How To File Taxes As An Amazon Vendor
Whether your business operates on Amazon full-time or you're using it to grow your business, selling products on the marketplace can help you generate the revenue and income you desire. However, what happens when tax season rolls around?
By attracting customers from across the country to your growing business, you may wonder what implications lie in store. Particularly once tax season rolls around. If you are wondering what you should know regarding taxes as an Amazon vendor or are hesitant to join the marketplace because you’re not informed about the tax implications of being an Amazon vendor, don’t worry. This blog post can help you understand what you need to know about filing taxes as an Amazon vendor.
How does sales tax apply to Amazon vendors?
In addition to reporting earnings to the IRS at the end of the year, most retailers, including Amazon sellers, must collect and submit sales taxes. Fulfillment by Amazon sales taxes varies depending on the transaction and where it occurred. The sales tax rate is determined by the state and city where the customer resides, as well as the location of the item being shipped from, and can range from 0% to 13%.
When does an Amazon seller need to charge sales tax?
Because you're opening your customer base to individuals across the United States, you have to consider sales tax implications. Sales tax laws are frequently influenced by various factors, including state and local regulations. Consider whether you have a sales tax or use tax nexus in a particular state. A sales tax nexus is a legal term for an online retailer who makes enough sales or has a physical presence in a specific region.
Small businesses typically need to meet a specific minimum sales threshold in the region to qualify as a sales tax nexus. If you have a physical presence, employ people, or keep inventory in a state, you almost certainly have a sales tax nexus in that state. Once you've met these requirements, you must apply for a sales tax permit and file a sales tax return with the state.
Amazon FBA sellers may have a tax nexus in states where Amazon fulfillment centers are located:
- New Hampshire
- New Jersey
- North Carolina
- South Carolina
Regardless of which state you conduct your sales in, you need to understand what is and isn’t taxable in that area. Some states have different laws regulating sales tax rates for goods, where necessities like groceries and clothing do not receive a sales tax. Therefore, you must track your sales and taxes accurately to avoid any possible penalties.
How to collect taxes as an Amazon vendor
Before you collect sales taxes, the first step you should make sure you’ve completed is registering with the state’s tax authority and figuring out how often you should file and pay taxes. Not being aware of the implications is no excuse when it comes to potential audits, and this registration is one of the best ways to ensure you maintain compliance. After all, we don’t want any tax collectors knocking on your door wondering why there are discrepancies with your books.
Luckily, Amazon does some of the work for you by automatically collecting sales taxes for you and compiling the information within your sales reports. However, when posting products on your page, you should fill out the appropriate tax codes to ensure everything is collected correctly. That way, you avoid under-collecting or over-collecting taxes on the goods you’re selling.
Here are links to state tax authorities in the most populated states in the U.S.:
- California: California Department of Tax and Fee Administration
- Florida: Florida Department of Revenue
- Illinois: Illinois Department of Revenue
- New York: New York State Department of Taxation and Finance
- Ohio: Ohio Department of Taxation
- Pennsylvania: Pennsylvania Department of Revenue
- Texas: Texas Comptroller
For the full list of agencies, visit this link.
How to report and file taxes as an Amazon vendor
Sales and business taxes are two different things. While sales taxes apply to revenue, income taxes are based on the profits you collect and are paid to the federal government through the IRS and relevant states.
When setting up your Amazon account, you must ensure it’s a professional account so that Amazon automatically processes sales taxes for you. Otherwise, you’ll find yourself consumed with paperwork come tax season. You are still responsible for tracking and reporting your sales taxes and correcting any discrepancies. Reports containing your sales and sales tax information can be found in your Amazon Seller Central account.
Amazon will send you a 1099-K tax form if your company makes at least $20,000 in sales and 200 transactions per year. The 1099-K is used in tax preparation and contains tax information about payments and transactions. Even if you have yet to receive the form, you are still required by law to ensure that your company pays the correct amount.
Some other forms you should keep in mind when your taxes are concerned are:
- Form 1040 is how individuals file a federal income tax return with the IRS. It’s used to report your gross income—the money you made over the past year—and how much of that income is taxable after tax credits and deductions.
- Schedule C is used in addition to your 1040 annual tax return and includes a summary of your business results, with tax details that pass through to your tax return. This is the business tax filing method used by sole proprietorships and many LLCs.
- Form 1065 is for partnerships to report taxes. In this situation, owners should also receive a personal income tax form called a K-2 or K-3, showing their portion of profits for tax reporting purposes.
- If your business is a C corporation or an LLC that files as a corporation, you’ll need to report taxes using Form 1120. S corporations use Form 1120S. As an owner, you’ll also get an additional K-1 form to report income on your tax return.
How can Taxfyle help?
Taxes are complicated enough. When running a small business, much of your time is invested in ensuring it operates smoothly. Why divert your focus to an area you’re not educated with?
Taxfyle connects individuals like yourself with a member of our Tax Professional network to help make filing taxes easier. When you file with Taxfyle, you have a qualified CPA or EA to do the hard part of filing taxes for you.
Whether it’s using the right form or taking advantage of any possible deductions, there’s no better way to file your taxes than by using one of our Pros. This tax season, don’t worry about the stress, let a Pro file for you.