If my taxable income from my drop shipping business was $12,000, and I paid $5,000 in federal and state taxes, does that mean I overpaid in taxes?

by Susan E. S. Howe, CPA | Jul 11, 2018

I run a modest drop shipping business off eBay/Shopify platforms. My actual income comprises just about 33 percent of my gross income after all expenses are deducted (product costs, selling fees, etc.) According to an accountant, my taxable income for 2017 was only around $12,000, but I still ended up paying just a little over $5,000 combined in state and federal taxes. This seemed odd to me. I know this isn't the most detailed information, but does it sound like I'm overpaying in taxes or is that about the ballpark of what I should be paying?

It's too difficult to tell from the limited information you've given, as there are many factors that affect tax. However, keep in mind that your income from this activity is likely considered income from self-employment. So, in addition to income tax at the state and federal level, self-employment tax is due with your return. At these income levels, it's entirely possible that the self-employment tax would exceed any income tax. There might also be local tax or mercantile or gross receipts taxes, depending on the location of your residence and business.

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Answered by: Susan E. S. Howe, CPA, is principal of Howe Advisory in Strafford, Pa.

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