It may seem deceptively easy to open and run an online boutique shop these days. All you have to do is set up a website, acquire products, install an online shopping cart, and send out the merchandise as the orders to roll in. No big deal, right?
But wait, there’s a hitch: state and local governments are your silent (and sometimes not-so-silent) partners, and they want their cut. If you’re running your own online boutique store, here’s a rundown of how your taxes work.
How big does a business need to be to owe income taxes? All businesses, whether large or small, owe taxes if their income exceeds their expenses. Those income and expenses are reported on your personal income tax return if you operate the business as a sole proprietorship and you are either self-employed or a single-entity Limited Liability Company (LLC).
If the business is a partnership, you’ll need to file a partnership tax return showing how the profits are divided among the partners, and you’ll report your share of the profits on your personal tax return.
If you feel like you don’t know these tax rules, don’t worry — you can use QuickBooks Self-Employed to track your business income and expenses year-round, and then you can easily export your information to your TurboTax Self-Employed tax return. If you have additional tax-related questions, you can also connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get them answered. A TurboTax Live CPA or Enrolled Agent can even review, sign, and file your tax return.
Whether you need to collect and pay sales tax depends on the state in which you reside, the state to which the goods are delivered, and the amount and number of your sales. In general, if the state in which you reside and operate the business imposes a sales tax, you’ll need to collect and pay sales tax on your boutique’s sales within that state. Contact your state’s Department of Revenue to find out what paperwork you need to fill out to get a Seller’s permit and remit the taxes due.
If you sell to customers living outside your state, you may need to collect sales tax and remit it to those states. Fortunately, most states that collect such taxes have minimum sales thresholds that must be exceeded before they impose a sales tax on sellers outside their state who sell to customers within the state.
Seventeen states currently impose a sales tax on out-of-state internet sales, with five more set to begin collecting sales tax on internet sales on January 1, 2019. If your internet boutique is small scale, it is likely that because of those minimum sales thresholds, the sales tax collecting and reporting rules of those states don’t apply to you. When you use QuickBooks Self-Employed it will help you track your sales tax payments and give you the associated tax deductions.