An online presence instead of a physical storefront can save you from additional expenses like rent and utilities. But, there are certain taxes that online businesses can’t escape. As the owner of a U.S.-based ecommerce store, you need to understand your tax liabilities.
Follow internet business tax laws to stay compliant with applicable government agencies, like the IRS and your state. If you don’t pay taxes, you could end up with penalties, fees, or even a shut business. Understanding your tax responsibilities can free you up to focus on all the other pieces of running your business, so avoid getting bogged down with stress and unnecessary headaches about taxes.
Types of taxes for online businesses
When you start an ecommerce business, you must follow the same rules as any new small business owner. It can be helpful to have a conversation with a tax or accounting professional to help you make sure that you understand your full tax obligations, but here are the different business taxes you might need to know about:
You must pay estimated taxes and employment taxes the same way as a business with a physical storefront. Estimated taxes cover taxes like income and self-employment. As a business owner, you will probably be required to pay estimated taxes, unless you receive a salary and have taxes withheld on your behalf.
You can use the estimated tax worksheet from the Form 1040-ES instructions to determine your tax liability and to see if estimated payments are required. Estimated taxes are separate from sales tax and employment taxes. You pay estimated taxes from your income.
Employment taxes include federal income taxes, FICA (Social Security and Medicare) tax, and state and local taxes (if applicable). These are the taxes you withhold from an employee’s gross wages, and you make FICA contributions based on employee wages. You are also responsible for paying federal and state unemployment taxes (FUTA and SUTA) when you have employees.
Unlike estimated taxes and employment taxes, sales tax for online business does not work the same way as brick-and-mortar stores. You need to be familiar with rules for sales tax on internet sales and penalties for not collecting it. Learning about all your business tax obligations is important, but the rest of this article will focus on sales tax.