Are you a professional seller on Amazon? Or maybe you sold off a few personal items last year? Either way, you may be wondering if you need to report those earnings to the IRS this tax season.
We’re here to answer those questions for you as you get busy with those tax forms. Below are some tips for making sure your forms are in order with all qualifying deductibles in place.
1. The 1099-K form is your best friend
The 1099-K is a sales reporting form that provides the IRS with your monthly and annual gross sales information. This includes things like sales tax and shipping fees. Individual online sellers are not responsible for filling out a 1099-K; the form will be filled out by Amazon, who is required to provide the 1099-K to both the IRS and sellers if they meet certain criteria.
Who gets a 1099-K from Amazon?
According to Amazon, all sellers who meet both of the following conditions will get their 1099-K form in the mail (or by email, depending on your preferences) by January 31:
- More than $20,000 in unadjusted gross sales, and
- More than 200 transactions.
If you don’t meet the above criteria but are a professional seller or an individual seller with more than 50 transactions in a year, you still need to provide your tax information to Amazon, or risk losing your seller status. Though this isn’t a requirement from the IRS, Amazon does this to ensure they have everyone’s tax information so that they can comply with all IRS regulations.
You can provide this information in your Seller Account under “Tax Information.”
How do I access my 1099-K on Amazon?
If you’d like to see the form on Amazon, you can go to Seller Central -> Reports -> Tax Document Library. You will only see the 1099-K if you have more than 200 transactions and at least $20,000 in gross sales for the year.
What if I don’t receive a 1099-K from Amazon?
If you think you meet the above conditions but did not receive a 1099-K form from Amazon, and cannot find it on Seller Central, contact Seller Support.
If you made a profit on Amazon, you will need to report the income whether you received a 1099 or not. One exception is if you used Amazon to sell of a few household items for less than the original purchase price.
If your online auction sales are the Internet equivalent of an occasional garage or yard sale, you generally do not have to report the sales. In a garage sale, you generally sell household items you purchased over the years and used personally. If you paid more for the items than you sell them for, the sales are not reportable. Losses on personal use property are not deductible, either.
You can read more about how the IRS determines income tax requirements for online selling here.
What if my 1099-K is inaccurate?
First, make sure that you are comparing unadjusted total gross sales for the year, based on shipping dates rather than sale dates. For example, if you sold the item on December 31, but shipped it on January 1, the amount will show up in January and not December.
If you want to double check the amount shown on the 1099-K, you can go to the “Data Range Reports” page on Seller Central and follow these steps:
2. File a Schedule C if you have a business license
Generally speaking, you don’t need a business license to become a seller on Amazon. However, some states will require you to get one. The criteria for getting a business license differ by state, but if you have employees, inventories and offices in multiple states, chances are you’ll need one. By contrast, if you’re just running a one-person operation out of your home, you probably won’t need one. It’s crucial to check your state’s requirements to avoid any mistakes. Remember that you’ll need report income to IRS whether you have a business license or not.
If you’re operating as a business in your state, you’ll need to file Schedule C, or Form 1040. You can learn more about how to keep track of Schedule C here.
3. Stay on top of sales tax
Perhaps the most stressful part of filing taxes as a seller on Amazon is the sales tax, particularly if you’re an FBA (Fulfillment by Amazon) seller who uses Amazon’s fulfillment centers in different states.
What is the sales tax, exactly?
A sales tax is a tax on items for sale that are deemed non-essential. These items vary from state to state. For instance, some states will tax clothing while others like Minnesota, New Jersey, Vermont and Pennsylvania don’t. Still others tax clothing only up to a certain cap.
If you’re a seller on Amazon, you’ll need to collect sales taxes on behalf of the government, depending on the products you sell and where your sales tax nexus is located. (We have a free sales tax calculator you can use to find local sales tax rates)
So, what is a sales tax nexus?
Different states have different definitions for what qualifies as a sales tax nexus, but most of them define it as a place where there is a physical presence for your business. So if your home office is located in New York, and your inventory is in Kentucky, you have a sales tax nexus in both New York and Kentucky. If your office is in California but you have an employee in Michigan, you’ll need to collect sales tax in both California and Michigan.
For each state where you have a nexus, you’ll need to collect sales tax from buyers. You will then need to report those taxes, oftentimes by individual district, to the IRS.
When do I need to file sales tax?
In order to collect sales tax in the state, you’ll need to apply for a sales tax permit. Upon doing so, the state will assign you a filing frequency–these can be monthly, quarterly or annually. Pay attention to the due dates accordingly.
As complex as this sounds, there’s life-saving software to help you do the necessary work. To make life easier for yourself, it’s best to keep an eye on your sales tax on a regular basis throughout the year. Here’s how to track your sales tax on QuickBooks.
4. Don’t forget your deductibles.
We saved the best for last. Like any other self-employed individuals, Amazon sellers can claim deductibles on things like home office expenses and education costs. Never throw away any receipts that can be related to your online activities.
Here are some important deductions that may come in handy for sellers:
- Cost of goods sold, e.g. wholesale price, cost of manufacturing, etc.
- Shipping costs, including fees and supplies
- Home office costs, e.g. electronics, furniture, supplies
- Amazon fees
- Donations, e.g. damaged goods donated to charity
- Education pertaining to online business and ecommerce
- Software for taxes and inventory
- Online advertising, e.g. ads, business cards, print materials
- Employee salary and benefits
- Consultant fees, e.g. accountant, lawyer, web designer, copywriter
Find out how to integrate your Amazon store with QuickBooks to avoid unnecessary time spent on data entry and tracking.