What is Amazon FBA?
Amazon FBA, or Fulfillment by Amazon, is a fulfillment service offered by Amazon that allows sellers to ship their products to Amazon warehouses for customer fulfillment.
When using FBA, sellers can ship their products from their own warehouses or from Amazon’s warehouses located in various states across the country.
This can be beneficial for both customers and sellers as it allows customers to receive their products quickly with no shipping delays but also gives sellers access to faster shipping options and less management of ecommerce logistics than they would have otherwise.
However, it also means that sellers could have a sales tax nexus in states where Amazon fulfillment centers are located which they may not have otherwise had.
Additionally, it’s important for both customers and vendors alike to understand what is and isn’t taxable in different states as well as which items require special labeling requirements when shipping internationally through FBA services like Freightos Marketplace’s freight forwarding platform
7 tax strategies for Amazon sellers
As an Amazon FBA seller, it’s important to be aware of the different tax strategies that can help you save money.
Here are 7 tax strategies that you should consider:
- Claim Your Business Tax Deductions
- Report Your Amazon Sales Taxes
- Consider Forming an LLC
- File Your Income Tax Returns on a Schedule C
- Collect Sales Tax on Your Inventory Purchases
- Keep Good Track of Your Tax Records
- Consider Applying for an Amazone Fulfillment Services Tax Identification Number
When it comes to taxes, there’s no one-size-fits-all solution. The best tax strategy for you will depend on your unique business situation. However, by following these tips, you can be sure that you’re taking advantage of all the
Let’s discuss them one by one:
1. Claim Your Business Tax Deductions
1. Track your business expenses and record them in a spreadsheet or journal.
This will help you keep track of all of your costs and make it easier to calculate your deductions come tax time.
2. Determine which expenses are eligible for tax write-offs by reviewing the list of typical deductible costs listed above (e.g., Cost of goods sold (e.g., wholesale price, cost of manufacturing), Shipping costs, Home office costs (e.g., electronics, furniture), Amazon fees).
3 . Compile all relevant documents related to each expense (e.g., receipts, invoices ) into one folder or document so that they’re easily accessible when it comes time to fill out your taxes.
4 . Use accounting software like Quickbooks or Jungle Scout’s Accounting Software to keep track of all transactions related to your business – this will make calculating deductions much easier!
2. Report Your Amazon Sales Taxes
1. Sign in to your Amazon Seller Central account.
2. Navigate to the Reports tab and select Tax Document Library under it.
3. Scroll down to the Sales Tax Reports section and click on Generate a Tax Report for any time period you need it for (e.g., monthly).
4. Choose from one of three report options: Sales Tax Calculation Report for remitting sales tax, Marketplace Tax Collection Report for taxes that Amazon remit on your behalf, or Combined Sales Tax Report for both types of taxes that need to be reported/remitted (Amazon + Seller).
5. Once downloaded, open the report file and check the Total_Tax column in Combined Sales Tax Report – this will show you the total sales tax collected by both parties involved in each transaction (Amazon + Seller). Make sure the Total_Tax_Collected_By_Amazon column is also checked so you have an idea of how much each party is responsible for remitting/reporting individually .6
3. Consider Forming an LLC
Forming an LLC for Amazon selling is a smart choice for many businesses.
It gives your business a legal identity, protecting your personal assets from creditors and giving you more flexibility in how you manage taxes.
Additionally, an LLC allows you to sign up as either a resident or foreign company depending on your needs, while some companies may require it for certain types of businesses.
Finally, the option to set up an LLC in any US state makes it easier for internet-based businesses without local presence to operate across states.
4. File Your Income Tax Returns on a Schedule C
Filing income taxes on Schedule C can help Amazon sellers by providing them with the opportunity to take advantage of tax deductions.
Schedule C allows sole proprietorships and many LLCs to report their business results, with tax details that pass through to their personal tax return.
This gives them the chance to reduce their overall tax liability by taking advantage of any applicable deductions or credits they may qualify for.
Additionally, Schedule C filing provides owners with an understanding of how much profit is being passed through from their business to be taxed on their personal income tax return.
5. Collect Sales Tax on Your Inventory Purchases
1. Sign up for sales tax collection with Amazon.
2. Set up product tax codes to charge the appropriate amount of sales tax on items such as groceries and clothing.
3. Tell Amazon what rates you want to collect, including origin-based or destination-based states and any rate changes that may affect your products’ prices (such as if a state has recently raised its sales tax rate).
4. Allow Amazon to keep track of all transactions that include sales tax so they can accurately report it when filing taxes at the end of each year (this will incur a 2.9% fee on each transaction).
6. Keep Good Track of Your Tax Records
Keeping good track of tax records can help Amazon sellers in a number of ways.
It allows them to easily submit all the required records to the taxing authorities, avoid any penalties or fines, and clear any outstanding payments.
It also helps them prepare a report for taxes already cleared by Amazon if requested by the state department. This ensures that they are in compliance with all applicable laws and regulations and have accurate records for tracking purposes.
7. Consider Applying for an Amazone Fulfillment Services Tax Identification Number
It is important to apply for an Amazon fulfillment services tax identification number because it allows you to deduct the fees that Amazon FBA charges for handling your inventory from your taxes.
This includes delivery charges, postage meter subscriptions, extraneous postage, and all of the materials needed for shipping. Additionally, it allows you to set up sales tax collection in states where you are doing business and register to collect sales tax in applicable jurisdictions.
By having this number handy, you can ensure that all of your shipping costs are accounted for correctly so that they can be deducted from your taxes at the end of the year.
Conclusion
By following these seven tax strategies, you can minimize your tax liability as an Amazon FBA seller. By being proactive about your taxes and keeping good records, you can ensure that you are in compliance with all tax laws and regulations. Additionally, by taking advantage of available tax deductions, you can save money on your taxes.
For tax and accounting experts with years of expertise dealing with eCommerce firms, get in touch with Free Cash Flow (FCF). FCF professionals may help you with your finances or manage them on your behalf so you can concentrate on your main objective, which is running a successful business.
FAQ
What is a sales tax nexus?
A sales tax nexus is an “important connection” for a state that allows the state to require merchants to collect and pay sales tax on items sold in their jurisdiction.
To qualify as a sales tax nexus, online retailers typically need to meet a specific minimum sales threshold in the region. This can be achieved through having a physical presence, and staff, or maintaining inventory in the state. Once crossed, merchants must apply for a sales tax permit and file a sales tax return with the state.
What is a Seller Tax ID Number?
A Seller Tax ID Number (STID) is a 9-digit identification number assigned to businesses by the Internal Revenue Service (IRS) for the purpose of identifying them for tax purposes.
The STID is used when opening up an Amazon FBA Seller Central Account, as well as when opening a bank account in the legal entity’s name. It is also required when paying taxes; without it, sellers may face penalties from both Amazon FBA and the IRS. To obtain a STID, you can apply online at the IRS website for free.
