Proven by millions of sellers, running an Amazon business can be an excellent way to make money. However, with big cash comes great responsibility. As an Amazon seller, it is crucial to understand how to handle your business taxes.
Taxes can be a complicated topic, but this post will help simplify things for you. Here, we will discuss what taxes sellers have to pay on Amazon, how the process of filing taxes works, how to handle sales tax on Amazon, and if you can sell tax-free.
Related: Best Tax Software for Amazon Sellers in 2023
Is Selling on Amazon Taxable?
Selling on Amazon is generally taxable. Amazon seller taxes involve two main types: income tax and sales tax. Sales tax is calculated based on revenue, while income tax is calculated based on profits. If you sell internationally, you may be subject to international taxes.
You pay income tax on your profits from selling on Amazon. It's similar to how you'd pay taxes on any other income you earn.
Sales tax is a tax collected on certain taxable goods sold. In some cases, Amazon can handle the collection and remittance of sales tax for you, but there are situations where you might be responsible for it yourself.
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Amazon Seller Taxes
How Do Amazon Seller Taxes Work?
The specific taxes sellers must pay on Amazon vary depending on many factors, such as the seller's location, the location of the buyer, and the type of products being sold.
Types of taxes payable by Amazon sellers
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Types of taxes payable by Amazon sellers
Income tax
Sellers are required to report and pay income tax on their profits from selling on Amazon. The amount of tax owed will depend on the seller's total income and tax bracket.
Sales tax
In the United States, Amazon collects sales tax on behalf of sellers in the states where it is required. However, some states require sellers to collect and remit their own sales tax, so it's crucial for sellers to check their state's requirements. The sales tax rate depends on the state and ranges from 0% to 13% for each transaction.
International taxes
Sellers who sell internationally may be subject to additional taxes, such as value-added tax (VAT) or goods and services tax (GST), depending on the country they sell to.
Note. It's essential for sellers to consult with a tax professional or accountant to ensure that they are complying with all tax requirements and are correctly reporting and paying their taxes. In the U.S., businesses such as partnerships, S corporations, and LLCs must file taxes by March 15, 2024. Individuals, C corporations, and sole proprietors must file taxes by April 15, 2024.
Related: Do You Need a Business License to Sell on Amazon?
How to handle Amazon seller taxes?
How to handle Amazon seller taxes?
Sales tax collection
Amazon sellers are responsible for collecting sales tax from customers if they have a tax nexus in the state where the product is delivered. A tax nexus is essentially a significant presence, like a warehouse, office, or employees.
Tax nexus and marketplace facilitator laws
Many states have laws that require large online marketplaces like Amazon to collect sales tax on behalf of sellers (marketplace facilitator laws). This means that Amazon automatically calculates, collects, and remits sales tax for transactions in these states.
Tax registration
Sellers need to register for a sales tax permit in states where they have a tax nexus. This registration allows them to legally collect sales tax in that state.
Filing and remittance
After collecting sales tax, sellers (or Amazon, depending on the state laws) must file tax returns and remit the collected tax to the respective states. The frequency of filing sales tax returns can vary by state and the amount of sales.
Income taxes
Beyond sales tax, Amazon sellers are also required to report their income from Amazon sales when filing federal and state income taxes. This involves tracking all revenue and deductible expenses.
What Are the Amazon Seller Income Tax Documents?
Amazon Seller Central provides a Tax Document Library where you can access all the necessary tax documents for Amazon sellers. These documents are available for download based on your eligibility.
It's important to verify their accuracy to ensure compliance with IRS requirements. If you opt out of electronic delivery, Amazon will send these documents to you via postal mail.
Form 1099-K
Form 1099-K is issued by Amazon to report your annual and monthly gross sales to the IRS, including sales tax and shipping fees.
This form is prepared for sellers who meet specific criteria: at least $20,000 in gross sales and 200 transactions. However, sellers with fewer than 50 transactions will not receive a 1099-K but must still provide their tax information to maintain their selling privileges on Amazon. You can upload your tax information directly in Seller Central.
If you qualify for a 1099-K, you'll likely receive a notification via email. You can find and download this form from the Tax Document Library in Seller Central by selecting the 'Reports' menu.
Form 1099-K
Form 1099-MISC
Form 1099-MISC may also be necessary for some U.S. sellers to report other income, such as commissions from Amazon sales.
Form 1099-MISC
Schedule C (Form 1040)
Schedule C (Form 1040) is used by individuals to file federal income taxes. These forms report your gross income and taxable amount after deductions and credits. Even if you don’t have a business license, which depends on state laws, you might still need to use these forms. Forming an LLC can offer personal liability protection and tax advantages through deductions.
Schedule C (Form 1040)
Form 1120 and 1120S
Form 1120 and 1120S are used by C corporations and S corporations respectively, along with Form K-1 for reporting personal income on individual tax returns.
Form 1065
Form 1065 is for partnerships, requiring Forms K-2 or K-3 to report individual shares of business profits on personal tax returns.
Note. As an Amazon seller, you can reduce your tax payments by deducting some categories of expenses from your taxable income. Some key deductible items include Cost of Goods Sold, business expenses (amazon seller fees, advertising and marketing, office supplies and equipment, shipping costs, home office expenses), and professional fees paid to accountants, or other professionals.
How to Handle Sales Tax on Amazon?
As an Amazon seller, you are responsible for collecting and remitting sales tax on eligible orders. The process of handling sales tax on Amazon can vary based on several factors, including the location of your business and where you sell your products.
How does sales tax work on Amazon?
Typically, sales tax is collected by Amazon on behalf of sellers for the taxable products sold on the platform. The amount of sales tax that must be collected depends on the location of the buyer and the seller and the type of product being sold.
However, sellers may be required to collect and remit sales tax in states where Amazon does not collect sales tax on their behalf. That may apply depending on the kind of items they sell and where they have a sales tax nexus.
What is a sales tax nexus?
The sales nexus for Amazon sellers is a strong connection with a state that triggers the obligation to collect and remit sales tax. There are two main ways to establish a sales nexus.
- Physical nexus, when you have warehouses or employees in the state;
- Economic nexus. when you exceed a certain number of sales within a state.
How to calculate Amazon sales tax?
When you calculate how much you can earn with your Amazon product, you must accurately account for your taxes. You must consider this expense to ensure you are profitable and at which level.
Seller Assistant is a comprehensive product sourcing software that calculates sales tax if applicable. To calculate it, enter COG, click it, and switch the “Tax” toggle in the pop-up. Seller Assistant will calculate your tax.
Seller Assistant calculates sales tax if applicable
How to collect sales tax on Amazon?
As an Amazon seller, it's your responsibility to collect and remit sales tax for orders shipped to buyers in states where you have a tax obligation.
How to collect sales tax on Amazon?
Collecting sales tax on Amazon step-by-step
Step 1. Determine your sales tax nexus
The sales tax nexus is the connection between your business and a state that requires you to collect sales tax. You must determine if you have a sales tax nexus in any state where you sell your products. That can include where your business is located, where your products are stored, and where your customers are located.
Step 2. Register for a sales tax permit
Once you determine where you have a sales tax nexus, you must register for a sales tax permit in each state. That will allow you to collect and remit sales tax legally.
Step 3. Set up sales tax collection on Amazon
You can set up sales tax collection by going to your Seller Central account and navigating to the Tax Settings page. You must enter your sales tax permit information for each state where you have a nexus.
Step 4. Collect sales tax on eligible orders
Amazon will automatically calculate and collect sales tax on eligible orders based on the customer's location and the products sold. You must ensure you are charging the correct rate for each state.
Step 5. Remit sales tax
You must regularly remit your collected sales tax to each state. The frequency of remittance varies by state, so be sure to check the requirements for each state where you have a nexus.
Can I sell on Amazon tax-free?
Amazon tax-free
If the seller is based in a state that does not have a sales tax (such as Alaska, Delaware, Montana, New Hampshire, and Oregon), they may not be required to collect sales tax on the transaction.
However, sales tax laws can be complex and vary by state, so sellers should consult a tax professional to ensure they comply with all relevant tax laws. Additionally, sellers may be required to collect and remit sales tax in states where they have a physical presence, such as a warehouse or storefront.
International Amazon Seller Taxes
If you sell on Amazon with Amazon Global Selling, you must pay various taxes in different tax jurisdictions. Here's an overview of how international taxes work for Amazon sellers.
International Amazon Seller Taxes
Value-Added Tax (VAT)
In many countries, especially in Europe, sellers need to charge VAT on goods sold to customers in VAT-applicable countries. The rate of VAT varies by country and sometimes by product type. Sellers must register for VAT in each country where they have a tax liability.
Goods and Services Tax (GST)
Similar to VAT, countries like Australia, Canada, and India implement a GST system. The requirements for GST registration and filing are similar to those for VAT, including needing to register once certain thresholds are crossed.
Sales tax in the U.S
While not international, U.S. sales tax has implications for international sellers. Each state sets its own rules for sales tax, and sellers might need to collect and remit sales tax if they have a tax nexus (a significant presence such as a warehouse or office) in the state.
Customs duties and import taxes
When shipping goods internationally, customs duties and import taxes may apply depending on the destination country. The responsibility for these charges can vary based on the Incoterms (delivery terms) agreed upon in the sale. Amazon can sometimes handle this for sellers using specific programs like Amazon Global Selling.
Note. Some countries have tax treaties to avoid double taxation of income earned internationally. Sellers should consult with a tax professional to understand if tax treaty benefits apply to their situation, which could reduce their tax burden.
How to calculate VAT?
If you sell on international marketplaces, you must calculate how much VAT you will pay to make sure you will get a profit from the product you sell.
To do that quickly, you can use Seller Assistant. To calculate VAT, you can select your VAT scheme. If you source from retail suppliers, choose COG, incl. VAT and enter prices from the supplier's website for your calculations (this price typically includes VAT). If you source from a wholesale supplier, choose COG excluding VAT (this price typically excludes VAT).
Seller Assistant supports VAT calculation and European VAT. You can select your VAT scheme — no VAT, standard VAT rate, reduced VAT rate, non-registered VAT for UK sellers, and VAT on fees for European sellers who sell on Amazon US or Canada. Incoming VAT for the cost of goods is supported. To calculate it, enter COG, click it, and switch the “VAT” toggle in the pop-up. Seller Assistant will calculate your VAT.
Seller Assistant supports VAT calculation
Related: Amazon FBA Fees
FAQ
Is selling on Amazon taxable?
Yes, selling on Amazon is taxable. You'll pay income tax on your profits and potentially sales tax depending on your location and sales volume.
Can I sell on Amazon without tax?
No, you can't avoid taxes entirely when selling on Amazon. You'll always owe income tax on your profits. However, sales tax may also apply depending on your location and sales activity. If a seller is based in a state that does not have a sales tax (such as Alaska, Delaware, Montana, New Hampshire, and Oregon), they may not be required to collect sales tax on the transaction.
Does Amazon automatically collect taxes?
Amazon may collect sales tax for you in some cases, but it depends on state laws and your sales volume. It's always best to check your tax obligations to ensure compliance.
How much does Amazon take from sellers?
Amazon takes a cut of each sale through referral fees ranging from 8% to 45%, with most products around 15%. There are also additional fees for account plans and fulfillment services.
What is the sales tax in the USA?
There's no single sales tax rate in the USA. It varies by state and can even differ by locality. Rates typically range from around 0% to 13%.
How to get a tax form from Amazon?
Log in to Seller Central and navigate to the Tax Document Library. You can download electronic copies of your tax forms, such as 1099-K, for the current year.
Final Thoughts
For Amazon sellers, accurately filing taxes is essential to running a successful and compliant selling business. Keeping accurate tax records can help you better manage your finances, and understand your business's costs.
However, researching profitable products is equally essential to ensure your business growth. Seller Assistant helps with this task. This all-in-one product sourcing software incorporates all features vital for product research. It combines Side Panel View, FBM&FBA Profit Calculator, Quick View, ASIN Grabber, UPC/EAN to ASIN converter, Stock Checker, IP Alert, Restrictions Checker, in one tool.
Published at https://www.sellerassistant.app/blog/amazon-seller-taxes
For many companies, sales tax collection is a mandatory component of the sale and supply of services.
You have to learn how to measure sales tax before you start paying.Thanks to complex sales tax regulations, sales taxes can be difficult.
Calculating sales tax is relatively easy after determining the rate of sales tax.Read morehttps://www.justwebworld.com/calculate-sales-tax-using-online-sales-tax-calculator/
The global sales tax software market accounted for US$ 6.21 Bn in 2018 and is expected to grow at a CAGR of 8.8% over the forecast period 2019-2027, to account for US$ 13.13 Bn by 2027.
The global sales tax software market is predicted to draw significant growth during the coming years, majorly due to the growing demand for sales tax process automation, and availability of low cast cloud-based sales tax software solutions.
This trend is expected to continue during the forecast period also majorly due to the rising adoption of cloud-based platforms by companies worldwide.
The advanced features and evolving architectures of todays cloud platforms are further boosting the adoption of cloud-based sales tax software solutions, and sales tax software market.
With investment in cloud-based solutions, the companies are anticipated to reduce their operational costs, decrease human errors in tax calculations and filing, and thus to increase their productivity and revenues in this process.
Governments of developing economies such as India and China are taking various initiatives to boost the adoption of digital services by consumers and industries.
Sales Tax Software Industry 2021AbsoluteMarketsInsights Presents “Sales Tax Software Industry Research Report –Global Forecast to 2030” New Document to its Studies DatabaseThe sales tax software is being increasingly used in businesses including shipping, contracts, products and accounting.
The sales tax management process generally involves includes calculation, filing, and reporting with an aim to fulfill all the tax obligations.
In addition, advent of technology automation results in significant reduction of average cost for small and medium sized organizations.
Automation of sales tax management is pushing the organizations to enhance their operational efficiency and overall profit.
For instance, SOVOS introduced an automated government certified sales tax software, Taxify, which provides real time tax rates, and is a print ready platform.
The sales tax software is equipped with self-service portal that provides easy procedure of filing the taxes.
