Running an Amazon business can be both exciting and rewarding, but it also comes with its fair share of tax obligations. As a seller, it's important to understand the tax benefits and rules that apply to your business to avoid any potential penalties or fines. In this post, we'll highlight five key tax benefits and rules that Amazon sellers should be aware of.
1. Deductible Expenses
One of the most significant tax benefits for Amazon sellers is the ability to deduct a variety of expenses related to their business operations on their tax returns. These may include expenses for advertising fees, shipping and handling, office supplies, and professional services like accounting and legal fees. Additionally, the cost of goods sold (COGS) is also deductible. COGS includes the direct costs associated with producing or acquiring the products you sell on Amazon, such as the cost of materials, inventory, and labor. Deducting these expenses can help reduce your taxable income and ultimately lower your tax liability.
To ensure you can claim these deductions, it's crucial to keep accurate records of all expenses and receipts. This will help you track your business-related expenses throughout the year and provide evidence to support your deductions during tax season. In addition, using accounting software or hiring a professional bookkeeper can help streamline your record-keeping and ensure that you don't miss any deductible expenses.
2. Sales Tax Collection
As an Amazon seller you have the obligation to register and file for sales tax in the following 9 states: California, Colorado, Connecticut, Tennessee, Nevada, New York, North Carolina, South Carolina and Washington. This means that you have the obligation to report your US sales to each state Government. However, you don’t have the responsibility to collect and remit your sales tax, instead, as a Marketplace facilitator, Amazon will charge the correct sales tax amount at the point of checkout and then, they will remit it to the respective state. Each marketplace has different rules and obligations; therefore, it's crucial to review your operations prior to the launch to make sure you are complaint with state sales tax regulations to avoid penalties and fines.
In recent years, sellers have started to explore sales channels outside of Amazon. If this is your case, it’s important to consider that many states have passed laws requiring out-of-state sellers to collect and remit sales tax on orders shipped to customers within their borders. This means that even if you don't have a physical presence in a state, you may still be required to collect sales tax if you sell to customers in that state. To determine your sales tax obligations, it's essential to stay up-to-date with changing laws and consult with a tax professional.
3. Home Office Deduction
If you use a portion of your home exclusively for your Amazon business, you may be eligible for a home office deduction. This deduction allows you to deduct a portion of your home-related expenses such as rent, mortgage interest, utilities, and property taxes. However, there are specific requirements that must be met to claim this deduction.
To qualify for the home office deduction, you must use a portion of your home exclusively for your Amazon business on a regular basis. This means that your home office should be your principal place of business or where you regularly meet with clients or customers. Additionally, the area you use for your home office must be exclusively used for business purposes and not for personal use. To ensure that you meet all the requirements for this deduction, it's crucial to consult with a tax professional or accountant.
If you purchase equipment or other assets to use in your Amazon business, you may be able to depreciate the cost of these assets over time. Depreciation is a tax deduction that allows you to recover the cost of the asset over its useful life. This deduction can be beneficial for items like computers, printers, or other equipment that have a longer lifespan.
To claim depreciation, you'll need to determine the useful life of the asset and the depreciation method you'll use. The IRS provides different depreciation methods, including straight-line depreciation and accelerated depreciation, which allow you to recover the cost of the asset over a shorter period. To ensure that you claim the correct depreciation deduction for your assets, it's important to consult with a tax professional or accountant.
5. Estimated Tax Payments
As an Amazon seller, you're considered self-employed and responsible for paying your own taxes throughout the year. This means you'll need to make estimated tax payments to avoid underpayment penalties. Estimated tax payments are quarterly payments made to the IRS to cover your tax liability for the year.
To calculate your estimated tax payments, you'll need to estimate your taxable income, deductions, and credits for the year. This can be challenging, especially for new sellers who may not have a good estimate of their income or expenses. To avoid underpayment penalties, it's important to estimate your tax liability accurately and make timely payments to the IRS. A tax professional or accountant can help you determine your estimated tax payments and ensure that you're in compliance with IRS regulations.
In summary, understanding the tax benefits and rules that apply to your Amazon business can help you maximize deductions and avoid penalties. However, tax laws can be complex, and every seller's situation is unique. We highly recommend consulting with a tax professional or accountant, such as our partner, AVASK, to ensure compliance with all applicable tax laws.
AVASK is an international firm of accountants and tax experts with a well-reputed specialism in global e-commerce expansion, international taxation, accountancy and business consultancy and advisory services.
AVASK Accounting & Business Consultants work with the most outstanding and proactive professionals to deliver excellent value for more than 8,000 e-commerce sellers and companies across the world. Our dedicated team of tax specialists dedicate themselves to enhance and enable our clients’ businesses to flourish and grow. Having an understanding in this complex industry, AVASK will ensure your tax regulations are in order while making the most out of the tax season.
Amazon sellers across the world will require to fill in different forms this tax season, AVASK will be at hand to ensure you are completing the correct documentation and paying the correct amount of tax.