Amazon FBA has become a popular way for individuals to earn income. However, with this increase in popularity comes increased scrutiny from the IRS. One way to protect yourself from an IRS audit is to understand the taxes associated with your Amazon FBA business.
As an Amazon FBA seller, you are considered a small business owner by the IRS. This means that you are responsible for reporting your income and expenses on your tax return. Failure to do so can result in an audit by the IRS.
One of the most common mistakes made by Amazon FBA sellers is failing to report their income accurately. It is important to keep track of all income earned from your FBA business, including sales, refunds, and reimbursements. This information should be reported on your tax return as gross income.
In addition to reporting income, FBA sellers must also keep track of their expenses. This includes costs such as product costs, shipping fees, storage fees, and advertising costs. These expenses can be deducted from your gross income to determine your net profit, which is then subject to income tax.
Another important tax consideration for Amazon FBA sellers is sales tax. As an FBA seller, you are responsible for collecting and remitting sales tax on all sales made to customers in states where you have a physical presence. Failure to collect and remit sales tax can result in penalties and interest from the IRS.
To avoid an IRS audit, it is important to keep detailed records of all income and expenses related to your Amazon FBA business. This includes maintaining accurate accounting records, such as profit and loss statements and balance sheets. Additionally, it is a good idea to consult with a tax professional who can help you navigate the complexities of FBA taxes.
In conclusion, understanding the taxes associated with your Amazon FBA business is crucial to avoiding an IRS audit. By accurately reporting your income, tracking expenses, and complying with sales tax regulations, you can protect yourself from scrutiny by the IRS. Remember to keep detailed records and seek the guidance of a tax professional to ensure compliance with all tax laws.
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Hey trevin! Thanks for the content. As a new Amazon FBA seller do I have to have a state tax permit for every state that Amazon facilities have stored my products in? Very confused about this! For an example I ship my products to Amazon FBA and Amazon stores them in Texas, would I, who live in the state of Georgia, have to have a Texas sales tax permit? Thanks.
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Thanks!
Great info, for just a starter like me and not making much yet. What I did was… Every month I track down my expenses and write them down (ex. Jan 2022- $900 Feb 2022- $1100 …) then at the end of the year I know my expenses. It's like tracking expenses every month, but you have to be consistent so that you won't miss any of your expenses then I'll give it to my accountant.
In the future will use Bench. Thanks for this great content.