Dropshipping, Bookkeeping and Taxes: An E-Commerce Accountant Explains ALL

You’ve made your first $10k in dropshipping, but where did all the profit go?

Your Shopify store is buzzing. Products are flying off the virtual shelves. You’ve cracked your first $10K month… but your business bank account doesn’t reflect that glory. 

Sounds painfully familiar?

You’ve officially landed in the dropshipping tax maze, where IRS penalties, frozen Stripe payouts, and mysterious tax bills can hit faster than your AliExpress supplier ships.

According to Arjun Mahadevan, CEO at doola:

“Most dropshippers treat their finances like an afterthought in their first year. By the time tax season hits, they’re scrambling through PayPal exports and Stripe reports with zero idea what they actually owe.”

So, today’s dropshipping bookkeeping and taxes guide is for:

• Aspiring or active dropshippers

• Non-US founders selling to U.S. customers

• E-commerce sellers scaling fast

• Freelancers and nomads exploring online businesses

By the end of this guide, you’ll understand how to run a compliant, profitable dropshipping business, without tax-time panic.

Want help from day one? Skip to Section 8 to see how doola’s services make compliance seamless.

What Makes Dropshipping Taxes and Bookkeeping Unique?

At first glance, dropshipping seems like the ultimate plug-and-play business model: no inventory to manage, low startup costs, and the freedom to sell from anywhere in the world. 

But behind the sleek Shopify storefront lies a complex web of tax obligations, transaction chaos, and compliance headaches, especially if you’re aiming to scale.

Here’s a behind-the-scenes look at what makes dropshipping finances uniquely challenging:

1. Suppliers in China, customers in 12+ US states

Your products may ship directly from overseas, but your buyers are scattered across multiple US states, each with its own sales tax laws, shipping timelines, and compliance rules. 

This creates a jurisdictional jigsaw puzzle that requires careful tracking of where and how your products are delivered.

2. Selling on Shopify, Amazon, Etsy, and eBay simultaneously

Multichannel selling is great for revenue, but a nightmare for bookkeeping. 

Every platform comes with its own fee structures, payout schedules, and tax documentation formats, which makes reconciliation far from straightforward.

3. Accepting payments via Stripe, PayPal, Klarna, and Shop Pay

Multiple payment processors mean multiple dashboards, disjointed records, and varying timelines for when revenue actually hits your account. 

If you’re not syncing these properly, your books could reflect inaccurate cash flow.

4. Refunds and chargebacks from multiple sources

Returns are part of the game, but when they come from different platforms with different terms, your revenue numbers can get muddled fast. 

Chargebacks, in particular, can quietly eat into your profits and must be documented properly to avoid overstating income.

5. Running your business from abroad while selling in the US

Non-US founders face a unique double challenge: they need to understand US tax laws and navigate how those laws intersect with their home country’s rules. 

Things like forming a US LLC or collecting sales tax from American customers can feel like walking a legal tightrope.

Bottom line? These scenarios throw a wrench in your cash flow and make accurate tax reporting much harder than most new dropshippers anticipate.

Let’s now discuss a few common assumptions that aggravate these situations further.

Common Assumptions (aka Mistakes) Made by Dropshippers

It’s not just the complexity, it’s the misinformation. Many dropshippers walk into this space with surface-level knowledge and big dreams, only to be hit with IRS letters, frozen Stripe accounts, or missed tax deductions down the line.

Let’s debunk a few myths that could cost you thousands:

Remember: not holding inventory may reduce your overhead, but it doesn’t exempt you from the responsibilities of accurate record-keeping, timely reporting, and meeting your federal and state-level tax obligations.

Dropshipping Business Structures: What’s Best for Tax Efficiency?

Your business structure impacts everything: taxes, liability, and credibility with payment processors.

The table below compares the different business structures side-by-side:

Still not sure which setup is best for your dropshipping venture? We’ve got you covered.

Book a free demo with doola to get expert, personalized guidance on the right business structure for your goals and make sure you’re building on the right foundation from day one.

Essential Bookkeeping for Dropshipping Businesses

Successfully managing a dropshipping business means handling marketing, suppliers, customers, fulfillment, all at once. But without strong bookkeeping, a single financial misstep can send everything crashing down. 

So you’re now about to unfold a mini playbook to keep your numbers organized, your stress low, and your business investor-ready. 

Let’s dive into the essentials.

Your Dropshipping Bookkeeping Checklist for 2025

Think of this checklist as your financial hygiene routine. Ignore it, and things get messy fast. Nail these basics to stay audit-proof, cash-flow confident, and deduction-savvy.

1. Separate business and personal bank accounts

This isn’t just about tidiness, it’s legal protection. Mixing accounts makes tax deductions harder to prove and exposes your personal finances in the event of an audit or lawsuit.

2. Track every expense: ads, tools, VAs, and more

From Facebook ad spend to paying your virtual assistant in the Philippines, every dollar counts. These are not just costs, they’re potential deductions. Accurate expense tracking = lower taxable income.

3. Reconcile weekly, not just at year-end

Don’t wait until tax season to clean up the mess. Monthly reconciliation helps you catch issues early, stay cash flow-aware, and keep your business financially healthy in real-time.

4. Save receipts for every deductible expense

Always think digital: store receipts in Google Drive, Dropbox, or a receipt-tracking app. It’s not just good practice, it’s IRS-proofing. 

Because in an audit, missing documentation can mean denied deductions.

And now that your foundation’s set, it’s time to level up your workflow with time-saving automations that do the heavy lifting for you.

Time-Saving Automations that Give Back Hours & Revenue 

Bookkeeping doesn’t have to eat into your weekends. With the right tools, you can automate the boring stuff and get back to scaling your store.

1. Connect Stripe, PayPal, and Shopify to auto-import transactions

If you’re still entering your data manually, it’s time to level up. Integrate your payment processors to automatically pull in sales, refunds, and fees.

However, please note that if both PayPal and Stripe are already linked to the business bank account, separate connections are not necessary.

Less admin, more accuracy.

2. Use tools like A2X or LinkMyBooks for platform-specific bookkeeping

These tools are built specifically for e-commerce. They break down your sales by product, fees, shipping costs, and taxes, giving you a crystal-clear picture of your profits per platform.

📌 Note: Even with automations in place, some common habits can still sabotage your finances. 

Let’s call them out one by one.

Common Bookkeeping Mistakes in Dropshipping & the Solutions 

Even experienced dropshippers aren’t immune to financial slip-ups. So knowing what to watch out for is the first step to keeping your books clean and your profits protected.

❌ Mistake 1: Mixing personal and business transactions

Using your business card for a quick coffee run? That $4 latte could cost you in IRS scrutiny. 

So always keep your expenses clean and separate for credibility and clarity.

❌ Mistake 2: Ignoring cash flow reports

Your sales might be soaring, but if your bank account doesn’t reflect it, there’s a problem, and it’s likely cash flow. 

Understanding your inflows and outflows is key to avoiding overdrafts and poor planning.

❌ Mistake 3: Failing to document returns or chargebacks

Refunds and chargebacks affect your net income and taxes. If you’re not logging them properly with receipts or platform reports, your books may falsely inflate your earnings.

Now if you’re still feeling overwhelmed, your books might already be falling behind and here’s how to tell.

3 Warning Signs Your Bookkeeping is Falling Behind 

If any of the following scenarios sound familiar, it’s time to hit pause and clean things up.

Sign 1: You’re dreading tax season

A sinking feeling in your stomach when April rolls around? That’s your bookkeeping waving a red flag. Clean books = calm mind.

Sign 2: You can’t tell what your net profit was last month

If you don’t know your numbers, you can’t grow your business, or spot where it’s leaking cash.

Book a free demo and let’s clean up your books once and for all.

US Sales Tax and Nexus in 2025 Explained

Sales tax gets real complicated, real fast, especially in the world of e-commerce and dropshipping. 

If you’re selling to customers across multiple states, you’re not just running a business, you’re  navigating a maze of 40+ unique tax codes.

Let’s break it all down so you’re not left guessing when tax season hits.

What Is Nexus?

Nexus is your “connection” to a state. If you hit certain thresholds, you owe sales tax there.

In simple terms, nexus means a business connection strong enough that the state can legally require you to collect and remit sales tax.

There are two main ways to trigger nexus:

• Physical Nexus: You have a physical presence in the state (like inventory, office, or employees).

• Economic Nexus: You cross certain sales or transaction thresholds, even if you have no physical presence.

Once you’ve triggered nexus in a state, you’re responsible for collecting and remitting sales tax there, even if you’re based outside the US.

Common Nexus-Trigger States to Watch in 2025

Some states have low thresholds that can sneak up on unsuspecting sellers, while others are major ecommerce hubs with stricter rules. Here’s a quick breakdown:

1. California | Threshold: >$500,000 in Annual Gross Sales

If your total sales to California customers cross half a million dollars, even through platforms like Shopify or Amazon, you’ve got a nexus, and the state wants its cut.

2. Texas | Threshold: >$500,000 in Total Revenue from Texas Buyers

Hitting this threshold in Texas means you must register and start collecting sales tax, even if your business is fully remote.

3. New York | Threshold: Physical Presence or $500,000 in Sales + 100 Transactions

This one’s tricky: You could trigger nexus by volume alone or just by having a warehouse or office. With dense populations and high sales potential, many dropshippers hit New York thresholds without realizing it.

4. Florida | Threshold: $100,000 in Sales in the State

A lower threshold, but still easy to reach. Florida’s no-income-tax perk doesn’t exempt you from sales tax responsibilities.

doola Tip: Always monitor your revenue per state monthly. Thresholds reset each year, and crossing one mid-year still triggers compliance responsibilities.

Selling via Amazon FBA? You Might’ve Already Triggered Nexus 

Fulfillment by Amazon (FBA) may seem like a dream setup, but there’s a hidden tax twist: 

If your inventory is stored in a state, you likely have a nexus there.

And yes, that applies even if you’re a non-US founder with zero employees in the US.

Amazon can store your inventory in any of its US fulfillment centers, which can trigger physical nexus in multiple states without you even realizing it. 

That means more registrations, more filings, and potentially more legal complexities to tackle.

Marketplace Facilitator Laws: Who Handles What?

Now here’s some good news: many e-commerce platforms have stepped up to collect sales tax on your behalf, thanks to what’s known as Marketplace Facilitator Laws.

But don’t relax just yet, you still have responsibilities, depending on the platform. 

Let’s find out what they are:

Bottom line: Just because a platform collects sales tax doesn’t mean you’re off the hook. You may still need to register, file returns, or remit reports, even if no tax is due.

What Happens If You Ignore Nexus Rules?

Short answer: It’s not worth it.

Long answer: Ignoring nexus and sales tax obligations can lead to serious consequences:

• Owing back taxes for every uncollected sale

• Accruing interest and penalties

• Facing state audits

• Even being suspended or banned from platforms like Amazon or Etsy

🚩 Word of Caution: 

States are getting more aggressive with enforcement, especially when it comes to digital businesses and global sellers.

Check out our full Sales Tax Guide for E-commerce Sellers to get clarity on registrations, filings, and exemptions, whether you’re just starting or scaling fast.

Income Tax Obligations for Dropshippers in 2025

If you think sales tax is complex, wait till you start managing income tax. 

Whether you’re a US-based entrepreneur or running your dropshipping empire from abroad, income tax obligations can get confusing fast. 

But getting it right isn’t optional, it’s essential for staying compliant and unlocking long-term growth.

Let’s break it down by seller type.

US-Based vs. Foreign-Based Sellers: Know the Differences

Your tax forms, and the rules you need to follow, depend on where you, the business owner, are based. Here’s how it plays out:

1. US-Based Sellers

If you’re running your dropshipping business from within the US, you’ll typically file Form 1040 (Individual Tax Return) along with Schedule C (Profit or Loss from Business). 

This allows you to report your business income, claim deductions, and calculate self-employment tax. You’re taxed on your net profit, so good bookkeeping = lower tax bills.

2. Non-US Sellers with US LLCs

This is where many international founders get tripped up. Even if you’re not a U.S. citizen or resident, if you formed a US LLC and are selling to US customers, you have tax reporting obligations.

You’ll need to file Form 5472 (Information Return) and Form 1120 (U.S. Corporation Income Tax Return), even if your LLC had zero income. 

The IRS doesn’t consider ignorance bliss; missing these can result in penalties of up to $25,000.

So, filing the right forms at the right time helps you stay in good standing, keep your LLC active, and avoid unnecessary fines.

Understanding Estimated Tax: Don’t Wait for Year-End

If your dropshipping business is consistently turning a profit, the IRS expects you to pay taxes throughout the year, not just in April.

Here’s the rule of thumb:

If you’re earning more than $1,000 in profit per quarter, you likely owe estimated taxes every three months.

Miss a deadline, and you could be hit with penalties. Make it a habit to review your profit quarterly and set aside a percentage (typically 20–30%) for quarterly estimated taxes.

📌 doola Tip: Use a separate bank account for tax savings so it’s out of sight, out of spend.

Top 5 Tax Deductions Dropshippers Forget

Tax season doesn’t just have to be about paying up; it’s also your chance to claim what’s rightfully yours. 

Dropshipping involves lots of micro-expenses, and missing out on deductions = overpaying the tax department

Here are the most commonly forgotten tax write-offs:

1. Shopify, Stripe, PayPal, and Shop Pay Fees

All those processing fees on the above platforms are deductible. Whether it’s transaction fees, refund charges, or monthly platform costs, these are legitimate business expenses.

2. Facebook and TikTok Ads

Running paid ads to drive traffic to your store? Every dollar spent on ad campaigns is deductible, including test runs, split tests, and creatives.

3. Product Photography and Videos

Visual content sells, and producing it can get pricey. The good news? These are marketing costs that can be written off when filing taxes.

4. Virtual Assistants and Freelancers

Hiring a VA for customer support or a freelancer to build your landing page? Labor costs count, even for remote workers based abroad.

5. Software Subscriptions

From that Canva Pro plan fueling your product visuals to your email automation tools and accounting software like doola, these monthly subscriptions aren’t just business essentials, they’re also fully deductible. 

Every tool you use to run your dropshipping operation more efficiently could be shaving dollars off your tax bill.

Keeping clean records helps you back up every deduction and maximize your tax savings.

With doola, you don’t have to scramble through your inbox for receipts or second-guess which form to file.

doola doesn’t let you forget key deductions, filing deadlines, or estimated taxes. It takes the entire tax burden off your plate.

From automated bookkeeping to catch-up filings and everything in between, doola ensures you stay compliant and confidently focused on scaling your store, not deciphering IRS codes.

Ready to simplify taxes for good? Sign up for doola’s tax filing services today.

How to Work With an E-Commerce Accountant In 2025

Dropshipping has its own set of tax nuances and not all accountants can understand or cater to these complexities.

While your neighborhood CPA might be great at filing a simple 1040, e-commerce tax compliance is a beast of its own, one that requires platform knowledge, sales tax savviness, and automation-friendly workflows.

Let’s help you  spot the difference and partner with someone who actually gets your business.

Generalist vs. E-Commerce Accountant: Not All Pros Are Built Equal

From platform integrations to sales tax across states, here’s why working with an e-commerce specialist can make all the difference:

📌 doola Tip for doers: A generalist will ask “Do you have receipts?”

An e-commerce accountant will ask “Have you deducted your Shopify fees, advertising, and VA hours this month?”

Let’s break this down further.

Questions E-Commerce Accountants Should Ask Dropshipper

A true e-commerce-savvy accountant won’t just crunch numbers; they’ll strategize with you. 

Expect them to ask legit questions like:

“What platforms are you selling on?”

Each platform, be it Shopify, Etsy, Amazon, or eBay, has unique reporting quirks and fee structures. A specialist tailors your books accordingly.

“Which states have you shipped to?”

Because nexus laws are based on sales volume and shipping destinations, this determines your sales tax obligations. An experienced accountant will help you avoid accidental non-compliance.

“How are your products fulfilled?”

Whether you’re using print-on-demand, a US warehouse, or suppliers in China, fulfillment impacts your nexus and expense tracking. Great accountants build your books around your fulfillment model.

And now that you know what questions an expert e-commerce accountant should ask, let’s compare what happens when you try handling the tax complexities all by yourself vs. when you sign up for a full-service solution like doola.

DIY vs. Hiring Help: What It Really Costs

Doing your own bookkeeping and taxes might seem like a way to save money, but let’s break down a few common scenarios:

Relying on Google and spreadsheets might feel like a quick fix, but it’s a fast track to messy, non-compliant books. 

With doola, you get expert e-commerce bookkeeping tailored for dropshippers, seamless integrations with platforms like Shopify, Amazon, and Stripe, and stress-free support come tax time. 

Ready to upgrade from DIY chaos to done-for-you clarity? Book a free demo with doola today and let the experts take it from here.

How doola Helps Simplify E-Commerce Compliance

Launching and scaling a dropshipping business shouldn’t mean losing sleep over taxes. Not with doola in your corner.

From forming your US LLC to registering for sales tax and filing returns with expert guidance, doola streamlines every step. Whether you’re a solo founder or managing a cross-border team, here’s what makes doola the go-to choice for global e-commerce entrepreneurs:

• All-in-One Bookkeeping tailored for e-commerce

• US Sales Tax Registration done right

• Tax Filing support for US and non-US founders

• Built for cross-border compliance from day one

• Real-time reporting and dedicated bookkeeping support

From formation to filing, we’ve helped thousands of founders scale without fear. With doola by your side, you’re not just avoiding penalties. You’re setting your business up to thrive.

Schedule your demo today and go global with doola!

FAQs

Do I have to pay taxes if I dropship using a supplier from another country?

Yes. If you’re selling to US customers and earning income, you may have both sales tax and income tax obligations.

How do I know which states I have sales tax nexus in?

Check our Sales Tax Guide to assess thresholds.

What if I already started selling but haven’t done any bookkeeping yet?

No worries. Catch Up Bookkeeping is part of what we do best at doola. 

Can I write off software, ads, and virtual assistants?

Absolutely. They’re common deductions that lower your taxable income.

What tax forms do I need to file as a dropshipper?

It depends on your structure and location. US citizens typically file Schedule C. Foreign owners of US LLCs file Forms 5472 and 1120.