How do Shopify sellers report income on taxes?

Shopify sellers operating as sole proprietors or single-member LLCs report their e-commerce income on Schedule C. The reporting starts with gross sales revenue, then deducts cost of goods sold (beginning inventory plus purchases minus ending inventory), and then deducts other business expenses — Shopify subscription fees, payment processing fees, advertising, shipping, and packaging — to arrive at net profit. Net profit is subject to both income tax and self-employment tax.

Sales tax collected from customers and remitted to state tax authorities is not income — it is a liability collected on behalf of the state. Sellers should not include sales tax collected in their gross revenue figure on Schedule C. Similarly, refunds issued to customers reduce gross revenue in the period the refund is given. Tracking these adjustments accurately prevents both overpayment and underpayment of income tax.

For sellers using Shopify Payments, a Form 1099-K will be issued at $600 or more in gross payments for tax year 2026. This form reflects gross transaction volume — not net revenue after fees — so sellers must reconcile the 1099-K to their Schedule C, accounting for Shopify's transaction fees, payment processing fees, and refunds. Sellers who use multiple payment processors may receive multiple 1099-K forms that need to be reconciled together. IRS Publication 334 provides the full framework for Schedule C reporting by small business operators.

This is general tax information, not tax advice. Your situation may differ; consult a licensed CPA before making tax decisions.