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?
As an Amazon vendor, you should know that Amazon is responsible for calculating, collecting, and remitting sales tax on your sales made to customers in states with Marketplace Facilitator, Marketplace Fairness, or similar laws. As the marketplace facilitator, these laws make Amazon responsible for collecting sales tax instead of the seller.
A Marketplace Facilitator is a marketplace that helps third-party sellers promote and sell physical property, digital goods, and services on its platform. Amazon, for instance, is considered a Marketplace Facilitator for the sales of third-party sellers on its marketplaces.
It's important to note that Amazon cannot provide information about your specific tax obligations as a seller. You can typically find information about your tax obligations on your Amazon storefront under the "Policies" section.
To view details about your sales tax collections on Amazon, you can check your Amazon sales reports. Log in to Amazon Seller Central and go to the Tax Settings menu to view your current sales tax collection settings and make any necessary selections for state and local taxes.
Setting up product-specific tax codes for your Amazon sales is important to ensure accurate collections. This is because some products may have higher tax rates. If you under-collect sales tax, you may need help if asked to pay the difference later. Additionally, you want to only charge sales tax on a transaction where it's required.
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.
For sales, during the year 2022 or before, Amazon will send you a 1099-K tax form if your company makes at least $20,000 in sales and 200 transactions per year. Starting in 2023, the minimum revenue earned to receive a 1099-K drops to $600.
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 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 primarily used by sole proprietorships and many LLCs.
- Form 1065 is for partnerships to report taxes. Owners will receive Forms K-2 or K-3, which is for showing their portion of profits for tax purposes.
- If your business is a C corporation, you’ll need to report taxes using Form 1120. S corporations use Form 1120S. You’ll also get an additional K-1 form to report income.
How can Taxfyle help?
Taxes are complicated enough. When running a small business or you’re a vendor, 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.
Whether 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.