Are you going to learn more about taxes for Amazon sellers? Is there tax on Amazon? We will provide you with the detailed Amazon seller tax information that you need.
Whenever you sell anything on Amazon you might ask yourself questions: is there tax on Amazon? Do I need to pay Amazon seller taxes on my earnings and file a report to the Internal Revenue Service (IRS)? Sales and respective revenues are in many cases subject to tax.
In this post we will discuss how does it work and which forms do you need to fill in with regard to your Amazon seller taxes, filing Amazon sales tax, and Amazon sales tax report.
What kind of Amazon FBA taxes do sellers need to pay?
All sellers making money on Amazon are required to pay Income Tax and Amazon Sales Tax.
There are several forms sellers need to consider when filing taxes:
- 1099-K form (sales tax and shipping fees);
- Schedule C, or Form 1040;
- and a nice one: Sellers can claim deductibles.
What is a 1099-K form?
Form 1099-K, Payment Card and Third Party Network Transactions is an IRS information return applied to report payment transactions for the purposes of tax compliance. Normally, you should receive Form 1099-K by January 31stfrom payment card transactions and in settlement of third-party transactions if they exceed $20,000, and more than 200 transactions.
With regard to taxes for Amazon sellers, a 1099-K form is issued by Amazon. Amazon FBA tax filing to IRS is done on a monthly and annual basis and comprises Amazon sales tax and shipping fees. This actually means that Amazon must fill out a 1099-K and send it to IRS and to those sellers who meet certain criteria.
Who receives a 1099-K from Amazon?
In accordance with IRS regulations, Amazon sends 1099-K to all sellers who earned more than $20,000 in unadjusted gross sales and made more than 200 transactions.
If a seller doesn’t fall under these criteria but makes more than 50 transactions annually, he is required by Amazon to provide tax details though this is not an IRS regulation.
Sellers could provide this information in their Seller Account under “Tax Information.”
Where does the seller find his 1099-K form?
From the above, you can see that Amazon tax information should be already available to the seller. And though you might not be aware of it, Amazon has most likely sent you a 1099-K. In order to find it, you would need to access your Amazon Seller account, go to the ‘Reports’ and ‘Tax Document library’. There you’ll find the 1099-K for the previous year.
What to do if you haven’t received a 1099-K from Amazon or the information is inaccurate?
If you haven’t received a 1099-K from Amazon and consider you comply with its requirements with regard to FBA taxes, it is recommended to contact Seller Support. This will help you avoid financial risk.
If you reviewed your 1099-K and see that the data filled in is inaccurate, you need to correct it according to these instructions:
Check if the reporting period of the unadjusted total gross sales is the whole year. Very often the report reflects the unit’s shipping date and not the sale date.
After that, generate a date range report.
To do this, access your Seller Central and click the ‘Reports’ tab → select ‘Date Range Reports’ → click ‘Generate a statement.’
In the ‘Generate Date Range Report‘ window → select report type: ‘Summary’ → select reporting range: ‘Monthly’ or ‘Custom,’ and the specified date information. → Click ‘Generate.’
As soon as the report is generated (it can take up to an hour), review the report in the list on the Date Range Report.
Calculate your unadjusted gross sales by adding the amounts in the report columns together; they’re listed in the two charts.
Does Amazon seller need a business license?
There’s no need to have a business license if you sell on Amazon. But in some states, it may be required. This could depend on the scope of your business if you employ staff or not etc. If you’re a small business or self-employed, the license is most likely not required. According to IRS, you may be subject to state and local taxes and other requirements such as business licenses. To be on the safe side, you need to check regulations for each state you operate in.
Why file a Schedule C if you have a business license?
If you run a business in your state, you will be required to file Schedule C of the Form 1040, U.S. Individual Income Tax Return. Taxpayers use this form to file an annual income tax return. All information regarding your Amazon tax return you can find on the IRS website.
Some sellers would prefer to register an LLC, as it opens a lot of options for a tax deduction.
What is Amazon Sales Tax and Does an FBA Seller Need to Charge Sales Tax?
Amazon seller sales tax is collected on the sold items which are considered non-essential. The exact list of these items is determined individually by each state. Sellers are required to collect Amazon FBA sales tax in states where your selling meets two criteria:
- Sales tax nexus; and
- Product taxability.
What Is the Sales Tax Nexus?
Sales tax nexus is a term to define that you have a place of a physical presence for your business in a certain location. The exact definition also varies from state to state. If you have your head office in Florida and your stock in other states, you need to collect taxes from every customer in each state.
Ways to have sales tax nexus in different states include location, personnel, affiliates, dropshipping relationship, selling products at a trade show or other event, inventory, etc.
There is an important exception to the FBA rule: nearly every state with an Amazon fulfillment center now has a Marketplace Facilitator Law in place. States with marketplace facilitator laws consider the Amazon online marketplace to be responsible for collecting sales tax on behalf of sellers.
What Is Product Taxability?
Some common product categories are not taxable or taxed differently in some states. In order to comply with each state’s tax regulations, you would need to determine if the units you are selling are taxable. In general, tangible personal property is taxable while services are not.
Seller is required to register with the state where he is doing business to collect sales tax. As soon as you receive your permit, you will also be assigned a sales tax filing frequency and sales tax due dates.
How to Collect Sales Tax on Amazon?
Of course, you wonder: does Amazon collect sales tax for sellers and how does Amazon calculate sales tax? Once you are registered to collect tax, you can use Amazon to set up sales tax collection. Amazon has extensive tax collection tools; however, it charges 2.9% of each transaction in order to collect sales tax.
In order to set up sales tax collection on Amazon FBA, you need to access your Seller Central, click “Settings” then “Tax Settings” from the dropdown menu, and choose the option: “view/edit your tax collection and shipping & handling and gift wrap tax obligations settings”.
What Are Tax Deductibles and What Can Be Deducted?
Tax deductibles are business tax write-offs. Deduction of certain costs from your adjusted gross income lowers the amount of taxes you have to pay.
Below you can find a list of typical deductible costs:
- Cost of goods sold (e.g. wholesale price, cost of manufacturing, etc.);
- Shipping costs, including fees and supplies;
- Home office costs (e.g. electronics, furniture, office supplies, etc.);
- Amazon fees;
- Donations (e.g. damaged goods donated to charity);
- Education pertaining to online business and e-commerce;
- Software for taxes and inventory, including all of Jungle Scout’s software;
- Online advertising (e.g. ads, business cards, print materials, etc.);
- Employee salary and benefits;
- Consultant fees (e.g. accountant, lawyer, web designer, copywriter, etc.).
How to File for Amazon FBA Taxes?
In the majority of cases, Amazon sends you your tax information. If you meet the 1099-K form requirements, you need to find it in your Seller Central and check if the information is accurate. Depending on the scope of business and state, you might need to file to the IRS Schedule C of Form 1040, U.S. Individual Income Tax Return. In some cases, you are required to collect sales tax. You would need to register to collect sales tax in a state where you are doing business, and after that, you can use Amazon tools to set up sales tax collection.
How Much Do I Pay in Taxes Amazon FBA?
The tax rate on Amazon FBA, same as other e-commerce taxes, depends on the adjusted gross income. Refunds do not affect the amount filed, though discounts and sales are subtracted from the gross amount. You might need to consider filing to IRS Payment Card and Third Party Network Transactions (Form 1099-K), Individual Income Tax Return (Form 1040), and sales tax. you can use Amazon tools to set up tax collection. Please mind that Amazon charges 2.9% of each transaction in order to collect sales tax.
How to Find Cost of Amazon FBA for Taxes?
The amount of Amazon FBA taxes, same as other e-commerce taxes, depending on the adjusted gross income. Refunds do not affect the amount filed, though discounts and sales are subtracted from the gross amount. If you meet the 1099-K form requirements, you need to find it in your Seller Central and check if the information is accurate. Depending on the scope of business and state, you might need to file to the IRS Schedule C of Form 1040, U.S. Individual Income Tax Return. In some cases, you are required to collect sales tax.
How Is Tax Calculated on Amazon?
In the majority of the cases, Amazon sends you your tax information or you can set tax collection in your Seller Central. In order to set up sales tax collection on Amazon FBA, you need to access your Seller Central, click “Settings” then “Tax Settings” from the dropdown menu, and choose the option: “view/edit your tax collection and shipping & handling and gift wrap tax obligations settings”. In order to find Form 1099-K, you would need to access your Amazon Seller account, go to the ‘Reports’ and ‘Tax Document library’.