If you’re running a dropshipping store in the United States, you’ll eventually need to deal with taxes. It’s not the most exciting part of eCommerce, but it’s one of the most important if you want to run a legitimate, profitable business.
The good news is that filing taxes as a dropshipper is simple once you understand the basics, what taxes apply, how to track your income and expenses, and when to file.
In this guide, I’ll walk you through exactly how to handle taxes as a dropshipper in 2025, including what forms you’ll need and how to avoid common mistakes that trip up beginners.
Do Dropshippers Have to Pay Taxes?
Yes. If you earn income from your dropshipping business, the IRS considers you self-employed, which means you’re required to report your earnings and pay taxes on your profits.
That includes:
Even if your store is small or you’re just getting started, you still need to report your income. The good news is you can also deduct business expenses to lower your taxable income, which we’ll cover later in this post.
How to File Taxes as a Dropshipper (Step by Step)
Here’s the process you’ll follow each year to stay compliant and stress-free at tax time:
1. Track All Income and Expenses
Start by keeping accurate records of your business earnings and expenses throughout the year. This includes:
If you use Shopify, most of this data can be exported easily from your dashboard or accounting apps like QuickBooks or Xero.
2. Calculate Your Net Profit
Your net profit is your total revenue minus your total business expenses. This number determines how much tax you owe.
For example:
If your store earned $200,000 in revenue and your expenses totaled $150,000, your taxable income is $50,000.
This is the number you’ll report on your tax forms.
3. File as a Sole Proprietor or LLC
How you file depends on your business structure:
- Sole Proprietor: You report your income on Schedule C (Form 1040) as part of your personal tax return.
- Single-Member LLC: You’ll also use Schedule C, since the IRS treats single-member LLCs the same as sole proprietors for tax purposes.
- Multi-Member LLC or Corporation: You’ll need to file a separate business tax return using Form 1065 or 1120, depending on your setup.
If you’re not sure which applies to you, a tax professional can help you decide.
4. Pay Self-Employment Tax
Dropshippers don’t have an employer to withhold taxes, so you’re responsible for paying self-employment tax, which covers Social Security and Medicare contributions.
This tax is 15.3% of your net earnings. Most people pay it quarterly using Form 1040-ES to avoid penalties.
5. Collect and Remit Sales Tax (If Required)
If you sell to customers in the U.S., you may need to collect and remit sales tax depending on where you have a sales tax nexus.
A nexus can be created by:
You can use tools like TaxJar or Avalara to automate sales tax collection and filing for your store.
Business Deductions for Dropshippers
The best way to reduce your taxable income is by taking advantage of business deductions.
Common deductions include:
Keep receipts or digital records for everything. These deductions can make a big difference in how much you owe at the end of the year.
What Forms Do Dropshippers Need to File Taxes?
Here’s a quick breakdown of the key forms you’ll likely need:
| Form | Purpose | Who Uses It |
|---|---|---|
| Form 1040 | Standard individual income tax return | All dropshippers |
| Schedule C | Reports profit or loss from business | Sole proprietors and single-member LLCs |
| Schedule SE | Calculates self-employment tax | Sole proprietors and LLC owners |
| Form 1040-ES | Pays quarterly estimated taxes | Self-employed individuals |
| Form 1065 or 1120 | For partnerships or corporations | Multi-member LLCs or incorporated businesses |
When Are Taxes Due for Dropshippers?
Tax deadlines for dropshippers are the same as for any self-employed business:
- Quarterly estimated taxes: April 15, June 15, September 15, and January 15
- Annual income tax filing: April 15 of the following year
If you’re just starting out and only made a few sales, you can typically file annually. But once your business is profitable, paying quarterly helps you avoid penalties and large lump-sum bills.
Should You Hire an Accountant?
If you’re earning more than a few thousand dollars per month from your dropshipping store, it’s smart to work with a CPA or eCommerce tax specialist.
They can help you:
It’s an investment that usually pays for itself through saved time and reduced stress.
Final Thoughts
Filing taxes as a dropshipper may sound complicated, but once you understand the basics, it’s straightforward.
Here’s a quick recap:
And remember, the goal of your dropshipping business is to build something real and sustainable, not just chase quick sales. Getting your finances and taxes in order is a big step toward that goal.
If you want to learn exactly how to start a profitable high-ticket dropshipping business that can handle taxes, suppliers, and scaling the right way, join my free training at DropShipLifestyle.com/webinar.
Hey Everyone,
As many of you already know, I created Drop Ship Lifestyle after selling a network of eCommerce stores and then trying to find a community of other store owners to network with… What I found was a bunch of scammers who promised newbies they would get rich quickly by following their push-button systems!
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If you go through the “How To Start & Grow A Hyper-Profitable Online Store” webinar and still have questions, just contact me, and I will help you out.