Does Shopify send me a 1099-K?
For 2026, Shopify Payments generally furnishes a federal 1099-K when the federal threshold is met: more than $20,000 AND more than 200 transactions under OBBBA Section 70432. Check Shopify's current tax-document guidance and your admin under Finance > Payouts > Documents. Separately, NJ-WT can require a payer state-copy filing at $1,000 with no transaction minimum; that rule does not replace the federal payee threshold or guarantee a separate NJ-specific form.
Why is my 1099-K higher than my actual revenue?
The 1099-K reports gross payment volume with zero adjustments. It includes product sales, shipping collected, sales tax collected, refunds (not subtracted), chargebacks (not subtracted), and gift card sales. You reconcile on Schedule C by deducting refunds (Line 2), sales tax remitted (Line 23), processing fees, and shipping costs as expenses.
Does Shopify collect and remit sales tax for me?
For a merchant's direct online-store transactions, Shopify is generally a commerce platform rather than the marketplace seller, so Shopify Tax calculations alone do not register the merchant or satisfy a filing duty. Optional automated-filing coverage must be enabled and verified for each eligible return. Orders through the Shop channel can receive marketplace-facilitator treatment under Shopify's current terms. Classify the channel and product, then apply current jurisdiction law and platform documentation before deciding who collects, registers, files, or remits.
How do I know which states I have sales tax nexus in?
Review each jurisdiction's current physical-presence and economic-nexus law using people, property, inventory, product taxability, sourcing, measurement period, included and excluded sales, transaction tests, marketplace treatment, and registration effective date. Shopify's Liability Insights dashboard can organize sales data, but it is not a legal determination and revenue alone cannot predict a state count or duty. Confirm results against current revenue-department authority.
Is the NJ sales tax rate 6.625% on everything I sell?
NJ's statewide rate is 6.625% on most tangible goods. Key exemptions: most clothing and footwear, unprepared food, prescription drugs, and some medical devices. Digital products (audio-visual works, audio, e-books) are taxable under N.J.S.A. 54:32B-2(zz). SaaS is generally exempt under TB-72. Shipping charges are taxable when the underlying sale is taxable under N.J.A.C. 18:24-27.2. Urban Enterprise Zone businesses may charge 3.3125%, but pure e-commerce sellers generally do not qualify.
What Shopify fees can I deduct on my taxes?
Substantiated ordinary and necessary current-period costs can be deductible under IRC Section 162(a), including business-use subscription, processing, app, domain, and email charges. Capital assets and prepaid or multiyear costs may require capitalization or depreciation. POS hardware may qualify for Section 179 only if it is eligible property, placed in service, used more than 50% for business, and the election, investment, taxable-income, and recapture rules are satisfied; bonus depreciation is a separate analysis. Loan principal is not deductible, and interest or other financing charges depend on the agreement and applicable limitations.
How do I report COGS for my Shopify store?
On Schedule C Part III: enter beginning inventory (Line 35), add purchases and inbound freight (Line 36), subtract ending inventory (Line 41). COGS = Line 40 minus Line 41. COGS includes wholesale cost, inbound shipping, customs duties, and packaging integral to the product. It does NOT include marketing, Shopify fees, outbound shipping to customers, or your own labor. Most small sellers qualify for the IRC Section 471(c) small business exception ($32 million gross receipts threshold for 2026), allowing simplified inventory accounting.
What if I use PayPal AND Shopify Payments?
You receive separate 1099-Ks from each payment processor. Shopify Payments issues one and PayPal issues another. Thresholds apply per platform, not combined. Create a master reconciliation worksheet: start with each 1099-K Box 1a, subtract refunds, sales tax collected, and processing fees to arrive at each processor's contribution to adjusted gross income. The total should match your Shopify Finance Summary report.
Do I need to charge sales tax on shipping in NJ?
Yes, if the underlying product is taxable. Under N.J.A.C. 18:24-27.2, delivery charges on taxable goods are taxable at 6.625%. If a shipment includes both taxable and exempt items, you must allocate the shipping charge proportionally. Failure to allocate makes the entire shipping charge taxable. Configure this in Shopify's tax settings for New Jersey.
When should I form an LLC for my Shopify store?
Formation, liability, contracts, and asset-protection questions require an attorney or formation provider. Monaco CPA does not form entities, obtain EINs, register DBAs, provide registered-agent services, or open bank accounts. After an entity exists, Monaco CPA can analyze its federal and NJ tax classification within an accepted written scope.
When does S-Corp election make sense for a Shopify seller?
There is no universal Shopify-profit threshold. A defensible comparison must support reasonable compensation and recompute payroll taxes, the employer-payroll-tax deduction, QBI, federal and NJ income tax, NJ entity and payroll costs, and actual compliance costs. Use the S-Corp Calculator as a screening model, then verify the complete return before filing Form 2553 by the applicable deadline.
What is the Voluntary Disclosure Agreement (VDA) for sales tax?
A VDA lets sellers who have not been collecting sales tax in states where they have nexus come forward voluntarily. Benefits: penalty waivers, limited lookback period (typically 3-4 years versus unlimited during audit), and sometimes reduced interest. Apply through the Multistate Tax Commission (MTC) National Nexus Program before the state contacts you. Once contacted, VDA eligibility is generally lost.
How does Shopify Capital affect my taxes?
Shopify Capital offers merchant cash advances (MCAs) and business loans. For MCAs: the advance is NOT income, but the total fee (amount repaid minus amount advanced) is deductible. For loans: principal is NOT deductible, but the borrowing fee (analogous to interest) IS deductible under IRC Section 163(a). Split each payment into principal and fee portions in your accounting.
Can I deduct inventory that did not sell?
Unsold inventory at year-end is NOT a deductible expense. It remains as ending inventory on Schedule C Part III (Line 41) and is not deducted until those items actually sell. However, you can write down damaged, obsolete, or worthless inventory to its lower fair market value. Document the condition and reason for the write-down.
Do I need to file quarterly estimated taxes?
Yes, if you expect to owe $1,000 or more in federal tax or more than $400 in NJ tax after withholding and credits. Quarterly due dates: April 15, June 15, September 15, January 15. NJ's assessed interest is 10.00% for 2026 (prime + 3% per TB-21(R)), higher than the current federal underpayment rate (7% for Q3 2026; the rate changes quarterly - check the latest IRS quarterly interest-rate news release). Use my Estimated Tax Calculator to determine your quarterly amounts. Federal safe harbor: pay 100% of prior-year tax (110% if AGI exceeds $150,000).
What records should I keep for an IRS audit?
Keep all Shopify Finance Summary reports, payout reports, 1099-K forms, purchase invoices, inbound shipping receipts, bank statements, credit card statements, sales tax filings, and state registration certificates. Retain records for at least 3 years from the filing date (6 years if you underreported income by more than 25%). Export Shopify data regularly since historical data only goes back to October 2023.