If you are planning on becoming an Amazon FBA seller, then you must understand the financial side of things beyond buying and selling. When it comes to filing your taxes, things can appear more complicated than they really are. This guide will help you understand the process and how essential it is to the running of your Amazon business.
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From accessing and filling out the 1099-K form to keeping track of sales tax, this guide will help explain the process of filing taxes as an Amazon seller.
The 1099-K Form
As an Amazon seller, you will quickly learn that the 1099-K form is essential when it comes to taxes. This form will provide the IRS with a report of your monthly and annual sales information. The form will be pretty comprehensive, including information on sales tax and fees. Amazon will take care of the 1099-K, which means you will not have to fill it out or submit it to the IRS.
The 1099-K is only submitted when you, the seller, meet two conditions: you have more than $20,000 in unadjusted gross sales and over 200 transactions. However, if you don’t meet either or both of these conditions, you will have to submit your own tax information to Amazon. Submit this information through your Seller Account under the subheading labeled “Tax Information”.
Keep track of your transactions and make sure that you submit the appropriate information to keep your business on the platform.
Sales tax is one of the more stressful and time-consuming aspects of being an online retailer and unfortunately, FBA does not simplify matters. Depending on the state, sales taxes will vary in amount and what it applies to. Things can get complicated pretty quickly when you are selling in different states, or even internationally. But as a seller on Amazon, you need to know when to collect sales tax for the government. It is recommended you use a sales tax calculator, which you can find online for free.
You will also come across the phrase “sales tax nexus”, which in a nutshell just means where the physical location of your business is located. This includes where you physically do your work sourcing and organizing your merchandise as well as where the physical products are stored. That means you can have multiple sales tax nexuses.
To collect sales tax, you need to apply and receive a sales tax permit. Once received, you will be informed by the government on how often you should report these taxes (usually this will be quarterly or annually, but you may be asked to report monthly). To keep your permit, never forget to file these taxes!
When running your own business, tax deductibles will become your best friend. There are a lot of things you can claim deductibles on, so it helps to keep an itemized list to prevent anything from being left out when filing your taxes.
Here are some of the most common examples of deductibles for Amazon sellers:
- Supply costs: this includes everything from the wholesale price to production costs
- Shipping and storage costs
- Amazon FBA fees
- Charitable donations
- Home office costs: including rental space and electronics that you use in a business capacity
- Education costs: this will cover things like seminars or conferences that accelerate or support your career path
- Marketing and advertising
- Business consultants: contacts such as an accountant, lawyer, or marketing team
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Should You Hire an Accountant?
While it is completely within your skillset to file your taxes for your Amazon revenue, sometimes it is simpler and more accurate to have an accountant help. Having a tax expert help you unravel the complexities of sales tax and your gross annual revenue should not be considered a luxury.
In some cases and for some businesses, an accountant is more than worth their initial cost. Many online retailers quickly realize that the upfront cost of an account is made up for by the in-depth knowledge of deductibles and other ways to boost your tax return.
Do Amazon Sellers Need a Business License?
For nearly all Amazon sellers, a business license is not required at all. However, there are a few states that will require you to apply for a business license, so make sure you research this before setting up your online retailing business with Amazon.
If your business grows and you decide to hire employees or rent an office space, there is a greater chance that a business license will be required. If you do end up running your business with a business license, you will need to file Schedule C or Form 1040.
While keeping your taxes can be confusing, it is an essential part of running your business on Amazon. Don’t forget to file your taxes or sales tax, or you could risk losing your place on the platform altogether!