Are You Ready for Your Amazon Tax Return?

With only one and a half weeks left before the tax filing deadline, there is a need for businesses selling into the US to hasten processes to ensure submission of accurate and complete tax returns within the stipulated time.

 For Amazon sellers, tax preparation is a more rigorous task than for ordinary businesses because of the platform’s nature, different sources of income, and growing compliance demands. 

The first step in organizing the preparation of your Amazon business tax return is to organize your financial records. This involves collecting sales reports, expense receipts, costs of inventories, and any additional Amazon fees. Sellers should download reports from their Amazon Seller Central account, which gives details on gross sales, refunds, and fees involved in the business’s platform. 

Having this data, in turn, helps to have a clear picture of taxable income. It is also vital for one to understand their deductions. Many Amazon sellers are eligible to make deductions but fail to do so, which could help them largely reduce their tax liabilities. Common deductions include Amazon referral and fulfillment fees, shipping costs, software subscriptions, advertising expenses, and home office costs if applicable. 

Keeping accurate records throughout the year ensures you do not miss these opportunities. Sales tax versus income tax is another issue that is worth considering. While Amazon often collects sales tax in many states, sellers are responsible for filing yearly income tax.

This becomes a critical distinction, as some filing errors or misrepresentations can arise from conflating both sales tax and income tax obligations. 

Inventory accounting is yet another area that can affect one’s tax return. For this, the beginning and ending inventory must be properly accounted for to arrive at the correct figures for cost of goods sold, which in turn will determine the figures for profits declared. If your Amazon business has grown over the past year, it may also be worth reviewing your business structure. Some sellers migrate from sole proprietorships to LLCs or S/C corporations for tax efficiency and legal liability protection.

With the deadline closing in, discrepancies in your records should be dealt with now. You will be required to pay penalties when filing late or inaccurately, thus eating into your profits. 

Taking this time to prepare ensures that your Amazon business does not face any compliance or financial issues as it scales. If you require help with preparing your tax return or ensuring your Amazon business is compliant and financially organized, contact AVASK for professional guidance.