated differently with respect to the region of sales and shipping charges. In sales finance reports, we calculate discounts on a negative value. Sometimes, the customer returns a product. So, refunding exists as a negative value. And we calculate taxes and shipping charges in positive value. You can see the below-given formula to understand it all.
Net Sales= Gross sales – Discounts – Refunds + taxes + shipping charges
Shopify Tax and Payment Finance Reports
Shopify tax finance report focuses on the synopsis of sales taxes imposed on a merchant’s sales. Taxes finance report informs about the country of Shopify deals, the outset of sales tax jurisdiction, and the destination for sales tax data. If the destination is unknown, the POS method exists. The payment finance report helps you obtain the store’s payment records. It shows the data of:
- The number of payment transactions
- Gross payments (transactional amount before refunds)
- Total refunds in various transactions
- Net payments (gross payments minus the total refunds)
Shopify groups your customers’ payments in four simple ways:
- Payment method (whether it was manual, paid, or other)
- Credit card
- Sales channel (might be an online store, buy button or draft orders)
- Accelerated checkouts such as Apple Pay or Shop Pay
While governing a profitable business, tax management is the dire need of every owner. Strategizing the tax payment, financial issues, and payment computations are the promising factors of a successful company. Tax planning begins with Adjusted Gross Income which is proportional to tax. Methodical Tax Planning saves from extra tax payments.
Different stores in Shopify offer discounts to maximize sales. Customers get a discount by entering a specific code during check out. With exact figures of merchant’s net sales and payments, Shopify provides valuable information about taxes. Shopify assists you in automating sales taxes according to the modified trends and the US Government’s policies.
How to Report Tax on Shopify
Many merchants are unaware of the policies of the tax returns. But, we advise that when you as a merchant become able to establish a nexus, you should file the tax. Shopify reports to IRS only if you are in the US. And if your sale is $20,000 and 200 transactions, you need to submit the 1099-k form to IRS. Shopify does not ask you to submit the form if you are from other countries like Australia and Canada. In these countries, you itemize taxes on the basis of the destination of exchange. In European countries, you might pay value-added tax.
When Do You Get the 1099k Form
In the United States form, the government uses the 1099-k form to report payments received through a third-party payment network. IRS requires payment settlement forces to send Form 1099-K to it by the last day of February of the year following. It should come with the relevant transactions, or by April 1, if filing electronically.
Many of you dealing in online credit cards must submit Form 1099-k in following cases:
1- In the third part dealings, if the number increases to $20,000 and transactions reach up to figure 200.
2- In specified circumstances, if the sales amount reaches $600.
It is vital to note that 1099-k does not compute transactions through PayPal.
Download the 1099-K Form on Shopify Payments
After you cross the above-given transactions, Shopify will generate the Form 1099-k. You can download Form 1099-k from the Shopify app. It is indispensable that the volumes matching in your tax returns must be equal to the numbers in the form.
To download the Form 1099-k, you need to
- Login into your Shopify account and catch to the settings given to the bottom left
- Approach the ‘Payment Provider’
- Click on the ‘View Payouts’. The payouts are the financial returns or net monetary disbursements.
- Tap the ‘Documents’ and ‘Download’ the Form 1099-k
Yes, it’s easy to download the 1099-K form from Shopify.
How to Report Tax on Shopify
Shopify sales tax varies from state to state and that complicates it. The process of paying the collected tax to the IRS also differs state by state. Every state decides whether you need to pay the taxes after every month, quarter, or year. And then there are two kinds of sales taxes based on destination and origin. In the case of destination-basis, If your customer is in Pennsylvania you will give the tax according to the Pennsylvania laws. And in the origin-basis, if you operate your Shopify store in Ohio, you will give tax according to Ohio laws regardless of the location of your customers. For your information, let us tell you the states using an origin-basis tax system:
- New Mexico
All other states use the destination-basis tax system. You might get the updated information from the local government’s websites. For now, let’s get to know five simple steps to set up taxes for your Shopify store.
1. Select the Address of Your Shopify Store
Hover over to the settings and choose ‘General’ to add the correct store address. Enter the physical store address if you have so you pay local and remote sales taxes as well.
2. Add Shipping Zones
We already told you that some states tax you on the basis of the destination of your order. That’s why it’s necessary to add shipping zones you ship your products to. Different states have different tax rules and regulations. You would want to add shipping zones so each state better understands your value and tax you accordingly. To create shipping zones, you need to go to Shopify admin and click ‘Shipping’. Under the shipping zones section, ‘Add shipping zone’. Name the zone and select the regions and click on ‘Done’.
3. Set Up Tax Rates for Physical Nexus
To set up your Shopify sales tax, you need to automate the calculation of tax rates for various shipping zones. To do so, you need to go to ‘Taxes’ in the ‘Settings’. And set up if you want to apply taxes in your shipping rates. You can either do it in a ‘manual’ or ‘automatic’ setting. Select your country and state where you have a physical presence including the zip codes.
4. Automatic Tax Rates for Economic Nexus
Shopify does not provide you with the bullet-proof tax calculations but you can certainly do something. If there is a flat-tax rate, you need to add physical presence and a tax override for the products. And if you need to pay for a destination tax rate, add a physical presence of the particular state only. Also, you don’t need any override here.
5. Apply for Tax Exemptions or Overrides
This section applies only if you have a product that is exempt from the taxes. It is also helpful for your online presence in different states with different shipping tax laws. To apply for tax exemptions, you need to set it up on your Shopify admin. Go to the ‘Products’ and create a collection. Now, you need to go to settings and select ‘Taxes’ after choosing your country and tax overrides. Now select the collection that you created for tax exemption.
Keep an eye on all these settings to make sure you abide by all the rules and regulations related to taxation. Concluding, Shopify does not process your sales taxes. You need to register your business with local or federal authority to handle your taxes. However, Shopify helps you make things easier to pay your taxes.