Starting on Shopify? No Business License Needed!

Table of Contents

1. Introduction
2. Do You Need a Business License and Tax ID to Sell on Shopify?
3. The Misconception about Becoming Legal
4. Recommendations for Starting Out on Shopify
5. What Happens If You Don't Incorporate Your Business
6. Collecting Sales Tax on Shopify
7. The Easiest Way to Collect and Remit Sales Tax
8. Conclusion

Do You Need a Business License and Tax ID to Sell on Shopify?

In today's video, we will be discussing a topic that is often talked about in the online business community – the requirement of a business license and tax ID when starting out on Shopify. Many individuals have questions regarding the legality and tax implications of selling on this popular e-commerce platform. Some wonder if they need to charge taxes and if it's necessary to obtain a tax ID, LLC, and business license. In this article, we will explore these questions and provide guidance based on personal experience.

Introduction

Before diving into the specifics, let's address the misconception that becoming legal and obtaining the necessary documents for your business is a complicated and time-consuming process. In actuality, it is much easier than expected. For instance, in my home state of Oklahoma, acquiring a tax ID number takes just a day or two, and the cost is relatively low – usually around $60 to $80. However, it's essential to check your state's requirements since each state may have different procedures and fees.

The Misconception about Becoming Legal

One of the key misconceptions is that you must complete all the legal procedures before you start selling on Shopify. However, from personal experience and observation, I recommend against going through the hassle of getting a business license, tax ID, and other formalities when you are just starting out. The reason behind this recommendation is that many new businesses fail within the first 120 days, and it's vital to determine if you will be committed to your Shopify store in the long run before investing time and effort into making your business legal.

Recommendations for Starting Out on Shopify

Instead of rushing to complete all the legal requirements upfront, it's better to focus on launching your store, testing your products, and confirming your commitment to the business. Once you have established consistency and progress, you can then proceed with obtaining the necessary licenses and tax ID. It's important to understand that this recommendation is based on personal experience and does not replace official legal advice. However, it can save you time, effort, and money if you find out that your business is not as successful or sustainable as initially anticipated.

What Happens If You Don't Incorporate Your Business

If you choose not to incorporate your business and start selling on Shopify, you can still operate as an individual. Initially, you can claim your sales on your personal tax return using your social security number. However, once your business reaches a certain threshold or continues for a specific period, Shopify will notify you to incorporate your business officially. It is essential to pay attention to this notification and follow the necessary steps promptly. Failure to incorporate within the given timeframe can result in the suspension of your Shopify store.

Collecting Sales Tax on Shopify

When it comes to collecting sales tax on Shopify, the process can seem daunting, especially if you are managing it manually. Fortunately, Shopify offers a built-in feature that allows you to enable sales tax collection automatically based on your location. By turning on this setting, Shopify will calculate the applicable sales tax for each transaction and collect it from the customer on your behalf.

The Easiest Way to Collect and Remit Sales Tax

To simplify the process of collecting and remitting sales tax, I recommend using an app called TaxJar. TaxJar integrates seamlessly with Shopify and automatically calculates your sales tax based on the specific state's requirements. Additionally, in many states, TaxJar offers an autofiling feature that takes care of monthly sales tax filings directly with the state. This automation can save you time and prevent any errors or penalties related to sales tax remittance.

Conclusion

In summary, when starting out on Shopify, it is not necessary to complete all the legal procedures and obtain a tax ID, LLC, and business license right away. It is recommended to test your products, assess your commitment, and ensure your business is viable before investing in the necessary legalities. However, once you receive a notice from Shopify or realize that your business is consistent and successful, it is crucial to make your business legal and start collecting and remitting sales tax. By leveraging tools like TaxJar, the process can be made simpler and more efficient. Remember, the recommendations provided in this article are based on personal experience and should not replace professional legal advice.

Highlights

• Starting on Shopify does not require immediate legal procedures such as obtaining a business license and tax ID.
• It is advisable to test your business idea and commitment before investing in legal requirements.
• Shopify will notify you to incorporate your business once it reaches certain sales thresholds or operates for a specific period.
• Sales tax collection on Shopify can be automated by enabling the built-in sales tax collection feature.
• TaxJar is a recommended app for simplifying sales tax calculations and remittance.

Frequently Asked Questions

Q: Do I need to obtain a business license and tax ID to start selling on Shopify? A: It is not necessary to complete these legal procedures right away. It is recommended to first test your business idea and commitment before investing in the necessary licenses and tax IDs.

Q: When should I incorporate my business when selling on Shopify? A: Once your Shopify store reaches a certain sales threshold or operates for a specific period, Shopify will notify you to incorporate your business. It is important to adhere to this notification and complete the incorporation process promptly.

Q: How can I simplify the process of collecting and remitting sales tax on Shopify? A: By using an app like TaxJar, you can automate sales tax calculations and remittance. TaxJar integrates seamlessly with Shopify and ensures accurate sales tax calculations while saving you time and effort.