Second, I am not a tax professional so my knowledge on this topic is limited. I consulted with a tax lawyer to verify everything in this document and also spoke with Amazon regarding their policy on taxes before finalizing this write-up.
At the end of this blog post, you can download the Template for Tax Write Off Records for your Business for free, which shows you all the categories you should be recording as business expenses, so you are not paying a single dime over what you owe in taxes every year.
1. Does Amazon require me to set up sales tax?
Currently, at the time of this writing, they do not.
2. Does the state require me to charge sales tax for the items I am selling?
Talk to your state. Each state has different laws and when it comes to selling online, some of the laws are not clear. Some require that you charge taxes on the total of the item plus the shipping. Others require you to renew your sales tax permit annually while others do not. Here is a list of each state in the US with information on what how to contact your state regarding sales tax: https://www.taxjar.com/states/.
Amazon’s About Sales Tax page shows you which states charge sales tax if you are selling on Amazon:.
3. If I have to collect taxes, do I collect taxes for the state I’m working from or the state I’m shipping the product to?
Most dates use either origin-based sales tax rates or destination-based sales tax rates. The origin-based states require you to collect taxes at the sales tax rate of the state you are shipping from (your office or warehouse). The destination-based states require you to collect taxes at the sales tax rate of the state you are shipping to (your buyer’s shipping address).
Put another way, if your state is an origin-based, they charge at the rate of the seller’s location. If your state is destination-based, they charge at the rate of the buyer’s location.
Most states have destination-based sales tax rates.
Alabama Arkansas Colorado Connecticut District of Columbia Florida Georgia Hawaii Idaho Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Nebraska Nevada New Jersey New York North Carolina North Dakota Oklahoma Rhode Island South Carolina South Dakota Vermont Washington West Virginia Wisconsin Wyoming
Arizona California Illinois Mississippi Missouri New Mexico Ohio Pennsylvania Tennessee Texas Utah Virginia
4. Why do I need to understand “sales tax nexus”?
Business owners selling in retail are supposed to collect sales tax in states or localities where they have “sales tax nexus.” Sales tax nexus just means presence in a state. If you work from home in Alabama, then your sales tax nexus is Alabama. Since Alabama is a destination-based state, then every time you ship a product to a customer in Alabama, you would collect taxes based on Alabama’s tax rate.
If you keep your inventory in a warehouse in California, then your sales tax nexus is California, regardless of where the items are shipping from.
Let’s say that you live in the state of Florida but have an uncle who is helping you in Georgia. Now you have a sales tax nexus in both states of Georgia and Florida and may be required to collect taxes any time you ship items to or from those two states.
If you run your business from Montana but store your inventory in Colorado, then you have sales tax nexus in both Montana and Colorado.
5. When do I need to start collecting sales tax?
To quote a tax lawyer: “When your business has a presence in a state significant enough that you’re required to comply with state sales tax law.” Due to the fuzziness surrounding state tax laws on this subject, I highly recommend you consult with a tax professional to make sure you are complying with the laws of your state.
6. How do I set up my account to charge sales tax?
1) In Seller Central, hover over Settings (upper right corner).
2) Click Tax Settings then Continue.
This will take you to a section with lots of information on sales tax.
3) Scroll to the bottom and click Continue. The next page gives you codes called “Product Tax Codes” you can use to determine what kinds of items are going to be taxed. Scroll to the bottom and click Continue.
4) This takes you to a page that allows you to set up our sales tax using the codes provided on the previous page.
7. Does Amazon report my income to the IRS?
If you make more than $20,000 a year in total revenue and do more than 200 transactions on Amazon, Amazon is required by the IRS to send you a 1099-K form on or before January 31st of the following year.
Amazon will send you an email notifying you that your 1099-K is ready with included instructions on where to find it in your Seller Central account.
8. What do I do with the 1099-K?
You will file this form for your taxes. You can find more information on the 1099-K form here.
9. How do I find my 1099-K?
From the Reports section in Seller Central, select Tax Document Library, then the appropriate year, and then Form 1099-K.
10. Does the gross sales amount change if I refund an order?
No. The $20,000 threshold is based on unadjusted gross sales. For example, if a customer returns an item and Amazon refunds the customer, the amount they paid you still counts toward the $20,000. The fees you pay for each sale do not drop the gross sales amount either.
11. How do I know which tax form to fill out in Seller Central?
If you have received 25 transactions or more, Amazon will send you notices, asking you to provide your tax information.
As you fill out your tax information from your seller central account, your answers to the questions will automatically lead you to the correct form: a W-9 if you are not tax exempt and a W-8BEN if you are tax exempt (usually because you are a resident of a non-US country).
If you are not sure if you are tax exempt or not, just go through the questions Amazon asks and it will show the correct form based on your answers to those questions.
12. Who is required to submit their tax information?
Amazon requires all professional sellers and all invidious sellers with more than 50 transactions in a calendar year (regardless of sales volume) to submit their tax information so that Amazon can report your earnings to the IRS. If you do not fill out your tax information, Amazon will suspend your account.
13. Where do I fill out my tax information in Seller Central?
You can fill out your tax information here. This form will guide you through filling out your tax information and validating your W-9 or W-8BEN form. Even if you are registered as a 501(c)3 organization (non-profit) you still have to fill out your tax information on Amazon.
14. Do I need a Tax Identification Number?
Yes. When you fill out your tax form for Amazon, you have to enter a Tax Identification Number (TIN). This will be your Employee Identification Number if you are a Limited Liability Company or incorporated. It will be your social security number if you are a sole proprietor. If you are just starting out and have not set up as a limited liability company or a corporation then provide your social security number for now and later you can change it to an LLC or Corporation.
15. How long does it take for Amazon to verify my tax identity?
It can take up the three weeks but usually it’s a lot faster. During this waiting stage the legal section of your account will say “Provided and Pending Validation.” If Amazon is unable to validate you, they will send you an email requesting you for more information.
16. I received an email stating that my tax identity is invalid. What do I do?
You have 30 days to respond via email to update the information. Most common mistakes are putting in the wrong Tax Identification Number (your social security or your Employee Identification Number) or not including a middle initial or middle name.
17. Will Amazon help me with my tax return?
Amazon will help you with the legal requirements for tax regulations but if you need helping fill out your tax return, contact a tax professional.
18. How do I save a copy of my 1099-K form to my computer?
Go to reports in Seller Central. Select Tax Document Library, then the appropriate year, then the form 1099-K. Click Download PDF and enter the password.
To save the form to your computer, while it is open in Adobe Reader, click File, then Save As, and then PDF. Select a location on your computer and click Save.
19. What if I forgot my password?
If you didn't save the password, log into your seller account, and from the Reports section, select Tax Document Library. A new password will be provided. Click the Download PDF link and enter the new password.
20. What if there is an error on my 1099-K form?
Contact Seller Support.
21. How do I view the details of my unadjusted annual income at a transactional level?
22. How do I find the summary level details of my unadjusted gross sales for a specific year?
To calculate unadjusted gross sales, add the amounts in the report columns listed in the two charts below:
From the income section add the following:
From the line item second add the following:
Sales, shipping, and gift wrap tax
You can go here for more information on IRS Reporting Requirements for Amazon Sellers.
23. What do I do with my 1099-K form?
Nothing! It is for informational purposes only. If you are doing your own taxes, use this information to fill out your income correctly on your tax return form. Keep in mind that Amazon sent this info to the IRS. If you are paying a tax accountant to do your taxes for you, they will probably request a copy of this form.
24. How do I take advantage of tax write-off’s as a business owner?
Keep the receipt for every single business expense you have. When you file your taxes, include all your business expenses so that you are being taxed on less income than what you actually made.
For example: if you made $100,000 in a year and your expenses were $10,000, you will be taxed a percentage of the $90,000 instead of the $100,000.
Here are all the main categories you can claim business expenses under:
➤ Advertising. Anytime you pay money to advertise your product or services, this counts as an advertising expense. Example: Running and Amazon ad.
➤ Contract Labor. This covers any money you pay someone for helping you with your business. Example: paying someone on Fiverr to build your logos and designs.
➤ Dues & Subscriptions. This is for any subscription based service that helps your business. Paying Feedback Genius for your Amazon store or Shopify for your e-commerce store or Lead Pages for your email list would go under this category.
➤ Education. Any education you spend on growing you and your business is a solid tax write off. The money you have invested in this program is a great example of this.
➤ Health Insurance. Any money you spend on health insurance is a legitimate tax write off.
➤ Legal & Professional Services. This is the category for fees you might have paid a lawyer to set up your business or to get brand gated.
➤ Meals & Entertainment. If you take a business partner to lunch to discuss your business strategies and pay for the meal, that meal is a legitimate business expense. Any kind of entertainment directly related to an event in which you are building or working on your business, is a legitimate business expense.
➤ Materials & Supplies. This covers items like your work computer, printer, printer’s ink, your cell phone that you use for your business, your cables and cords—any tools that you use for your business go in this category.
➤ Office Supplies. Printer paper, packaging tape, packaging envelopes, pens, stapler pullers—items like these are legitimate business expenses.
➤ Postage. Every time you ship an item
➤ Supplies. All your products and inventory go under this category.
➤ Medical. A percentage of your personal medical expenses are legal tax write offs. Check with your CPA or tax accountant for more details.
➤ Taxes & Licenses. Sales taxes from non-business items that you paid for, taxes you have to pay on a house loan and any license (such as a business license) you had to purchase for your business are legitimate write offs.
➤ Telephone. If you use your phone primarily for business, you can use the phone expenses as a tax deduction.
➤ Donations. If you tithe money to a church or give to a charity that is non-profit organization, one that is 501(c)3 certified, this is a legitimate tax write off.
➤ Travel. Any airplane tickets or travel-business for your company can be used as a tax deduction.
25. What Software do you recommend for my business taxes?
Don’t pay more taxes than you have to!
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