Selling on Amazon may be your side business. But it’s a business still, which means you have to pay taxes like other brick-and-mortar businesses. Sellers in the U.S are required to pay their business taxes by March 15 every year. In contrast, personal taxes are due every April 15.
The process of filing taxes for Amazon sellers, however, is not as straightforward as that of other retailers. As a result, it’s crucial to get all the necessary information to avoid penalties from the IRS.
Here are all the things you need to know about reporting Amazon FBA taxes correctly and on time.
The IRS Form 1099-K is a document issued by AMZ in line with IRS regulations. This reporting form supplies the IRS with your sales information. This includes details such as gift wrapping, shipping fees, and sales duty.
Individual sellers will not have to fill out Form 1099-K. AMZ fills out the form for you and sends it to both you and the IRS if you meet the requirements.
Who has to fill out Form 1099-K?
AMZ does not issue the 1099-K form to every seller. You have to meet both of these thresholds to receive the 1099-K form.
- You must make more than $20,000 in unadjusted gross income
- You must have had more than 200 transactions
If you do not meet these thresholds, they still require you to submit your tax information. Failure to do this puts you at risk of losing your seller status.
How can I access Form 1099-K?
If you meet the two conditions above, you are likely to receive the 1099-K Form by e-mail or postal mail, depending on your preferences. However, you can also view the form on AMZ. To do so, log in to your Seller Central account. Thereafter, click on the Reports menu > Tax Document Library. Then you can download or print the 1099-K form.
What if I do not get the 1099-K Form?
If you meet the reporting threshold but do not get the 1099-K Form, then you should contact Seller Support.
What should I do if my 1099-K Form is inaccurate?
If you discover that there are errors on your 1099-K document, you can correct them. First, verify that you are comparing unadjusted total gross sales for the year. These should be based on shipping dates, not sale dates. For instance, a sale made on December 31 but shipped on January 1 will not appear in the report.
To double-check the amount displayed on your Form 1099-K.
Print a date range report, following these steps:
- Log in to your Seller Central account and click the ‘Reports’ tab
- Afterward, click “Date Range Reports”
- Next, select “Generate a Statement”
- When prompted by the “Generate Date Range Report” popup, take the following steps:
- Select “Summary” as the report type
- Select “Monthly” or “Custom” as the reporting range and the specified date information
- Click “Generate”
- Review the report in the list on the Date Range Report once it is generated, usually within an hour.
- To calculate your unadjusted gross sales, add up the amounts in your report columns. The amounts are contained in the two charts.
Schedule C is one of the important documents you’ll need to get when filing Amazon FBA taxes. This is even more important if you operate as a business and have a business license issued by your state.
Now you may be wondering if you need to get a business license to sell on AMZ. Generally speaking, the answer is no. But you should be aware of the laws of your state because some states may require you to get one. The requirements for getting a business license vary from state to state. But if you have a large business with many employees, many offices, and large inventories, then you’ll most likely need one.
If you want to get a license, you can register as a Limited Liability Company (LLC). Limited-liability companies use a hybrid approach. They operate like a corporation and, at the same time, a sole proprietorship. This business structure protects you from taking sole responsibility for debts and liabilities.
Also, under this structure, you can write off some costs via deductibles. You’ll learn more about deductibles shortly.
Filing your sales tax is the most tedious aspect of filing Amazon FBA taxes. It’s even more complicated for sellers who have their inventory stored in Amazon warehouses in different states.
What is sales tax?
The sales duty is a fee levied on products that are regarded as non-essential. Also, items eligible for this fee vary from state to state.
All AMZN are required to collect these taxes on the government’s behalf. This depends on the kind of items you sell and where you have a sales tax nexus.
So, what is a sales tax nexus?
The definition of a nexus varies from state to state. But it is generally defined as a place where your business has a physical presence.
For example, if you have an office in Michigan, and your inventory is stored in Texas. Your nexus is both Michigan and Texas. This means you have to collect this fee in both states.
Usually, you’ll only have a tax nexus in the state where your business is located. But some business activities may need you to have nexus in other states too.
Ways To Have Nexus in Various States
- Location: You have an office, store, or warehouse located there.
- Employees: If one or many of your employees or contractors work in a different state (for your company). You can get a nexus in that state.
- Third-party marketers: Affiliates who earn a commission for promoting your products or services can create a nexus for you in their state.
- Drop shipping: By using a third party to ship to your buyers you can create Nexus.
- One-off trade fair and event: The act of selling your products at a tradeshow or event may qualify you for nexus. It doesn’t matter if you only do so temporarily.
- You can also get a nexus if you get past a fixed threshold of revenue or transactions in a state.
- Inventory: Storing inventory for sale may be considered a nexus in some states. This isn’t dependent on whether your business or an employee is located there.
FBA sellers should pay particular attention to the last point; storing inventory for sale in a state creates a tax nexus according to most states’ tax laws.
Essentially, any online seller who uses resources in any state is considered to have a nexus. This is why, by storing their FBA inventory in a fulfillment center, FBA sellers may have a nexus in a state.
When Do I File Sales Tax?
First, you need to apply for a permit to be able to collect this tax in any U.S. state. Once you’ve done so, the state will issue you filing dates, which could be quarterly, monthly, or annually. You should note your due dates because you risk losing your permit if you do not file your Amazon FBA taxes on time.
However, online sellers may not have to worry about collecting this fee in some states. This is because there are marketplace fulfillment laws in place; usually in states where fulfillment centers are located. These laws consider marketplaces to be responsible for collecting tax on behalf of sellers. In other words, AMZN can deduct Amazon FBA taxes on behalf of sellers.
Still, you should have a valid permit because you may be required to file sales tax returns in:
- States where you have a nexus
- States where your marketplace can collect and pay tax on your behalf
How To Collect Sales Tax on Amazon
AMZN collects this fee on your behalf in some states. But this doesn’t apply to every state. So, if you’re selling in a state that doesn’t allow marketplaces to do this, here’s how to go about it.
First, register to collect tax in that state. Next, double-check to be sure you’re collecting sales tax from your customers. Thankfully, AMZN’s sales tax system is effective and can help you make sure of this. The system allows you to specify the rate, and it collects the fixed rate. You also won’t have to worry about fluctuations and other important factors.
You can also add product tax codes. This way, you can choose which products and services to charge for. AMZN charges 2.9% of every transaction to help you collect this tax. If you do not want to pay, there is an alternative. It is to not charge customers for sales tax. Instead, you’ll have to pay from your profits.
Here’s how to set up sales tax collection on AMZ
- Log in to your Seller Central account
- Click on the “settings” option
- In the dropdown menu, click “tax settings”
- Then select “View/Edit your Tax Collection and Tax Obligations” from the menu.
You’ll need your state sales tax registration number to set up sales tax collection on AMZ. This helps to prevent sellers from unlawfully collecting tax in a state.
How To File Amazon Sales Tax
After applying for a permit, you can start collecting taxes. When you get your permit, you will get filing dates. On these dates, you’ll have to report how much you’ve collected in sales tax from customers.
You’ll also have to file your sales tax returns. Here’s how you can do that
- Online: If you choose this method, you’ll have to go through the state’s tax commission’s website. Log in to the website, then submit a sales tax return. Afterward, make payment through the payment gateway provided by the state.
- Use Sales Tax Software: This approach allows you to automate the bulk of this process. You can also file your returns using any tax software.
Here are a few things to keep in mind:
- You should file sales tax returns in states where you have an active permit, even if AMZ collects them for you. Most states require you to do this so that you can show them what the marketplace remitted on your behalf. Be sure to report all returns to the state’s Department of Revenue to prevent any back and forth.
- If you didn’t generate any revenue, you should still file your taxes. In this case, you’ll have to file “zero returns”. Most states still need you to do this. If you don’t, you may be subject to a fine.
- Some states allow you to keep a percentage of the amount you’re remitting. This percentage is usually about 1-3% of the total sum. But it’s a simple token of appreciation for sellers who collect and deliver Amazon FBA taxes promptly.
Deductibles are business expenses that can be written off. Amazon FBA sellers are allowed to claim deductibles like other self-employed individuals. Making these deductions can help to reduce the amount of Amazon FBA taxes you’re liable to pay. That’s why it’s important to carefully keep any receipts related to your business.
What can I write off as deductibles?
- Home office costs
- FBA fees
- Cost of goods sold
- Shipping costs
- Online advertising
- Software for taxes and inventory
- Employee salary and benefits
- Consultant fees
- Education on online business and e-commerce
Can I Sell on Amazon Tax-Free?
The concept of selling on Amazon tax-free may be rare but it is not impossible. Paying tax is a responsibility, but there are some cases where buyers and sellers are exempted from paying taxes.
Sellers may have different tax structures or plans depending on how their businesses operate. As a result, some products may be taxed and others may be tax-free. Also, some buyers or organizations are considered eligible for tax exemption, and as a result, they are allowed to shop on Amazon tax-free.
The Amazon Tax Exemption Program fully explains how the circumstances in which a buyer or seller is eligible for tax exemption.
Staying on top of your Amazon FBA taxes will reduce the possibility of liabilities. It’ll also help your business run smoothly.
By all means, avoid defaulting on tax payments. If you fail to collect and remit sales tax, there may be no consequences at first. But this won’t be for too long. Tax auditors work hand-in-hand with the government in such cases. If you are found guilty of not collecting and paying these charges, you will have to bear the brunt and make the payment from your profit.
This is every seller’s nightmare. If you take note of all the information provided in this post, you can avoid this.
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