Sellers sometimes get confused by all the different taxes related to selling Amazon. In this article we cover the top things you need to know about Amazon FBA accounting and taxes.
Should you be collecting Sales Tax? The rules and requirements are different from State to State in the USA.
There has been a lot of discussions on Amazon forums about collecting sales tax. If your company is based in America, sooner or later different States could come chasing you for the sales tax owed to them.
Most tax laws let government authorities punish you and charge penalties for taxes owed several years back. Even if at the moment nobody seems to be collecting sales tax aggressively, 3 years later the states can still come after you for it.
It’s better you start to get the right paperwork in place soon after launching your Amazon business. There’s no point doing it when you start your business because the paperwork will bury you alive. But once you start getting your sales going you’ll have the time to deal with all the official documentation.
One strategy sellers use is to only start paying sales tax once it reaches a certain threshold. E.g. If the sales tax you owe to a state is over $100 then it is worth doing all the paperwork and starting to file for that state.
Sales tax also applies to international sellers. Many overseas sellers avoid paying the taxes because they think they do not owe them or the states will not chase the collection of them. However, the laws could change and Amazon could put restrictions on sellers not collecting and paying sellers tax so it is better to start following the rules sooner rather than later. If you are unsure it is best to seek professional advice.
Amazon’s system gives you a rough idea of how your business is performing, but the data is sometimes a few days delayed. Amazon doesn’t show you your net profit and there are many other costs outside of Amazon fees that you need to factor into your numbers.
Sooner or later you will have to file a tax return and accounts for your business. You might as well start doing a monthly profit and loss statement right from the start. This will minimize the paperwork you need to do when it comes to filing your first return. It will also give you a more accurate picture of how your business is doing.
Make sure to include your freight costs and development costs. Depending on which country you are in you can even claim part of your home office as an expense. Check the exact rules with a qualified tax accountant.
VAT can get very complex. Different countries have different thresholds for when you need to start collecting and paying VAT. These rules get updated from time to time – so check with a Tax advisor on the latest situation in the markets you plan to sell in or are selling in already.
Unlike sales tax which is added on top of the product price, Amazon and the government assumes your sales price includes the VAT due on that item. This reduces your net margin %.
VAT laws are very strict and can lead to heavy penalties. Check with a tax professional for your particular case.
To get a quick snapshot of your day-to-day profits,I recommend you use the CashCowPro tool. It has a great reporting feature which gives you a snapshot of every product’s performance including sales, conversion rate and how much profit you’re making.
This lets you check your numbers each week and know exactly how your products and business are performing. You can get a professional bookkeeper to prepare your monthly profit and loss statements in addition to this.
At the end of the hard years work, where you risked your time, savings and effort and generated a profit, the government also wants its cut.
You invested 100% of the money, 100% of the effort, but the government wants its 10 to 40% share. Your end of year reporting will be much simpler if each month you’ve kept accurate income and expense statements.
The best way to do this is to use online accounting software. Get a bookkeeper to put in all the numbers for you and a CPA to review them and file your return on your behalf.
It’s worth talking to a CPA now about how you can minimize your tax expense. If you reinvest most of your profit back into buying more stock, you should be able to minimize how much tax you owe. An advisor will be able to give you several strategies you can use to reduce your taxable income totally legally.
As an employee the government took its cut straight off the top of your paycheck, but as a business owner you can spend a lot of the money on business-related expenses, and the government can only tax what’s left.
There are 100% legitimate ways for overseas sellers to sell via Amazon USA and pay very little in taxes. If you are a non-US citizen, your local tax laws apply. Do not break any rules, but you can use the existing rules to your advantage. How much you can save by having a smart tax structure depends on where your company is registered and managed.
It’s best to follow the rules as closely as possible, keep accurate books, and do a review once a month of your overall profit and loss for your business.
This will save you a lot of headache later. You’ll also be keeping a close watch on how your business is performing so you’ll always know what to do next.