Let’s get your Amazon FBA business ready for tax time!
Are you ready for tax season?
While most people groan and many try to procrastinate over anything Amazon FBA tax-related, the fact is that the better prepared you are, the more likely that things will go well for you.
All year you’re worry about keeping your Amazon business growing.
Therefore, tax season is not when you need to get everything together for your FBA business. If you let it build up to an onerous task for tax time, you’ll only make more work for yourself and possibly miss things which put you at a disadvantage.
Lets answer this question first:
Do I Need to File Taxes for my Amazon FBA Business?
Short answer, Yes.
There often seems to be a lot of confusion with Amazon FBA sellers around this which stems from the “$20k rule.” This rule means that all sellers who use marketplaces such as Amazon and make more than $20k of unadjusted gross sales or have more than 200 transactions will automatically have a 1099-K form filed for them by their payment provider.
In short, if you meet these criteria the IRS already knows your Amazon business exists so you had better be filing correctly.
This doesn’t mean those who earn less don’t need to file — always check with a tax professional, but generally speaking, all income must be reported.
If you are selling on Amazon outside of the US and therefore not liable for US tax, IRS regulations require non-U.S. taxpayers to provide Form W-10BEN to Amazon in order to be exempt from U.S. tax reporting requirements.
(Check out Amazon’s information on third-party reporting to the IRS here).
US-based Amazon FBA sellers will need to file taxes, even if below the threshold for an instant 1099K
Here’s what you need to know and have ready:
How do I report sales tax for my Amazon FBA Business?
Sales Tax Nexus
Amazon FBA sellers are liable for collecting sales tax in all states where they have “nexus”.
What is nexus?
Nexus is defined as a physical business presence in a given state. Meaning where Amazon FBA stores your physical products.
If you worry about Amazon FBA sales tax or don’t understand it check out this article! Stop stressing about sales tax and get on with your FBA business
You have nexus in any state that stores or ships your products from an Amazon Fulfillment Center (Amazon has fulfillment centers in 20+ states).
Also, you have nexus in your own home state, particularly if you maintain any kind of office or business-related facility there.
And, you potentially have nexus in multiple states, so you will need to determine filing requirements (or use a service such as TaxJar which will autofile for you).
What are Amazon FBA sellers responsible for reporting besides Sales Tax?
The IRS wants to know your Amazon gross annual income, which includes EVERYTHING that came in, not just the cost of the product for the customer.
Meaning, gross income numbers include shipping charges.
One thing we will always recommend, particularly if you’re not sure is to consult with a qualified accountant. Under-reporting your income on Amazon is a risk that you run which might catch up with you unpleasantly later on if the IRS decides to audit you.
This means, as a general rule, just report every dollar that came into your business.
What’s the bottom line?
We highly recommend using automated accounting solutions such as A2X with Xero in order to make life easier. This way, your Amazon income reporting can be automatically pulled and there will be little left for you to sort out manually.
Expenses add up with your Amazon FBA business so use them as deductions of your overall gross Amazon income.
Again, these vary in their application so check in with a qualified professional to make sure you’ve got it right.
Honestly, there are so many variations in the tax code that you may well be short-changing yourself if you try to do it on your own without knowing your full entitlements.
Common deductions might include:
- FBA Inventory costs (use an Amazon inventory management tool to help with this).
- Amazon Fees
- Amazon Software and FBA subscription fees.
- Supplier Shipping and office supplies.
- FBA Seller Education or FBA business-related courses.
- Donations of items.
- Home office deduction (you may have a deductible percentage of your rent or mortgage).
- Health insurance plans (talk it over with an accountant — this applies to specific types of plans).
- Retirement plans (as above).
- FBA Sourcing Travel and meals where business-related.
Of course, you need to keep track of all of these expenses throughout the year, or face a possible scramble trying to figure them out prior to filing taxes for your FBA business.
The key is to have receipts for everything — the tax code changes fairly regularly with new deductions permitted or some you were once allowed being removed.
If it’s a business-related cost, file a receipt.
Receipts to Track FBA Tax Deductions
As an FBA seller, you probably get many of your receipts for tax-deductible expenses sent via email.
Most automated accounting programs allow you to forward the email to them for automatic storage of your receipt. (including Xero or Quickbooks)
If you’re not using a program with this capability, there are other receipt apps available via which you can forward email receipts, such as Shoeboxed.
You can scan physical receipts into it for storage and track any mileage with it.
It helps you to create expense reports and even stores business card information if you need it as well.
Many FBA business owners short-change themselves come tax season on potential deductions because they don’t have their receipts well-organized.
Use a receipt app if you’re stuffing tax-deductible receipts into a shoebox or searching through purses, wallets, and desk drawers.
Put Everything About FBA Taxes Together
If you’re a DIYer, you might choose to use a program like Turbo Tax and input everything yourself, which means you’ll need to have all summary figures of income and tax-deductible expenses available.
Therefore, Keep all receipts and summary statements in a specific “taxes” folder marked for the particular year you are filing for.
When visiting your accountant to have your Amazon FBA taxes done, here’s what they like to see:
- Financial statements. These might include a balance sheet, income statement and cash flow statement, although the one most important to your accountant for tax filing is the income statement.
- Summary of business expenses, including cost of goods sold and any inventory write-offs or donations.
- Vehicle log where applicable for business-related use.
- Home office expenses. Here’s what Quickbooks has to say: “These expenses include a percentage of your utilities, repairs and maintenance, home insurance, and mortgage interest or rent. You can calculate your home-office deduction by dividing the square footage of your office space by the livable square footage of your house, or by dividing the number of rooms your home office occupies by the total number of rooms in the house. Using either formula, multiply your total home expenses by the home-office percentage. Some accountants will ask for all of your original receipts, while others will only want the summary; be sure to ask what your accountant expects you to provide and prep those documents.”
- Form 1098, showing mortgage interest and property taxes. This is for the home office deduction if you have a mortgage.
Final Thoughts About Amazon FBA Taxes
Hey, we know Amazon FBA taxes aren’t the most exciting thing to be dealing with.
But a truly successful FBA business handles financial matters head on.
So, If your books are in a mess, what state is your business in?
Besides that, everyone is required to correctly file Amazon FBA taxes.
Mistakes can be detrimental to your FBA business by causing an audit and tax bill later on. So don’t short-change yourself on tax deductions you’re legally allowed.
In short, get your Amazon private label business ready for tax season early — you’ll be glad you did.
Addition FBA Tax Resources:
Stop Stressing About Sales Tax and Get on With Growing Your Business
How to Sell on Amazon FBA (Updated for 2017)
Do I Need An LLC or Business License to Get Started?