Whether you resell items on Amazon as a full-time job or have picked it up as a side hustle over the last year, you’ve probably loved being your own boss and have some extra money in your wallet.
When you take on a business venture such as selling items on Amazon, you won’t have taxes automatically taken out of the money you earn — but you aren’t exempt from paying taxes on these earnings.
As an Amazon reseller, the Internal Revenue Service (IRS) views you as a self-employed individual, which means that you need to be prepared to cover your income tax and self-employment tax when tax season rolls around.
Without the proper planning throughout the year, you may find yourself with a hefty tax bill come tax season. To help you avoid this, AA Tax & Accounting Services, LLC has put together a quick guide on the tax implications of starting an Amazon reseller account.
Utilize your 1099-K form
A 1099-K form is a sales reporting form that includes the gross amount of all reportable payment transactions throughout the year. As an individual online reseller, you are not required to fill out this form yourself. When selling items on an online platform, such as Amazon, they will fill out the 1099-K form if you meet the necessary criteria.
For Amazon to provide you with a 1099-K form by January 31, you must meet the following criteria:
- Completed more than 200 transactions
- Generated more than $20,000 in unadjusted gross sales
If you haven’t completed more than 200 transactions or earned more than $20,000 in unadjusted gross sales as an Amazon reseller but have completed more than 50 transactions, you will not receive a 1099-K form from Amazon.
However, you are still required to submit your tax information to the Internal Revenue Service (IRS). If your tax information is not submitted to the IRS, you could lose your Amazon seller status.
File a Schedule C
Depending on where you live, you may need a business license to act as an Amazon seller. However, the rules vary from state to state and differ between those selling that have a team helping versus those running a one-person operation.
If you are required to get a business license and operate as a business, you will need to file a Schedule C, also known as Form 1040. This reports both your income or loss where you practiced as a sole proprietor of your Amazon reselling business.
Be mindful of sales tax
One of the trickiest aspects of starting an Amazon reseller account is managing sales tax collection in all states where you have nexus. Nexus means that your business has a physical presence in that state, such as an Amazon warehouse that stores the physical products you are selling.
You will not only have nexus in the state where you reside and operate your business but will be considered to have nexus anywhere you are fulfilling orders from. Make sure you are accounting for sales tax in all the areas in which you have nexus.
Deductibles come in handy
As a self-employed Amazon reseller, there are a variety of deductibles you can claim when filling out your taxes. These include a range of things, including home office expenses to mileage to education costs.
Keep track of all of your receipts for business transactions for the following possible deductions:
- Cost of goods sold
- Shipping costs
- Home office costs
- Mileage
- Donations
- Subscriptions
- Related education courses
- Software for taxes and inventory
- Advertising materials
- Employee salary and benefits
- Consultant fees
Tax consulting services in Cedar City, Utah
If you’re operating an Amazon reseller account, we recommend consulting certified public accountants like AA Tax & Accounting Services to better understand what you will owe come tax season and how much you should be paying to the IRS quarterly.
The AA Tax & Accounting Services team can help you execute the right self-employment tax strategies for peace of mind. Contact us to schedule an appointment.
