Things Amazon Sellers Need to Know About Filing Taxes:
File a Schedule C If You Have a Business License.
Generally speaking, you don’t need a business license to become a seller on Amazon. However, some states will require you to get one. The criteria for getting a business license differ by state, but if you have employees, inventories and offices in multiple states, chances are you’ll need one. By contrast, if you’re just running a one-person operation out of your home, you probably won’t need one. It’s crucial to check your state’s requirements to avoid any mistakes. Remember that you’ll need report income to IRS whether you have a business license or not.
If you’re operating as a business in your state, you’ll need to file Schedule C, or Form 1040. You can learn more about how to keep track of Schedule C here.
Stay on Top of Sales Tax.
Perhaps the most stressful part of filing taxes as a seller on Amazon is the sales tax, particularly if you’re an FBA (Fulfillment by Amazon) seller who uses Amazon’s fulfillment centers in different states.
What Is the Sales Tax, Exactly?
A sales tax is a tax on items for sale that are deemed non-essential. These items vary from state to state. For instance, some states will tax clothing while others like Minnesota, New Jersey, Vermont and Pennsylvania don’t. Still others tax clothing only up to a certain cap.
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If you’re a seller on Amazon, you’ll need to collect sales taxes on behalf of the government, depending on the products you sell and where your sales tax nexus is located.
So What Is a Sales Tax Nexus?
Different states have different definitions for what qualifies as a sales tax nexus, but most of them define it as a place where there is a physical presence for your business. So if your home office is located in New York, and your inventory is in Kentucky, you have a sales tax nexus in both New York and Kentucky. If your office is in California but you have an employee in Michigan, you’ll need to collect sales tax in both California and Michigan.
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For each state where you have a nexus, you’ll need to collect sales tax from buyers. You will then need to report those taxes, oftentimes by individual district, to the IRS.
When Do I Need to File Sales Tax?
In order to collect sales tax in the state, you’ll need to apply for a sales tax permit. Upon doing so, the state will assign you a filing frequency–these can be monthly, quarterly or annually. Pay attention to the due dates accordingly.
As complex as this sounds, there’s life-saving software to help you do the necessary work. To make life easier for yourself, it’s best to keep an eye on your sales tax on a regular basis throughout the year. Here’s how to track your sales tax on Quickbooks.
Don’t Forget Your Deductibles.
We saved the best for last. Like any other self-employed individuals, Amazon sellers can claim deductibles on things like home office expenses and education costs. Never throw away any receipts that can be related to your online activities.
Here are some important deductions that may come in handy for sellers:
- Cost of goods sold, e.g. wholesale price, cost of manufacturing, etc.
- Shipping costs, including fees and supplies
- Home office costs, e.g. electronics, furniture, supplies
- Amazon fees
- Donations, e.g. damaged goods donated to charity
- Education pertaining to online business and ecommerce
- Software for taxes and inventory
- Online advertising, e.g. ads, business cards, print materials
- Employee salary and benefits
- Consultant fees, e.g. accountant, lawyer, web designer, copywriter
Find out how to integrate your Amazon store with Quickbooks to avoid unnecessary time spent on data entry and tracking.