How to Navigate Income Taxes for Amazon Sellers

Selling on Amazon is a very different experience compared to selling in traditional brick-and-mortar stores. Your storefront and products have the ability to reach buyers across the nation. However, Amazon sellers are still subject to taxes and should approach filing and reporting based on their own state and federal government laws.

As the 2020 tax season approaches, many new Amazon sellers may be filing income taxes for the first time. Here are some ways to help understand the process when it comes to income filing and taxation requirements for Amazon sellers:

Bookkeeping for Amazon Sellers

If you are an Amazon seller or own an online business, you need bookkeeping software. Period. The more organized you are with keeping track of your finances, the better. This can help you avoid problems later on, come tax time, or when reviewing the health of your business.

At a minimum, you should have some sort of accounting software in place. There are a bunch of different programs to help you with this. Some examples are Quickbooks, Freshbooks, Xero, or Quicken. They are inexpensive and can save you a ton of time. Do yourself a favor and ditch the spreadsheet and invest in some accounting software.

These programs will also help you calculate estimated taxes and tax deductions for your Amazon business. You can track mileage, office expenses, and vehicle expenses for example. This way come tax time, you will have the majority of the information you need readily available.

1099-K – What is a 1099-K and Who Receives One?

In my previous blog post, I discussed sales tax and determining nexus. Long story short, nexus is when you sell a certain amount of goods and services in an outside state and need to collect sales tax for those items. You can reference the article here for more information about e-commerce sales tax.

1099-K forms are for online retailers that accept credit card payments over the Internet. They are provided to Amazon sellers who have greater than $20,000 in unadjusted gross sales and more than 200 transactions.

You will get this in the mail or electronically by January 31st of the following tax year sales were reported. They can also be sent by merchant processors that are taking credit card payments.

The goal of these forms is to help keep track of income from various sources for online sellers. The IRS will receive a copy of your 1099-K but the corresponding states where sales were made will not. It is up to you to determine if you have nexus and sales tax needs to be collected.

Make sure your 1099-K matches with the income reported on your tax return. The form is informational only but it should be consistent with what you report.

Tracking Sales Tax for Amazon Sellers

Each business is liable for tracking their sales tax requirements. Online solutions such as a Taxjar can help you with this process. If you have an accountant or tax professional they should be able to assist you with this as well. A lot of firms will have procedures in place to make sure you are staying compliant.

Your income reported on your taxes needs to match your 1099-K. The other side of this coin is to know where that income was generated. Then you need to review each state’s rules and regulations on nexus to see if sales tax is owed. This should be tracked monthly in your accounting software or CRM.

The most important thing you can do is to stay organized when you keep track of your business finances so that when the time comes, you can calculate your Amazon seller taxes. It is often worthwhile to invest in software and professionals such as CPAs. This saves you time and money to focus on what is important to your business and what you do well. Bite the bullet and pay the money – this is one of the things you don’t want to skimp on.

If you’d like an objective second opinion about your finances, please contact Michael Shea, a CERTIFIED FINANCIAL PLANNER, at Applied Capital. Email him at [email protected] or fill out a contact form.

This blog is provided for informational purposes only. Such views are subject to change at any point without notice. The information in the blog should not be considered investment or tax advice or a recommendation to buy or sell any types of securities. Some of our blogs or information therein have been obtained from third party sources believed to be reliable but such information is not guaranteed. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. No reliance should be placed on, and no guarantee should be assumed from, any such statements or forecasts when making any investment decision.

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