Many aspiring entrepreneurs are drawn to dropshipping, print-on-demand, and other passive income models because of their low startup costs and scalability. The idea of running an e-commerce store without holding inventory, handling shipping, or investing large sums of money upfront is incredibly appealing.
But as your store grows, an important question arises: Should you register a business for your dropshipping or print-on-demand venture? Some sellers assume they don’t need to register a business if they’re just starting out, while others worry about tax and liability issues down the road.
Contents
Do You Need a Business to Start Dropshipping or Print-on-Demand?
Technically, you don’t need to register a business before starting a dropshipping or print-on-demand store. Many sellers begin as sole proprietors, using their personal bank accounts and tax IDs. However, just because you *can* start without a formal business doesn’t mean you *should*—especially if you’re planning for long-term growth.
Selling as a Sole Proprietor
If you start selling online without registering a business, the IRS considers you a sole proprietor by default. This means:
- You report your income on your personal tax return.
- You don’t need a separate business bank account (though it’s highly recommended).
- You are personally responsible for any debts or legal issues.
For a small side hustle, this may be fine—but as you scale, the lack of separation between your personal and business finances can become risky.
When Should You Register Your Business?
While registration isn’t required to start, there are key moments when formalizing your business makes sense:
If You’re Earning Consistent Revenue
If your store starts generating steady income—even just a few hundred dollars a month—it may be time to register your business. This makes tax filing easier and helps avoid potential IRS scrutiny.
If You Want to Work with Suppliers and Payment Processors
Some suppliers, wholesalers, and payment processors require a registered business before working with you. A business structure can also make it easier to open accounts with platforms like:
- Shopify Payments
- Stripe or PayPal Business
- Wholesale suppliers for dropshipping
If You Want to Protect Your Personal Assets
Without a registered business, you and your business are legally the same. This means if someone sues your store for a defective product, they can go after your personal finances. A formal business structure helps separate your personal assets from business liabilities.
Tax Considerations for E-Commerce Entrepreneurs
One of the biggest reasons to register your business is tax efficiency. Whether you’re making money from dropshipping, print-on-demand, or digital products, you’ll need to report earnings to the IRS.
Self-Employment Taxes
Sole proprietors pay self-employment tax, which covers Social Security and Medicare. This is in addition to federal and state income taxes.
Sales Tax Obligations
Many online sellers are unaware that they may be required to collect and remit sales tax in states where they have “economic nexus” (i.e., a certain number of transactions or revenue in that state). Registering a business can help streamline compliance.
Business Tax Deductions
Registered businesses can deduct expenses such as:
- Software and website costs
- Marketing and advertising
- Product samples and testing
- Business-related travel and training
Without a business structure, you may miss out on potential tax savings.
What Business Structure is Best for Your Online Store?
If you decide to register your business, the next step is choosing the right structure. Here are the most common options:
Sole Proprietorship
The simplest and most common structure for beginners. However, it offers no liability protection, meaning your personal assets are at risk.
Limited Liability Company (LLC)
Many e-commerce entrepreneurs choose an LLC because it separates personal and business finances while keeping taxes flexible. An LLC can help:
- Protect your personal assets if your business is sued.
- Make your store look more professional to customers and suppliers.
- Simplify tax reporting compared to a corporation.
While an LLC isn’t required for all online sellers, many find it a useful step as their business scales.
S Corporation (S-Corp)
For high-earning e-commerce businesses, an S-Corp can provide tax advantages by reducing self-employment taxes. However, it comes with additional paperwork and legal requirements.
How to Register Your Business
Registering a business depends on your state and country, but the general steps include:
- Choose a business name that’s unique and available.
- Register with your state’s business authority (for LLCs and corporations).
- Obtain an EIN (Employer Identification Number) from the IRS for tax purposes.
- Open a business bank account to keep finances separate.
- Check if you need business licenses or sales tax permits.
Should You Register a Business?
If you’re just testing out dropshipping, print-on-demand, or other passive income models, you can start as a sole proprietor. But if you’re earning consistent revenue, working with suppliers, or want legal protection, registering a business is a smart move.
To summarize:
- Starting out? You can operate as a sole proprietor—but keep finances separate.
- Making regular sales? Consider registering a business for tax and legal benefits.
- Scaling your store? A business structure like an LLC can provide financial and legal protection.
Every business is different, but setting up the right structure from the beginning can save you time, money, and stress as you grow. If your goal is long-term success, treating your store as a real business—not just a side hustle—will set you up for sustainable profits.
