Do you have to pay taxes for dropshipping?

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Here comes the answer: Yes, you do have to pay taxes for dropshipping. It does seem a bit depressing since dropshipping itself is a way to increase profits. Unfortunately, you do have to pay taxes for dropshipping. It can be a huge risk to your business if you don’t.

When you start a dropshipping business, it all boils down to two taxes. These are income taxes and sales taxes.

What Is Income Tax

Income tax means you pay tax on a year’s profits from a shop. Profit is basically the “revenue” of your business. Of course, if you don’t make a profit, you don’t have to pay any income tax. In fact, you can often claim your loss as a tax credit.

Fortunately, income tax is not a big burden, and it’s pretty simple if you know how it works. But now, there’s an even trickier problem: sales taxes.

What Is Sales Tax for Dropshipping

From a simple point of view, the sales tax is not too complicated. This is simply the taxes you pay to your state or city for the sale of goods and services within its jurisdiction. Now sales taxes actually vary from state to state in the US. Each state has its own sales tax regulations.

In some states, the tax can be reduced to less than 2%, and in others, it can rise to 5%. The sales tax is a consumption tax applied to the purchase of goods and services. The end customer pays the tax because they are the ones who actually consume the end product.

If you’re a new dropshipper, you don’t have to pay anything until you get a lot of sales and set up.

Sales Tax and VAT

What’s the difference between sales tax and value-added tax (VAT)? Both sales tax and value-added tax are types of indirect taxes – a tax collected from the buyer by the seller at the time of purchase and then paid or remitted to the government on behalf of the buyer. Sales tax and VAT are common sources of confusion in the corporate-tax world.

Compared with sales tax, VAT, on the other hand, is levied on all sellers at each stage of the supply chain. Suppliers, manufacturers, distributors, and retailers all charge VAT on taxable sales. Similarly, they all pay VAT on their purchases. Businesses must track and record the VAT they pay at the time of purchase in order to get a VAT credit on their tax returns. Under a VAT system, tax jurisdictions receive tax revenue throughout the supply chain, not just at the point of sale to the end consumer.

Since 1^st July 2021, some major changes to the rules governing VAT and tariff treatment of goods sold and shipped to customers in the European Union happened. The changes, which focus on personal and e-commerce transactions, will affect businesses and online shoppers. They could also affect Business to Business (B2B) imports and businesses that operate travel agency margin schemes and flat rate schemes.

Use DSers to Create a Profitable AliExpress Dropshipping Business

To run your business successfully, you can use a reliable  AliExpress dropshipping tool like DSers. It is the official AliExpress dropshipping solution that would let you pick just the best supplier for your store and manage the background processes in one place. 

• DSers offers a Supplier Optimizer feature that would let you select the best suppliers for your store with the most profitable margin.
• With DSers, you can make bulk orders and come up with bundle products to improve your sales.
• The tool offers tons of advanced features to automatically update the order status and sync tracking numbers.
• Other resourceful features include stock management, variant mapping, shipping settings, automatic pricing, product division, and more.

Final Word

From this article, we can conclude that, yes, you must pay two kinds of taxes when conducting dropshipping, depending entirely on your income and the size of your business (in associated states).

To make it easier for you to pay your taxes, you can always use Shopify to ship on behalf of you and make an immediate profit. With its handy apps like DSers, your dropshipping business is believed to be smooth and promising!