Month: May 2023

Although I am not a tax expert, I want to discuss a potential issue that many Amazon sellers may face. In the past, Amazon did not collect sales tax for items sold unless the seller’s account was set up to do so, which meant that the seller had to submit the sales tax for each state themselves. However, after facing legal challenges, Amazon eventually started collecting sales tax on behalf of sellers. This was a positive development for sellers as it was previously costly and time-consuming to submit taxes to each state. However, there is a potential problem when it comes to paying income taxes on the sales tax collected by Amazon.

When you receive your 1099 from Amazon, it includes the gross sales amount, which also includes the sales tax that Amazon collected on your behalf. If you use this number as your gross sales, you will end up paying income tax on the sales tax collected by Amazon. This is not ideal, and it’s important to adjust this number by subtracting the sales tax collected by Amazon. You can find this number easily using software such as Inventory Labs, but if you’re just using the number listed as Gross Amount ( box 1a) on your 1099, it can cause problems.

On the second page of your 1099, there is a section that shows the sales tax collected by Amazon. This number must be taken off the gross sales amount when calculating your taxes. It’s essential to bring this to your accountant’s attention because this could result in significant savings. If you sell on other sites such as eBay or Etsy, it’s important to note that they do not include sales tax collected in your gross sales amount, so your accountant needs to be aware of this too.

It’s worth noting that if you haven’t adjusted for this in the past, you may be able to amend your tax returns. However, this may not be worth the effort if you’re a small seller. Still, it’s crucial to make these adjustments going forward to avoid paying taxes on income you did not receive. In conclusion, while Amazon has made progress in collecting sales tax, sellers need to be aware of the potential tax implications and adjust their gross sales accordingly to avoid paying taxes on sales tax collected by Amazon.

First, let me give you the normal “I am not an accountant, this is not tax advice” speech, but look, that said, I was sitting on a cruise about a month back at breakfast and got to talking to the lady next to me. She asked what I did for a living, and I told her I was an online seller that sold on Amazon and eBay. She said she was an accountant and did taxes for a lot of people that sold online. She quickly asked me if I was paying taxes on eBay fees. I know that eBay fees are tax-deductible, but apparently, many of her clients didn’t.

The first thing is just basic business math. You have your costs of goods, which is the amount you pay for a product. If you sell a product for $20 but you paid $10 to get it, you can take the $10 off of the number that eBay gives you on the 1099 to get your income for the year. If you’re not doing that, you’re way overpaying your income taxes. People also didn’t realize that the selling fees they were paying on eBay also come off of that. It’s also part of your cost of goods; it’s not income that you’re making, it’s actually eBay’s income. Shipping also applies. If you paid to ship the item, that can come off, but if you’re charging for shipping, and it cost you $10, and you charge $15, the $5 difference would be income to you.

The eBay fees, typically 15%, and if you’re advertising, say, at 5%, so there’s 20% of that sale. If you sold an item for $20, and your cost of goods is technically $14, your income on that would be $6 and not $10. This is not a big deal on one item, but if you add this up over the course of the year, it becomes a rather large number. People may have been smaller sellers and eventually got bigger, and maybe it was the first time they got a 1099 for it. (You are required to pay taxes even if you don’t get a 1099.)

If you have not been doing this, you need to take some time out and learn how your cost of goods are figured. This is a very basic business thing. Second, you need to be keeping records of this. You can get this from eBay. They give you a monthly invoice of the fees that are charged. You can actually download a more detailed spreadsheet of this. More than anything else, you need to get a tax advisor and have somebody do the taxes for you. It will more than pay for itself because they understand what you can and cannot take off of your taxes. In this case, if you were paying tax on money that you didn’t earn, you’re overpaying your taxes. Running a business is always a learning experience, but you definitely need to understand it if you’ve been making this mistake.

Generally, everything that it costs you to sell an item is going to come off of your gross sales, and what’s left is going to be your profit. As a seller, there are a lot of expenses, such as shipping materials, internet access, and other things that your accountant can help you with. You will be surprised how much it will lower your tax burden each year.