5

Hopefully someone can help out :) I've tried Googling, with no luck.

I set up a Shopify site to sell some stuff I was making. I wasn't expecting much money, so I just connected it to PayPal. There is no business registered or anything like that.

I ended up making over $100k revenue / $40k profit in the past 3-4 months, and I'm not sure what to do for personal taxes. All the profit is still in the PayPal account; I've paid out about 60% of the revenue for supplies.

Basically, I accept money via PayPal on Shopify, and pay vendors for supplies out of PayPal, so the money in my PayPal is my "profit". I'm really afraid this is going to screw me over when I do my personal taxes!

My biggest worry is either not paying the correct taxes and hurting myself later, OR ending up paying taxes on the $100k revenue (rather than just the profits). How does this work? Do I just pay sales tax, or is it also taxed as my personal income? How do I "write off" supplies (do I need to get a W9 from our suppliers)? Will PayPal or Shopify send me a 1099k or something?

  • 1
    Congrats on your business success! – Ben Miller Jan 8 '17 at 3:43
  • Welcome to Money.StackExchange, by the way. I've edited your question to add the "united-states" tag, which I'm assuming that you are in based on your mention of "W9" and "1099". If this is not correct, you can edit your question and change the tag to the correct country. – Ben Miller Jan 8 '17 at 4:09
  • 2
    Get your money out of PayPal! Put it in a real bank. Now! PayPal has a long history of seizing legitimate businesses accounts. A new personal account that has had a large amount of activity in a short time would be a perfect target for them to "freeze" citing fraud prevention. – Zach Mierzejewski Jan 8 '17 at 19:03
8

I'm assuming you're in the United States for this. I highly recommend getting a CPA to help you navigate the tax implications. Likely, you'll pay taxes as a sole proprietor, on top of any other income you made. Hopefully you kept good records because you'll be essentially paying for the profits, but you'll need to show the revenue and expenditures that you had. If you have any capital expenditures you may be able ton amortize them. But again, definitely hire a professional to help you, it will be well worth the cost.

  • 2
    +1. The financials and taxes of a business are definitely not something you want to learn by trial-and-error. Talk to a CPA and have them teach you how to properly run the financial side of your business. – Ben Miller Jan 8 '17 at 3:43
2

(do I need to get a W9 from our suppliers)? Will PayPal or Shopify send me a 1099k or something?

Do not assume that you'll get paperwork from anyone. Do assume that you have to generate your own paperwork. Ideally you should print out some kind of record of each transaction. Note that it can be hard to view older transactions in PayPal, so start now. If you can't document something, write up a piece of paper showing the state of the world to the best of your knowledge.

Do assume that you need separate receipts for each expenditure. The PayPal receipt might be enough (but print it in case the IRS wants to see it). A receipt from the vendor would be better (again, print it if it is online now).

A CPA is not strictly necessary. A CPA is certified (the C in CPA) to formally audit the books of a corporation. In your case, any accountant would be legally sufficient. You still may want to use a CPA, as the certification, while technically unnecessary, still demonstrates knowledge. You may otherwise not be in a position to evaluate an accountant. A compromise option is to go to a firm that includes a CPA and then let them assign you to someone else to process the actual taxes.

You are going to have to fill out some business tax forms. In particular, I would expect a schedule C. That's where you would show revenues and expenses. You may well have to file other forms as well.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.