Introduction
Is there any tax on amazon? How much does Amazon charge tax? Yes, Of course! Amazon charges tax. These are the most obvious questions that beginners think about when they are going to start selling on Amazon. Because Amazon sales are a bit different than in a store.
In order to collect sales tax, Amazon charges 2.9% of each transaction.
Whenever a seller sells anything and makes money on Amazon he has to pay Income Tax and Amazon sales Tax. And If you are a new amazon seller then you may have no idea of the tax system on Amazon. But don’t worry, we’ll explain it to you. This article will give you a complete guide for Amazon seller tax Information that you have to know as a seller.
There are few different forms that selles have to consider while filing their taxes;
- 1099-K form
- Form 1040 or Schedule C (If you have a business license)
- Deductibles
1099-K form
The 1099-K form is assigned by Amazon, with respect to taxes for Amazon sellers. On a monthly and annual basis, Amazon FBA tax filing to IRS(Internal Revenue Service) is done and comprises Amazon sales tax and shipping fees.
In fact, Amazon must have to make out a 1099-K form and then send it to the IRS and to all those sellers who meet particular criteria. Like this is for those sellers who made more than 200 transactions or earned more than $20,000. Except if a seller doesn’t fall under this particular criteria but makes more than 50 transactions annually, then he has to provide his tax details required by Amazon.
How to get 1099-k form
If an Amazon seller meets the criteria of the 1099-k form, Amazon sends an email to its seller.
But in case you didn’t get any email from Amazon regarding this or have skipped it you can get your form by following the easy steps that are given below;
- First of all, log in to your Amazon Seller account.
- Tap the Reports menu.
- Then, select the Tax Document library.
- And finally, you can download or print your 1099-K for the year from here.
Form 1040 or Schedule C(If you have a business license)
Is a business license necessary for Amazon sellers? Usually, a business license is not important to become a seller on Amazon. But it is required in some states to become a seller. Tough these standards of getting business license changes from state to state.
Moreover, if you have workers, inventories, or offices in different states then there are more chances to require this. On the other hand, if you are a single person working out of your home you may not need this.
It is very important to be familiar with the requirements of your state to avoid blunders and mistakes. But keep in mind, whether you have a business license or not you must report your income to the IRS.
Why do Amazon FBA sellers collect Sales Tax?
An FBA seller is usually required to collect sales tax especially in those states or localities where your selling meets the following criteria;
- Sales tax nexus
- Product taxability
Sales tax nexus
The term “nexus” is used to describe a particular situation in which a business has a tax presence in certain states that must have to collect or pay the tax.
However, the sales tax nexus is actually a link between a seller and the state that demands the seller to register and collect sales tax, then remit to the state.
To establish a nexus with a certain physical presence of your business or sales threshold is required.
Product taxability
After determining that you have a nexus in a state, the next thing is to determine if the products you are selling are taxable or not.
Generally different states have different rules and regulations regarding product taxability. For instance, in Minnesota grocery and clothing items are both non-taxable. But in Tennessee, grocery items are taxable but taxed at a minimum rate of 5%.
How does Amazon collect tax?
Once your account is registered to collect tax then you are able to use Amazon to set up sales tax collection. Amazon has huge tax collection tools; however, as mentioned above it charges only 2.9% of each transaction to collect sales tax.
To set up sales tax collection on Amazon FBA, you are required to access your Seller Central,
- Go to the “Settings”
- Then tap“Tax Settings” from the menu, and choose the option; “view/edit your tax collection, shipping & handling and wrap tax obligations settings”.
Deductibles
After determining that you have a nexus in a state, the next thing is to determine if the products you are selling are Tax deductibles are business tax write-offs. Deduction of specific charges from your adjusted total income decreases the amount of taxes that you have to handle.
Following is a list of regular deductible costs:
- Cost of products sold (e.g. net price, manufacturing cost, etc.)
- Shipping charges, including fees and supplies
- Home office expenses (e.g. electronics, furniture, office supplies, etc.)
- Amazon fees
- Mileage
- Donations (e.g. donation of damaged products to charity)
- Subscriptions
- Education concerning online business and e-commerce
- Online advertising (e.g. ads, business cards, print materials, etc.)
- Employee salary and benefits
- Consultant fees (e.g. accountant, lawyer, web designer, copywriter, etc.
Final thoughts
The article has covered everything as an Amazon seller you need to know about filing taxes. Following these practices you can save yourself from the taxation frustration. However it will surely help you to be accurate in the filing. Moreover, for Amazon account management, you can also hire experts from Urtasker.
