Amazon Tax Reporting – Filing Taxes for Sellers in 2023 📝
As a seller on Amazon, you must be happy about the number of sales you make every month. But have you ever wondered about the tax implications of sales? What tax form do you need to file, and how much do you need to pay in taxes?
This blog will cover all the information that a seller needs to know before deciding if it’s worth it to start an ecommerce business or not.
What is Amazon’s sales tax and how much is it 📝
In the U.S. third-party sellers such as those on Amazon must collect sales tax for the state where their business is located.
For example, if you’re a seller on Amazon with more than $20k of unadjusted gross sales or 200 transactions in a given tax year, you must report Amazon sales tax on your taxes.
Limits On Sales Tax
There are also limits on the sales tax that third-party sellers can collect. Sellers with more than $20k of unadjusted gross sales are required to collect state and local sales tax.
Additionally, third-party sellers with more than 200 transactions in any tax year must file tax returns and pay any applicable taxes.
Third-party sellers are responsible for collecting tax from customers themselves if they have a seller account and are registered for the seller account program. This is known as self-reporting. If you want to use the seller account program, you must configure your store to collect sales tax or will have to pay out of your profits.
Through the seller account program, third-party sellers are able to collect tax from customers without the need for extensive knowledge of tax laws or regulations. It’s an efficient way for them to get paid and comply with tax requirements.
When does an Amazon seller need to charge sales tax? 💵
Amazon sellers must be Professional Sellers to collect sales tax and may be responsible for tracking and reporting their sales taxes.
Retailers must meet a certain minimum sales threshold in a region to qualify for a sales tax nexus.
In the US, Amazon will collect sales tax for sellers, but they must configure their store to do so, and Amazon charges 2.9% of each transaction.
In other countries, Amazon does not collect sales taxes and all prices must be tax-inclusive.
This means that if you’re selling through an amazon seller account, you need to include sales tax in your prices. You can find information about how to calculate and report sales tax on the amazon seller fees page.
Should I get an accountant? 👨💻️
It is the responsibility of marketplace sellers to track and report sales tax information. To ensure accuracy and compliance, it is recommended to get an accountant to assist in filing taxes.
Stating sales tax is required on the itemized sales receipt, customers must provide a valid tax identification number (TIN).
If a seller doesn’t collect sales tax from customers, they must use the sales tax rate applicable to the state or country where the seller is located.
There are two plans for marketplace sellers when setting up their accounts: Individual and Professional.
When setting up an account as an Individual seller, amazon will collect sales tax for you automatically. However, if you want to collect sales tax yourself, you need to set up an account as a Professional seller and follow the guidelines of your chosen plan.
What is a 1099-K form? 📜
A 1099-K form is a sales reporting form issued by Amazon and similar businesses, used to provide the IRS with annual and monthly gross sales information.
It includes sales tax and shipping fees and is sent to both the seller and the IRS if requirements are met.
To get a 1099-K from Amazon, sellers must have both $20,000 in total sales, and 200 individual transactions.
As an individual seller on the platform, you don’t need to file a 1099-K as your income likely wouldn’t reach the income threshold. However, it’s still beneficial for you to keep track of your sales information on a tax document.
Sales tax nexus for FBA sellers 🗒️
The Supreme Court’s 2018 decision in South Dakota v. Wayfair Inc. has opened up states to set economic nexus thresholds for sales tax collection on remote sales. Following the decision, states are creating new guidelines for the taxation of remote sales, such as FBA sellers.
This includes collecting sales tax from customers who reside in a state with a tax nexus for sales of similar items but are not collecting tax from those who reside in states without nexus.
Sales taxes are different from income taxes; sales taxes are collected from the customers, while income taxes must be paid out of pocket. As a result, Fba sellers can take advantage of tax deductions for expenses related to their businesses, such as shipping costs.
States are currently in the process of establishing new economic nexus thresholds for FBA sellers in 2023, which will depend on a seller’s income and sales volume.
Who gets a 1099-K form on Amazon? 📝
All sellers who have at least $20,000 in unadjusted gross sales and more than 200 transactions will get their 1099-K form from Amazon by January 31.
Even if the seller doesn’t meet the above criteria but has at least 50 transactions per year, they have to provide their tax information to Amazon or risk losing seller status.
The 1099-K form includes gross sales for the year but doesn’t take into account sales tax, shipping fees, payment processor fees, refunds or returns.
As stated above, sellers are required to file tax returns on amazon.com with their income tax returns. If a seller doesn’t have access to an accountant or tax professional, they can use amazon’s filing service to file tax returns on amazon.com. This service is free of charge and assistance is provided by amazon tax experts on the website itself.
The 1099-K form is issued to sellers by 3rd party payment processors like Amazon, PayPal, Square, etc. These forms are essential for the seller as it provides information about sales revenue and expenses for the year.
Do I have to file a Schedule C (Form 1040) if I have a business license? 📝
Business licenses may be required by certain states for running an Amazon business.
Business owners should file a Schedule C (Form 1040) when operating as a business in their state.
A business license is not required to be an Amazon FBA seller.
An LLC designation can be beneficial for tax purposes.
Retailers selling merchandise in California are required to register for a Certificate of Registration.
A business license is not required to be an Amazon FBA seller, but it can be beneficial for tax purposes. Retailers selling merchandise in California are required to register for a Certificate of Registration.
This document is used to track and collect sales tax fees from customers of the business.
A business license is not required to be an Amazon FBA seller, but it can be beneficial for tax purposes. Retailers selling merchandise in California are required to register for a Certificate of Registration. This document is used to track and collect sales tax fees from customers of the business.
Since Amazon is collecting sales tax in many states, it makes sense to collect tax on the seller side too.
However, since you are collecting tax in different states as well, it’s essential to have a structured and standardized way of collecting tax across the states that you do business in. You can read more about the sales tax nexus for FBA sellers here.