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Guide to Sales Tax for Amazon FBA Sellers
Are you an Amazon seller operating in the United States? Well, in that case, you must be aware of the different sales taxes coming up. However, if you are a relatively new seller, the Amazon FBA sales tax may confuse you. A lack of proper understanding of the taxes can give rise to several issues for Amazon sellers. Therefore, having a clear idea about the sales tax is vital. This blog post can provide detailed insight into Amazon FBA taxes and help clear your doubts.
Understanding Taxes as an Amazon FBA Seller
What Taxes Do I Need to Pay?
As an Amazon FBA seller operating in the United States, you are responsible for paying certain taxes, including:
- Sales tax - Charged on sales of taxable goods and services. Sales tax rates vary by state and local jurisdictions.
- Income tax - Tax on net business income. File federal and state income tax returns.
- Payroll tax - Withheld from employee wages for Social Security and Medicare.
Collecting and Remitting Sales Tax
If you have sales tax nexus in a state, you must collect applicable sales taxes on taxable sales and remit those taxes to the state. Nexus refers to a business presence in a state and thresholds for establishing nexus vary by state.
Amazon can handle sales tax collection and remittance through its Tax Calculation Services. You provide your tax info and product tax codes, and Amazon will calculate, collect, and remit sales tax on your behalf for a fee.
Income Taxes
Your net business income from selling on Amazon is subject to federal and state income taxes. Good record keeping is essential. Track all Amazon-related income and deductible business expenses.
Common deductible expenses include:
- Inventory costs
- Amazon selling fees
- Shipping and fulfillment costs
- Advertising and marketing expenses
- Home office expenses (if applicable)
You can reduce taxable business income by maximizing eligible tax deductions.
Filing Tax Returns and Making Payments
You must file annual income tax returns. Estimated quarterly tax payments may also be required to avoid penalties. Sales tax filings and payment deadlines vary by state, generally monthly or quarterly.
Tax compliance can be complex. Consider working with a knowledgeable tax professional to ensure you meet all requirements and tax obligations.
Set Up a Separate Business Entity
Operating your Amazon business through a limited liability company (LLC) or corporation, rather than as a sole proprietor, can provide personal liability protection and allow you to take advantage of additional tax deductions.
Recommended: Amazon FBA vs FBM: Which one is Right for Your Business?
Commonly Asked Questions
What taxes are Amazon sellers responsible for paying?
The main taxes are sales tax on taxable sales, income tax on net business profits, and payroll taxes if you have W-2 employees. Sales tax rates and rules vary widely by state.
Can Amazon collect and remit sales tax for me?
Yes, Amazon offers automated sales tax collection and filing through its Tax Calculation Services. Sellers provide tax info and product tax codes, then Amazon calculates, collects, and remits sales tax on your behalf.
What are some common tax deductions for Amazon sellers?
Typical deductible expenses include inventory costs, Amazon fees, shipping/fulfillment, advertising, marketing, home office expenses, mileage, supplies, and other ordinary and necessary business expenses.
When do I need to file my tax returns and make payments?
Income tax returns are filed annually. You may need to make estimated quarterly income tax payments to avoid underpayment penalties. Sales tax filing frequency varies by state, usually monthly or quarterly.
Should I form an LLC or corporation for my Amazon business?
Yes, creating an LLC or corporation can limit personal liability and allow you to take tax deductions as a business entity that you couldn't take as a sole proprietor.
Are there software tools to help with ecommerce taxes?
Yes, online software tools can automate sales tax calculations, filing, and payments. Small business tax prep software can streamline income tax return preparation, deductions tracking, bookkeeping, and more.
What records do I need to keep for income tax reporting?
Careful recordkeeping is critical. Be sure to track all Amazon income and business expenses. Maintain receipts, bank records, mileage logs, tax documents, and other support in case of an audit.
