What taxes apply to a sole proprietorship dropshipping business?

Accounting & Taxes
1

Hi, I registered my Shopify Drop shipping business as Sole Propertership in the San-Francisco, California, USA.

  • What taxes do I have to pay?
2

As a sole proprietorship registered in California, you will be responsible for paying the following taxes:

  1. Federal income tax: You will need to report your business income on your personal tax return and pay federal income tax based on your tax bracket.

  2. California state income tax: You will also need to pay state income tax on your business income. The state income tax rate in California is progressive, with a range of 1% - 13.3% for the 2021 tax year.

  3. Sales tax: You will need to collect and remit sales tax on all taxable items sold in California. The sales tax rate in California is 7.25%.

  4. Self-Employment Tax: Since you are a sole proprietorship, you are considered self-employed. As such, you will need to pay self-employment tax which is Social Security and Medicare taxes.

  5. Business license tax: If you do business within the city limits of San Francisco, you will need to register for a business license and pay the business license tax.

Additionally, as an e-commerce business, you might be required to collect and remit sales tax in other states depending on the state’s sales tax laws, this is called “Economic Nexus”.

3

Thanks for detailed info. I got EIN number from IRS on 16 December 2022 date. I didn’t get sales and income at this period.

  • Should I pay taxes ?