In this video, you get answers to these questions:
As a business owner, do you have to pay tax on money you receive for shipping and handling? That’s the question I’m going to answer today. I’m Aaron Hall. You can learn more about me at aaronhall.com. And please see the disclaimer below.
As a business owner, you may charge shipping and handling. The shipping portion might cover postage or FedEx fees, but the handling portion might cover just the cost and the time of putting a product in the mail or to be delivered. When you get that money do you have to pay tax on that?
Well, in order to answer that, it’s important to understand what you’re paying tax on. In the United States, income tax is based on profits of the business, not the gross income. So just because you have money coming in from shipping and handling doesn’t mean you have to pay taxes on necessarily any of it. We add up all the income you’ve received in the year, we deduct the expenses that you had to pay out, like FedEx, postage, employees, insurance, software licenses, et cetera, and then whatever your profit is at the end of the year, that is typically what you’re going to pay income tax on. That’s a real high level. There are some details and some exceptions to the rule, but that’s the overlying concept regarding how you pay taxes.
So to answer the specific question, for shipping and handling, when that money comes in, you treat that just like any other income. You deduct the expenses associated with running your business and you only pay tax on the profit that’s left over at the end of the year.
To learn more, check out my other videos or visit aaronhall.com.