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.