What’s up guys, my name is Trevin Peterson & I’m a full-time 7-figure Amazon FBA seller. I’ve noticed that A LOT of Amazon FBA sellers don’t understand how taxes work with online businesses and Amazon in particular. If you mess up with this, it can cause you to pay waaay too much tax, or some real problems with the IRS.
And because this is such a complex topic, I wanted to breakdown some information around taxes and Amazon, and introduce you to the one tool that I use in my 7 figure Amazon business to automate my expenses and taxes. Hopefully you’ll get some useful information out of this.
Now this is course level information that I am sharing, the sort of stuff that I go into in my Amazon FBA Mentorship, AMZ Champions 4.0. I’m putting loads of value on the page, so please share this around if you find it helpful.
So taxes are a question I get asked about all the time.
What do I do?
How do I file them?
What about sales tax? Or tracking profits and expenses?
How do I do bookkeeping?
These are all really important questions, and if you mess up your taxes, it could cost you a lot of money. A couple of years ago, i nearly overpaid the $12,000 to the IRS because I didn’t track my expenses properly. This is why I think it’s so important to get these systems in place now.
Side note – I’m not a CPA or tax professional. This advice is from my personal experience from running a 7 figure FBA business. I wouldn’t teach anything that I don’t implement myself. But for professional tax advice, please speak with a trained CPA or tax professional.
#1 – How to calculate sales tax on Amazon?
Because so many people have questions about this, I will try and make this as simple and straightforward as possible.
All items sold on Amazon are subject to sales tax. But in certain states the way that you collect and calculate this are different. This comes down to legislation called the “Marketplace Facilitator Legislation”. This is a super super long term (that I don’t even know if i can pronounce…). Basically, certain states require online marketplaces to file and remit sales tax FOR YOU, while in others, you must do it yourself.
You can find a list of the states where Amazon file for you here.
The marketplace facilitator legislation sets laws that shift sales tax collection and remittance obligations from the third-party seller to the marketplace facilitator. Amazon is a marketplace facilitator, so if you are in one of these states, it means that Amazon has to collect and file the sales tax on our behalf.
This is important to understand because it dictates whether or not you are required to file sales tax.
So for me, I live and run my business in the state of Utah. So Amazon does the sales tax FOR ME as Utah is on this list.
BUT when I first started, I DID collect and file my own sales tax, but the laws have changed since then. This is why it’s good to have a CPA on your team to inform you of these changes when they happen (because this can save you a lot of TIME and money and increase your profits)
Again, I’m not a CPA or tax professional; this is information readily available on Amazon. I’m simply showing the information on their site to you – if you need more advice, I recommend you speak to a CPA.
If you DON’T live in one of these states, then I highly recommend that you hire a CPA or tax professional to set you up so that you can collect sales tax and pay your tax bill on time.
#2 How to file taxes for your Amazon FBA business at the end of the year
Once Amazon has collected this tax data for you, they will send you a 1099k form at the end of the year. You can find this in your Seller Central account under “taxes.” You need to download this form and give it to your CPA to calculate your sales tax.
Amazon has a support page around what the 1099k form IS and how to get access to it here.
Amazon is required to report your earnings to the IRS if you:
Earn $20k in unadjusted gross sales OR
Have H200 transactions in a single financial year
(so the IRS is already aware of how much you’re selling – you need to sort your tax seriously or risk getting in trouble with them).
200 transactions could happen really, really quick. I sell around 10,000 units a month so you should expect Amazon to report your earnings if you are serious about selling on Amazon.
Amazon will send you the form by January 31st, and you can download the form in your seller account under “taxes”.
#3 How to organize your expenses and tax?
The kicker is about being organized. Managing your sales, expenses, and your books ahead of time so that your CPA actually knows what to do.
If you don’t do this, you could lose thousands of dollars by paying more tax than needed. As I mentioned earlier, I nearly paid $12k in tax more than I needed to because I didn’t track my expenses properly. Luckily I now use Bench for my bookkeeping to keep on top of this. They helped me recover this money which has paid their fees 100x over.
When I started my Amazon business, I didn’t know how to do bookkeeping. It was a headache and a nightmare, and I learned the hard way that you need to take this seriously (or I nearly did).
If you have an online business, you need a professional bookkeeper.
Usually, new businesses will go straight to quick books and pay $70 a month to track their expenses… but they still have to do all of the work themselves. And for Quickbooks to work with an Amazon business, you’re going to need to use an A2X integration with your orders to figure out the accounting (another $69)…. but YOU, yourself, have to do this work.
So going down the Quickbooks and A2X route is expensive and time-consuming.
Instead, I recommend BENCH. It’s a 100% automated bookkeeping service that specializes in ecommerce and has it’s own software to integrate with Amazon that comes with the subscription.
PLUS, it’s cheaper AND the subscription comes with your own full-time bookkeeper that does all of the bookkeeping for you. This saves you SO much time every month.
If you spend 5 hours a month managing your books and expenses… that’s 60 hours a month. That’s 1 and a half whole work weeks every year you’re wasting on your bookkeeping. For so many people, getting into Amazon is about getting time freedom, so why would you want to add extra work to manage your books when there are services like this that can help you?
(Imagine what you could do with an extra 60 hours of your time too?)
So if you don’t want to do bookkeeping or don’t know where to start, you can just hire someone who specializes in eCommerce to do it for you.
They get access to your Amazon reports, download them, and do it all on autopilot.
At the end of the financial year, Bench send you your profit/loss income statement for you to on to your CPA (with your 1099k form) and BOOM, it’s filed for you. Done.
So often, people are concerned about taxes (as they should be), but doing it this way can take the confusion and the leg work away.
I highly recommend using Bench to save you time and prevent mistakes. And to sweeten the deal, if you use my affiliate link, they are offering you 20% off for the first 6 months, AND you get the first month totally free.
#4 How does Bench work?
When you sign up here Bench will arrange two onboarding calls with you to set up your account. The two calls are a month apart – so they can onboard you, and get a feel for your business. After the first call, they will do your first month’s books.
Depending on where you are with your books and your business, they will tell you which subscription plan you need to use.
Depending on your monthly expenses, you could only be paying $249 a month for everything.
Quickbooks and A2X would be $150+, and you have to do it all yourself….
(how much is your time worth? If you believe that an hour of your time is worth $100, and using Bench saves you 5 hours a month… which saves you $500 of YOUR TIME!
Bench includes everything that Quickbooks and A2X does and more… and if you don’t take advantage of this in your online business, you’re throwing money away and wasting your time to do it all yourself.
A big part of running a successful and scalable business is time management and delegation. Let specialists do the right work for you – your time is so valuable that you can’t afford to waste it on bookkeeping… when you can pay less AND have someone else do it all for you.
This has been the biggest game-changer in my business in a long time.
Let Bench do it all for you, and do it without mistakes and without the risk of getting audited. You then send the information they give you onto your CPA at the end of the year. That’s it – you don’t have to worry about anything other than paying the tax bill you receive.
Want a head start?
Like I said, this is course-level information that I’ve shared… If you’ve found it valuable, there is so so much more information in my mentorship – AMZ Champions 4.0.
It contains an entire A-Z library of starting your Amazon business and then launching and scaling. We also have weekly Q&A calls and live demos where I run through the whole product research process with you step by step.
Then the most valuable part of the mentorship is that I will personally validate your product for you! It can be a little complicated to find a viable product at the start of the process, and investing in $3,000 in lousy stock could be a big mistake. If you work with me, I will personally analyze your product choice and approve/deny it. This is worth the entire price of admission and could save you thousands in the short term!
But now, whether you’re looking to become an awesome AMZ Champ, or you’d like to continue learning with my free content, go and take action! Just use the right tools and make sure that you don’t get caught out by the IRS. An audit is NOT a laughing matter!
That’s it, champ. Keep going. I’m rooting for you!
Want some more info on my AMZ Champions mentorship?
Everything that you need to know and more can be found here, and as always, you can reach me on Instagram @trevinpeterson for some more information.
p.s. the first person who counts the amount of times that I say “bookkeeping” in this article and posts it on Instagram gets a high five. Just sayin’
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