People that start new Amazon businesses sometimes say things like: “I don’t want to screw myself down the line. Am I required to pay income taxes the second I make any money using Amazon FBA?”.
The short answer is yes. You need to report your Amazon sales as income on your taxes, just like your other income streams.
That’s why tax season is not when you need to get everything together for your Amazon FBA business. If you let it build up, you’ll only make more work for yourself and possibly miss things when you do report.
What is the Amazon 1099-K Tax Form
The 1099-K Tax form is how the IRS knows your monthly and annual gross sales information. Amazon uses it to report sales information, sales tax, and shipping fees. However if you’re an individual Amazon seller then you’re not responsible for filling out an Amazon 1099-K because an individual seller would most likely not meet the income threshold.
Who Qualifies for an Amazon 1099-K Tax Form?
There often seems to be a lot of confusion about Amazon FBA taxes that 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.
Not meeting the criteria above doesn’t mean you don’t have to report your Amazon FBA income tax. If you’re a professional seller or you’re an individual seller with over 50 transactions then you need to make sure your tax information is up to date with Amazon. If your tax information is not up to date then you can lose your Amazon seller status.
What Qualifies as Income
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. This means that 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.
We highly recommend using automated accounting solutions such as A2X with Xero 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.
Reporting Income Selling Outside the US
If you are selling on Amazon outside of the US you are not liable for US tax. IRS regulations require non-U.S. taxpayers to provide Form W-8BEN 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 sellers will need to file taxes, even if below the threshold for an instant Amazon 1099-K.
Where on Seller Central is the 1099-K
If you think you should have received a form 1099-K but didn’t, you can access the form from your Seller Central Account:
- Go to Sellercentral.amazon.com
- Go to the “Reports” Section
- Select “Tax Document Library”
- Select Applicable “Form 1099-K”
Check for errors on the 1099-K
It’s important to check your form and look for errors on the 1099-K before reporting to the IRS. Amazon isn’t perfect and they can mess up your sales data. You want to look at the box 1a on the 1099-K. This number is likely and estimate for the total sales for the past year.
You want to run another report that will allow you to see the numbers that make up the Amazon 1099-K amounts.
- Go to Sellercentral.amazon.com
- Go to the “Reports” Section
- Select “Date Range Reports”
- Select Generate a report
- Tap the following settings: Summary, Custom, and enter the date range for the applicable tax year.
- Hit the Generate button
- Next, download the repot
The 6 numbers that you need to add up to make sure they match your Amazon 1099-K are as follows:
- Product sales (non-FBA)
- FBA product sales
- Shipping credits
- Gift wrap credits
- Promotional rebate refunds (Note: This will be a subtraction)
- Sales, shipping, and gift wrap tax collected
Adding up these 6 numbers should match exactly to box 1a of your Amazon 1099-K. Also something else to think about is your legal business entity for your Amazon business to try and lower your tax burden. It’s possible that certain business types can benefit you more as an Amazon seller than another.
Understanding Sales Tax Nexus
Amazon FBA sellers are liable for collecting sales tax in all states where they have “nexus”. Nexus is defined as a physical business presence in a given state, meaning where Amazon warehouses store your physical products.
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 auto file for you).
Expenses add up as an Amazon seller 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.
Use Receipts to Track Amazon Tax Deductions
As an Amazon 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
Amazon 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 is applicable for business-related use.
- Home office expenses.
- Form 1098, showing mortgage interest and property taxes. This is for the home office deduction if you have a mortgage.