If you are an Amazon seller living in the U.S., you know that tax time is just around the corner. You may wonder if you need to report your earnings to the IRS, or whether you can avoid paying taxes since you are selling online. As it turns out, as a seller, there is no way to avoid paying Amazon sales tax.
Unless you are a tax expert, hiring a professional accountant will save you a lot of time and headaches.
How to Access and Leverage Your 1099-K Form On Amazon?
The 1099-K form is a sales reporting form that provides the IRS with monthly and annual gross sales information. It also includes sales tax and shipping fees. According to Amazon, sellers who meet the following 2 conditions will get their 1099-K form via e-mail by January 31:
More than $20,000 in unadjusted gross sales, and
More than 200 transactions.
You can access the form within Seller Central under the “Tax Document Library” tab.
Note that you will not receive an IRS Form 1099-K if you do not meet both of the conditions above.
Do You Need to File a Schedule C Form?
You don’t need a business license to sell on Amazon. However, some states require you to have one. If you operate as a business in your state, you need to file a Schedule C, Form 1040. If you just run a solo operation from home, then you probably don’t need one. It is vital to check your state’s requirements to avoid any mistakes and fines.
It is definitely more effective to file your sales tax if you hire an accountant as it is important to focus on your strengths and delegate your weaknesses.
What is a Sales Tax?
There are 45 U.S. states (including D.C.) that levy a sales tax. Sellers in these states are required to charge sales tax to buyers. This is particularly complicated for Amazon FBA sellers due to fulfillment centers being in multiple states.
Sales tax is considered a “pass-through” tax because the seller only holds the taxes collected before remitting it to state and local taxing authorities.
What is Sales Tax Nexus?
Different states have different definitions for what qualifies as a sales tax nexus, but most of them define it as a place where there is a “physical presence” for your business. For instance, if your office is located in Los Angeles (where ZonGuru HQ is!), and your inventory is in New York, then your sales tax nexus is in both Los Angeles and New York.
Pro Tip: You can find a list of Amazon fulfillment centers in the U.S. HERE.
Below are factors that may be applicable to you when establishing a sales tax nexus.
- A physical presence of your business (i.e. office and other brick and mortar structure).
- Other types of personnel (i.e. sales agents or anyone involved in your business one way or another).
- Any warehouse where your inventory and/or supplies are stored. (i.e. Amazon warehouse).
- Third-party retailers selling your product on a commission basis.
- Temporary sales channels (i.e. trade shows or pop-up stores that feature your products).
When to File Your Sales Tax?
Once you have determined where you have a sales tax nexus, you are required to do two things:
- Apply for a sales tax permit. Once the state reviews your application, you will be instructed when to file your sales tax. Typically, you are required to file on a monthly, quarterly, or annual basis. Pay attention to the due dates to avoid termination of your sales tax permit.
- Begin collecting sales tax in that state. Keep in mind that most states consider it illegal to collect sales tax without a permit.
What are Deductibles?
Don’t forget about claiming deductibles on things like software costs, advertising fees, consultant fees, and many more. Remember to keep all copies of your receipts, both electronic and hard copies, so you can write them off as deductibles.
Here are some important deductions that may come in handy for you:
- Amazon fees
- Product shipping costs
- COGS (cost of goods sold such as manufacturing cost)
- Software for taxes and inventory (i.e. ZonGuru’s software)
- Online advertising (i.e. Facebook ads)
- Consultant fees (i.e. accountant)
- Employee salary and benefits
- Education pertaining to online business and eCommerce (i.e. Reliable Education)
How Do You File Your Amazon FBA Sales Tax Returns?
You can file your sales tax returns using either of the below ways:
- Online: Log in to your state’s taxing authority website and submit a sales tax return. Then make your payment through the state’s payment gateway.
- Automatically via software: Use a sales tax automation solution to automatically file your sales tax returns and pay what you owe to the state.
While we are happy to provide you with all the information we can, we STRONGLY recommend hiring a tax professional to help with your specific Amazon FBA business needs.
Best of success with selling and filing your Amazon sales tax! Reach out to our support team should you have any questions regarding any of ZonGuru’s tools.