Taxes for Amazon Sellers: All You Need to Know in 2023
Amazon has been one of the most successful e-commerce platforms in the world, with millions of sellers using it to market and sell their products. However, with great success comes great responsibility. As an Amazon seller, it is crucial to understand the tax implications of doing business on the platform.
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.
What Taxes Must Sellers Pay on Amazon?
The specific taxes that sellers have to pay on Amazon can 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
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.
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.
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.
Note: In the U.S., businesses such as partnerships, S corporations, and LLCs must file taxes by March 15, 2023. Individuals, C corporations, and sole proprietors must file taxes by April 18, 2023.
What Is Form 1099-K?
Form 1099-K is a tax form used to report income received from third-party payment processors, such as Amazon. Amazon is required by the Internal Revenue Service (IRS) to send Form 1099-K to all sellers who have made over $20,000 in gross sales and have had over 200 transactions in a calendar year. This form is used to report the total amount of payments made to you through Amazon.
Who must fill out Form 1099-K?
Sellers who have made over $20,000 in gross sales and over 200 transactions in a calendar year must receive a Form 1099-K from Amazon. If you’re an individual or professional Amazon seller, Amazon fills out this form for you. They send it to you and the IRS if you meet the requirements.
Where to find Form 1099-K?
Amazon will send a copy of your Form 1099-K to the email address associated with your Amazon account. You can also access the form by logging into your seller account and clicking the “Reports” tab. Click “Tax Document Library” from there to find your Form 1099-K.
What if I do not get the 1099-K Form?
If you were expecting a 1099-K form but did not receive it, you should contact Amazon Seller support and request a copy. Additionally, you can check with the IRS to see if they have received a copy of the form from Amazon. You can do this by requesting a Wage and Income Transcript from the IRS, which will show any income reported to them by third parties.
What if my 1099-K Form is inaccurate?
If you have received a 1099-K form as an Amazon seller and believe it is inaccurate, the first step is to review your records and ensure that you have accurate information. If you find an error, you should contact Amazon's Seller Support team and provide them with the correct information.
Note: It's essential to remember that the IRS requires payment processors, like Amazon, to issue 1099-K forms when sellers meet specific criteria. These forms are used to report the gross sales that were processed through the payment processor, but they may not take into account any returns, refunds, or other adjustments. Ensure your figures are the unadjusted total gross sales for the entire year based on a product’s shipping date, not the sale date.
What Is Schedule C, and Who Must File It?
Schedule C is a tax form used by self-employed individuals to report their income and expenses from a business. It is also known as Form 1040, Schedule C, and is used to calculate a sole proprietorship's net income or loss.
Suppose you are an Amazon seller who operates as a sole proprietorship. In that case, you must file a Schedule C with your personal income tax return to report your business income and expenses. Amazon sellers who sell products or services on the platform for profit are considered self-employed, and their income is subject to self-employment taxes.
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.
What is sales tax?
Sales tax for Amazon sellers refers to the tax collected by Amazon on behalf of sellers for products sold on the platform. In general, a sales tax is a tax imposed by state and local governments on the sale of goods and services. 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.
When a seller registers to sell on Amazon, they may be required to collect sales tax on their own or have Amazon collect sales tax on their behalf. Amazon collects sales tax in states where it is required by law, and the tax collected is remitted to the appropriate state's tax authority.
However, it is important for Amazon sellers to understand their sales tax obligations, as they may be required to collect and remit sales tax in states where Amazon does not collect sales tax on their behalf. Sellers may be required to collect sales tax depending on the kind of items they sell and where they have a sales tax nexus. Sellers should consult with a tax professional or use sales tax software to ensure they comply with all applicable sales tax laws.
Note. If you consider using sales tax software, we recommend Hellotax. Hellotax is a tax compliance service with personal customer support founded by Amazon sellers in 2016 in Alicante, Spain. It offers an extensive service package at the best price. Hellotax is an excellent solution for sellers operating in Europe. The company provides a user-friendly interface and self-learning AI-powered tax letter inbox feature supporting your tax tasks.
What is a sales tax nexus?
Generally, sales tax nexus refers to the location where your business has a physical presence. As a rule, you’ll only have a tax nexus in the state where your company is headquartered. But in some instances, your sales tax nexus is also in another state, where, for example, your inventory is stored. Each state in the U.S. has its specific definition of a sales tax nexus.
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.
Collecting sales tax on Amazon step by step
- Step 1. Determine your sales tax nexus: 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 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 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 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 nexus.
Can I Sell on Amazon Tax-Free?
Whether or not sellers can sell on Amazon tax-free depends on a few factors, including the seller's location, the location of the buyer, and the type of product being sold. 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.
Accurately filing taxes is essential to running a successful and compliant Amazon selling business. Keeping accurate tax records can help you better manage your finances, understand your business's performance, and make informed decisions about its development.
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