Amazon FBA Taxes: A Guide for Sellers
Whether you're an Amazon professional seller or an individual seller, the goal is to start generating a profit. Once you begin making sales on Amazon, it’s hard not to stand back and admire the milestones as they pass—your first sale, then your tenth, hundredth, or even thousandth sale, and hopefully many more to come. As you toast to your success, however, you’ll also need to complete the tasks required of all business owners—among them, filing and collecting taxes.
What do Amazon FBA taxes entail, and what are your obligations as a seller?
Taxes can be challenging, but understanding your sales tax requirement upfront can help save you headaches in the long run. To demystify the process of Amazon FBA tax filings, we’ll go over what taxes you can expect to pay, what forms you need to be aware of, and how Amazon sales tax works—so you can get back to celebrating your business’s growth.
Your Tax Obligations and Forms as an Amazon FBA Seller
When it comes to Amazon FBA taxes, one of the most important tax forms to become familiar with is the 1099-K. This form lists your Amazon business income from any sales that you are obligated to report when you file federal or state income tax.
In addition, this form shows all your gross sales information, including:
- Annual gross sales
- Monthly gross sales
- Sales tax
- Shipping fees
This form goes out to anyone who receives credit card payments or third-party network transactions (such as selling on Amazon). If you’ve received this form in the past, it’s important to note some recent changes that might affect your obligations.
Before 2022, you received a 1099-K if you met both of the following criteria:
- You received gross payments of $20,000 or more
- You had more than 200 third-party transactions
As of 2022, more people receive 1099-K forms. Now, the criteria for receiving this form are:
- You received gross payments of $600 or more
- You had any number of third-party transactions
The good news is that Amazon generates this form for you and sends a copy to both you and the IRS. You can also access this form at any time through Amazon Seller Central to get an idea of what your tax obligations will be.
However, note that while Amazon generates this form for you, it is still incumbent upon you to know your tax obligations. If you notice discrepancies on your 1099-K, you should reach out to Amazon through seller support to reconcile any issues.
Understanding Sales Tax for FBA Sellers
Sales tax in the United States varies depending on which state you’re in. This can make your tax obligations complex when you’re dealing with marketplace sales through an online storefront like Amazon.
To know your sales tax responsibility, you need to understand your sales tax nexus.
Your sales tax nexus simply identifies where you will be responsible for collecting and paying sales tax. This is determined by your connection to a state. Some of the reasons a state may be included in your sales tax nexus are:
- Your operations are based in that state
- You have an office in the state
- You store your inventory in the state
- You exceed a certain amount of sales in the state
As with sales tax itself, what exactly makes a state part of your nexus will vary from state to state. A good rule of thumb is that if you have some sort of physical operation in that state, they will fall into your sales tax nexus.
Defining your sales tax nexus can be complicated for Amazon FBA sellers because your inventory is usually stored at an Amazon fulfillment center. Even if you aren’t technically operating out of a state, you may be responsible for sales tax there because of your FBA agreement. As you determine the scope of your sales tax nexus, be sure to account for any fulfillment center locations where your products are stored. Another thing to consider is, do you need an LLC to sell on Amazon? This is something you can speak to a tax professional about for more information, to understand if this is the right move for you.
How Amazon FBA Sales Tax Is Collected
In most cases, Amazon will collect sales tax for you. However, you still need to obtain a state sales tax permit allowing you to collect sales tax. Additionally, you will need to file a sales tax return even if Amazon is doing most of the collection for you.
Even though Amazon takes care of much of your tax collection, it is still ultimately your responsibility to pay all necessary taxes.
Although Amazon does a lot of the work in calculating and collecting your sales tax, it’s important to understand that your sales tax rate may vary from state to state. So do the products that are eligible for taxation. For instance, many states do not charge sales tax on clothing items. Be sure to categorize the products you are selling correctly so you only pay sales tax on the necessary items.
How to File Amazon FBA Sales Tax
Once you’ve accessed every necessary sales tax report and figured out your Amazon tax obligations, it’s time to file. You have a few options when it comes to Amazon FBA tax filing:
- Through a tax professional – If it’s within your budget, consulting with a tax professional can make the filing process much easier. They can take care of filing for you and you can benefit from their expertise. They can make sure you’re fully compliant with all necessary sales tax and help you take advantage of any possible deductions.
- Tax filing software – If you don’t want to hire a professional, you can also use tax filing software. Most of these programs will guide you through the filing process and allow you to upload your tax forms to make things easier. However, it is still possible to make filing errors or miss out on deductions when using these programs.
- File online – If you’re confident that you understand all your obligations, you can file directly with the IRS and through state tax websites. This way you won’t need to pay any fees for experts or software. If you opt for this route, be sure that you understand all the necessary forms and consider asking a business partner or other professional to double-check your work.
Simplify Your Amazon Success with Forum Brands
As with all taxes, Amazon FBA taxes can be complicated—and while this guide can help to shed light on the process, it’s always a good idea to consult a tax professional to make sure you are fully compliant with all state and federal laws. It’s also valuable to know Amazon seller insurance requirements, which you can read more about on our blog.
Growing your Amazon FBA business can also be complex, but it’s also exciting. If you’re ready to simplify things and reap the benefits of your growth, one option is to sell your Amazon FBA.
At Forum Brands, we make selling your Amazon FBA business easy. You’ll benefit from a fair cash offer and the continued growth of the brand you created while you move on to your next project. Reach out today and see what Forum Brands can do for you.
IRS. Understanding Your Form 1099-K. https://www.irs.gov/businesses/understanding-your-form-1099-k
Quickbooks. 4 things Amazon sellers need to know about filing taxes.https://quickbooks.intuit.com/r/taxes/4-things-amazon-sellers-need-know-filing-taxes/
Amazon. Tax policies. https://sellercentral.amazon.com/gp/help/external/G200405820?language=en_US
Big Commerce. Chapter 2 Amazon FBA Sales Tax Guide for 2022. https://www.bigcommerce.com/blog/amazon-fba-sales-tax/#undefined
Amazon. Tax on U.S. seller fees FAQ. https://sellercentral.amazon.com/gp/help/external/help.html?itemID=A65GGD8MR46A2WL&language=en_US&ref=efph_A65GGD8MR46A2WL_cont_G200405820