Amazon is one of the biggest companies on the planet—they service countless people and employ an equally impressive number. In addition to seeking traditional employment with the company, practically anybody can create an account and sell items online lucratively and efficiently. If you put in some real effort you can use this outlet to become a very successful online merchant. However, an inexperienced Amazon seller filing taxes might not know that there are nuances to the task that might not be immediately intuitive.
Typically, there are three different types of Amazon sellers:
Retail Arbitrage
This is where the typical Amazon seller begins their journey. Retail arbitrage buys discounted products from retail stores and resells them on Amazon. This technique is used widely and is very popular, especially for beginners. It allows a budding entrepreneur to become used to the process of e-commerce without having to commit or invest too heavily.
Private Label
This is the most scalable model for selling products on Amazon. Creating a brand and selling under a consistent name is what most entrepreneurs want to be able to achieve. This technique can be achieved through Amazon by buying from a manufacturer who can make your product in bulk at a low price. You’d then make some adjustments to the product, like adding your logo, and resell under the brand you’ve made.
Wholesale
Wholesale sellers buy products directly from major brands at wholesale prices and sell them on Amazon. There is a slight difference between this and private label selling: the products come from an already established brand and are sold under their name with their approval.
These are some of the different ways to sell on Amazon, but on the tax end it doesn’t vary too much. Here are four tips for an Amazon seller filing taxes:
1. The 1099-K Form
The 1099-K form specifically handles income received from third-party payment processors. It’s an IRS information return used to report payment transactions in order to improve tax compliance.
It’s not like other, more common 1099 forms. As an Amazon seller, you will have agreed that Amazon will take care of collecting payment information for customers. This is a huge plus for budding Amazon sellers as it’s a wonderful perk for Amazon to take care of this aspect while they focus on selling products. The customers are still yours, but Amazon acts as a middle-man. The 1099-K form details the total amount in dollars that Amazon receives and transfers over to you.
2. Sales Tax Policies For Sellers
It’s wise for every seller to know the sales tax policies in the states they operate in. The laws change, and the amount of tax often depends on a number of factors.
Sales tax is a tax on items that are paid to a governing body. As an Amazon seller, you’re responsible for collecting sales tax, and you’re responsible for the charging of buyers in terms of the correct amount of sales tax in each state that you operate in. You then must remit the collected taxes back to the state. Failure to comply with this could lead to significant penalizations for you. Your business assets could be seized if things become out of control.
You need to establish whether you have a connection between yourself and a state in terms of a nexus. It can be difficult to understand whether you qualify for taxation in a particular state, but a few common nexus-creating factors include your location, the use and location of warehouses and other forms of inventory, and personnel based in other states.
3. Deductibles
Deductibles are reductions in your taxable income. They’re commonly a result of expenses that are made in order to produce the income you are taxed for. As an Amazon seller, you can deduct a lot more than you’d think; charitable contributions, advertising, auto expenses, and payroll fees tend to qualify in this regard.
4. Consider An Accountant
When it comes to dealing with your taxes, both as an individual and as a business, it’s worth it to make the process as smooth as possible for yourself. You’ll want to end with as much profit as possible while doing what you must to avoid an audit or any other stressful activity. While some e-commerce business owners are able to deal with their taxes efficiently, many others struggle along the way.
This is where hiring an accountant can come in handy. A team of professionals that are well-versed in the field and have experience dealing with selling online can help you out effectively. Not only will they get your work done sharply, but they’ll also be able to impart some wisdom along the way so that you learn a thing or two for the future.
Contact us at Insogna CPA to find out how we can help you be a successful Amazon seller.
