Introduction
Opening a Shopify store in 2025 is more than just building a sleek storefront—it’s building a real business in the IRS’s eyes. Without the right tax setup, many first-time eCommerce sellers lose thousands in overpaid taxes or IRS penalties. This blog walks you through a powerful tax setup tip, IRS forms you need, and how to stay compliant while growing your Shopify brand.
IRS Tax Code Reference
Here are the key IRC sections that govern Shopify businesses:
- IRC §61(a): Gross income includes revenue from product sales, even if made online.
- IRC §162(a): Ordinary and necessary expenses (ads, hosting, subscriptions) are deductible.
- IRC §6041A and §6050W: Requires payment processors (Shopify Payments, PayPal, Stripe) to issue Form 1099-K for payments over $600.
Relevant IRS Forms for Shopify Sellers
- Schedule C (Form 1040): Report income and business expenses.
- Form 1099-K: Sent by payment processors (Shopify Payments, PayPal, Stripe).
- Form 4562: For depreciation on equipment used in business.
- Form 8995: Qualified Business Income deduction, if applicable.
- Form 8829: Deduct a portion of home office expenses if eligible.
Example: Shopify Seller Tax Scenario
Case: Alex, Shopify Store Owner in Georgia
- Gross revenue in 2024: $82,000
- Expenses:
- Product sourcing: $30,000
- Facebook & Google Ads: $8,000
- Shopify platform fees: $2,200
- Packaging & shipping: $5,500
- Web design & apps: $1,500
- Home office: $1,800
- Equipment depreciation: $1,000
Net income:
$82,000 – $50,000 = $32,000
QBI deduction (Form 8995):
20% of $32,000 = $6,400
Alex lowers his taxable income legally and avoids penalties by properly classifying his business and filing the right forms.
Step-by-Step IRS Compliance Guide
- Collect all 1099-K forms from Shopify Payments, PayPal, and other processors.
- Track income and categorize business expenses monthly.
- Report gross revenue and deductions using Schedule C.
- Use Form 4562 to depreciate business equipment (laptop, camera, printer).
- File Form 8829 to deduct part of your home if used exclusively for business.
- File Form 8995 to claim the QBI deduction.
- Submit complete return via Form 1040 with all applicable schedules.
Conclusion
Shopify sellers in 2025 should treat their online store like any full-fledged business. A proper tax setup, correct expense tracking, and the use of IRS-compliant forms can help you legally reduce your tax liability. Ignoring these basics could lead to audits or unnecessary tax bills.
Call-to-Action and Disclaimer
Starting or growing your Shopify store this year?
Schedule a meeting with CPA Anshul Goyal to review your store’s tax setup and ensure your filings are done right.
Book a consultation here: https://calendly.com/anshulcpa/
Disclaimer:
This blog is for educational purposes only and is not legal or financial advice. Tax outcomes vary based on each individual case. Please consult a qualified tax professional for personal guidance.
Anshul Goyal, CPA EA FCA is a U.S. licensed CPA, IRS Enrolled Agent, and Chartered Accountant (India). He helps eCommerce entrepreneurs and digital businesses stay IRS compliant while maximizing tax savings.
Top 5 FAQs
1. Does Shopify issue a 1099-K?
No, but Shopify Payments, PayPal, or Stripe will issue a 1099-K if payments exceed $600.
2. Can I deduct Shopify fees and ads?
Yes. Platform fees, advertising, software, packaging, and similar business expenses are deductible under IRC §162.
3. Should I register an LLC for my Shopify business?
Not required, but doing so can offer liability protection and may improve your tax strategy.
4. Do I have to collect sales tax?
Yes, depending on your sales volume and customer location. Sales tax nexus rules apply.
5. Can I get in trouble for not reporting small sales?
Yes. All business income must be reported regardless of size. The IRS can trace payments through 1099-K or payment processor records.
About Our CPA
Anshul Goyal, CPA EA FCA is a cross-border tax expert and U.S.-licensed CPA who assists eCommerce businesses with tax filings, compliance, and IRS representation. With over 15 years of experience and $200M+ in client tax savings, Anshul supports digital entrepreneurs in navigating IRS and state tax issues confidently.
Email: anshul@kkca.io
Book a call: https://calendly.com/anshulcpa/
Website: www.kkca.io