Your eCommerce business is hectic enough, now throw Amazon Seller taxes into the mix. All those nuance fees and refunds, where to put them on a Schedule C for the Amazon seller? If you are filing a Schedule C here is your explainer.
In this article:
- What do you need to file a Schedule C for the Amazon Seller?
- Reconciling gross revenue on Form 1099 from Amazon
- Filling out a Schedule C for the Amazon Seller
What Is Schedule C And Who Files It?
A Schedule C is an income tax form. Any self-employed individual will file this form annually, along with their 1040. Most Amazon sellers should be filing it to detail their store earnings. Note: As a Schedule C filer you will be paying self-employment tax aka SE tax.
What Do You Need To File A Schedule C For The Amazon Seller?
If you sold over 200 transactions or $20K in sales, you will get Form 1099 from Amazon. This form is a summation of income earned from your Amazon account. This document is reported to IRS (and some states), so the IRS knows approximately how much you received from Amazon.
To file income from Amazon you should gather all your business-related transactions. You will need this information to reconcile your actual earnings to what is reported on your 1099. It is recommended that you have an accounting system to track your earnings throughout the year, so reconciliations go smoothly.
- Open a business bank/credit card account if you’re serious about Amazon selling, it makes it much easier to track all business transactions.
- Do Amazon seller accounting with Xero or QuickBooks Online integrated with software like A2X or Taxomate.
Why Do I Need A2X Or Taxomate For Amazon?
Accounting software like A2X or Taxomate will give you more accurate tax figures. Relying on your bank deposits from Amazon won’t give you the full picture. Amazon deducts expenses from the final deposit you get in your bank account so it is NOT the number you should report as income. The number you always report is gross revenue because that is the figure on your 1099 from Amazon. It is a red flag to the IRS if Amazon reported your gross revenue, and you reported net deposits which is a lower number.
Likewise, franchise taxes at the state level are also based on gross revenue. If you operate your Amazon business as a single-member LLC, you will pay a state franchise tax. If you report net deposits as gross revenue to the states you are potentially underpaying taxes, which is subjectable to a penalty and interest. Once again, your tax filings should always mirror your 1099 from Amazon.
Amazon accounting software also excels at batch loading Amazon transactions for reconciliations. At setup, you create an Amazon-specific chart of accounts in your accounting software and input corresponding revenue and fees into those accounts. So for tax season, all information will be ready, and filing a Schedule C is just transferring numbers to lines.
Organizing Transactions Into An Accounting Software
It is highly recommended to using double-entry accounting software such as Xero or Quickbooks Online to record all your transactions. To start, if all your transactions are flowing into a business account you can link that bank account to the accounting system or upload bank statements. Then categorize the transactions to a revenue or expense account.
We always recommended using business accounts but it is possible to use personal as long as good record keeping is in place. If the transactions are going to a personal account you’ll need to isolate them before you load them into the accounting software. Note: When using personal accounts all the funds you use to purchase items for business are considered owner contributions and all deposited sales are considered owner distributions. Both contributions and distributions are accounts on the balance sheet.
All balance sheet accounts must be reconciled. That means that the balances shown, on the balance sheet or credit card, match the final PDF statement for the year. This will all depend on your transaction reconciliations and overall accounting throughout the year. It needs to be done before reconciling gross revenue on Form 1099 from Amazon.
Reconciling Gross Revenue On Form 1099 From Amazon
At the end of the year, you receive a 1099 from Amazon. Ideally, all your information will be entered into your accounting system, so you can easily match the monthly summaries to your accounting. Note: Various countries have different seller logins as you may know and need to be entered into accounting software separately
If you don’t have an accounting system you need to download the Standards Summary Statement for each month, as well as your Invoiced Orders Summary Statement. For Example: You can see the sample 1099-K below, with the highlighted summary for July. That number needs to match your accounting system or your Summary Statement for that period.
In some instances, the amount shown on your 1099 may not match. This could be due to unclear checks/deposits OR there is a difference in the actual timing of sales. For Example: A sale at 12:30 am EST will be logged on a different day (potentially a different month) in the PDT time zone.
It is okay if you are slightly off, if there is a large discrepancy you will need to do a little digging. In this event, you will need to reconcile your Invoiced Orders Statement to the Summary Statement in question. Note: If you have your transactions flowing into an accounting system, this step won’t be necessary.
Filling Out A Schedule C For The Amazon Seller
After reconciling your 1099-K to the totals in your accounting software or Summary Statements, start plugging items into your Schedule C. To fill out the income and expense sections use account summaries in your accounting system that should match the items from the Standard Summary Report.
Where To Enter Amazon Seller Income On A Schedule C?
These items should be recorded as “Gross Receipts or Sales” on Line 1 of your Schedule C in the income section:
- Product Sales
- FBA Inventory Credits
- Shipping Credits
- Gift Wrap Credit
- Promotion Rebate
Note: Why count credits as revenue when technically you aren’t paid? It is a GAAP requirement for Amazon to consider this as revenue. Since it is reported on your 1099, it needs to align with the amounts on your tax return.
Where Do Reimbursements From Amazon Go On A Schedule C?
In the income section, we also enter contra revenue accounts. Contra revenue accounts for Amazon are revenue accounts, with a negative sign, that are reimbursements. Although they are not expenses they decrease your taxable income. They need to be reported separately as “Returns and Allowances” on Line 2 of your Schedule C:
- FBA Product Sales Refunds plus any other product refunds
- Shipping Credit Refunds
- Promotion Rebate Refunds
Where To Enter Amazon Seller Expenses On A Schedule C?
For the expenses section, we need to list certain Amazon fees in the Cost of Goods Sold (COGS) section. In your accounting system, FBA Selling Fees, the Selling Fee Refund, and remaining FBA fees should be going into one account. This is because they share “Other Costs” on Line 39, Part III, for Cost of Goods Sold (COGS).
What Else Can We Expense On A Schedule C?
Items that are typically expensed on Schedule C aside from COGS are:
- Advertising: when billing advertising separately on a credit card or deducting it from your Amazon seller report it should be filed here.
- Travel expenses
- Software expenses
- Dues and subscriptions
- Professional Fees: must be related to services.
- Wages: if you don’t run payroll for yourself, place that number here.
- Payroll Expenses
- Automobile expenses
- Office Expenses
- Postage and Delivery
- Telephone and internet
Inventory And COGS For Amazon FBA
Inventory is one of the largest, if not the largest expense for your Amazon business. Inventory tracking systems like DEAR, Cin7, or similar bring zen to eCommerce. If you don’t have an inventory system you’ll need to pull a couple of numbers from Amazon FBA tracking to proceed with COGS calculations:
- Amount of inventory you had at the beginning of the year
- Amount of everything you purchase
- Count of your ending inventory
The Cost of Goods Sold (COGS) part of the equation is typically the hard part to figure out. Here is the COGS master formula to use for filling out your Schedule C:
COGS = Beginning Inventory + Purchase – Ending Inventory
Note: If you have shrinkage no worries. Account for the lost, damaged, or stolen inventory value in your COGS calculations. Add the value of unreimbursed products to your beginning inventory number.
Do I Report Sales Tax On A Schedule C?
Sales tax is neither revenue nor an expense to you. Therefore, you do NOT report it on a Schedule C. However you do need to collect and remit sales tax to the states where you hold nexus. Performing a nexus study and reviewing your nexus states regularly, is highly advised. Especially when selling on Shopify or another shopping platform because they are not responsible for managing sales tax.
Resident State: the state where you personally operate from.
Nexus State: the state where you have sufficient economic or physical business presence to justify sales tax collection
Lucky for you, Amazon is obligated in many states to handle sales tax on your behalf. They are what’s known as a marketplace facilitator. Many other marketplaces such as Walmart, eBay, and for the same rules. Often it is them, NOT you, who are doing the heavy lifting with sales tax.
Still, it is smart to register for a state sales tax license with your home state, regardless of whether Amazon is responsible for sales tax. If Amazon is a marketplace facilitator in your state, then you file zero returns. If Amazon is NOT a marketplace facilitator then you collect and pay sales tax according to state regulations.
Schedule C For The Amazon Seller
Bottom line your 1099 needs to match your Schedule C. To avoid tax penalties we strongly recommend having cloud-based accounting software tracking your Amazon business. Amazon seller taxes and accounting are a large part of what we do, and we prepare hundreds of tax returns a year. If you are an Amazon Seller and are having trouble getting the numbers to add up, don’t hesitate to book a call.