If you've been thinking about selling on Amazon, you've probably heard this advice multiple times—you must have a tax strategy. Taxes are involved when running a business, and it's a tedious and challenging task to do for most business owners.
If you're new to the selling business, you may want to focus on other aspects of your business, such as creating marketing strategies, but taxes are just as important. In this article, we'll share some tax management tips for new Amazon sellers.
Stay on Top of Sales Tax
One crucial part of running a business is sales tax. These are specific amounts that businesses have to collect whenever they sell a product, which will then be remitted to tax collection agencies. It is a tax liability that every business must fulfill.
Taxes for Amazon sellers are easy as they provide a tax collection service. But for it to work, sellers must know the proper sales tax rate by identifying which sales tax nexus they belong in.
Once a business has established a nexus in a state, it is required to register for a permit, collect, and remit sales tax. Sales tax nexus requirement violations may incur fines, penalties, and other legal repercussions. It is vital for businesses to carefully monitor their sales activities and ensure they are meeting all applicable sales tax obligations.
Choose the Right Inventory Method
The inventory method used by a business can have a significant impact on its tax liabilities. This is because the method used affects the cost of goods sold (COGS), which is a critical component in calculating taxable income.
For example, the FIFO (first in, first out) method generally results in lower COGS during rising prices, as the older, lower-cost inventory is matched against revenue first. This can lead to higher taxable income and, therefore, higher tax liabilities.
On the other hand, the LIFO (last in, first out) method generally results in higher COGS during rising prices, as the newer, higher-cost inventory is matched against revenue first. This can lead to lower taxable income and, therefore, lower tax liabilities.
Given the potential tax implications of inventory methods, businesses should carefully consider their options and seek professional advice to ensure they are using the method that best meets their needs while complying with tax laws and regulations.
Use Tax Deductible Expenses to Your Advantage
Small businesses can benefit from a number of tax deductions to lower their tax liabilities. Home office expenses, including rent or mortgage, utilities, office supplies, and maintenance costs, are one type of standard deduction that small business owners can take advantage of. Another popular deduction is vehicle expenses, and businesses can deduct expenses related to using their vehicle for business purposes.
Other tax deductibles include equipment and business expenses, travel expenses, and employee benefit expenses. To be sure they are claiming all allowable deductions and adhering to tax laws and IRS rules, small business owners must maintain thorough records and engage with a certified tax professional.
Use One Payment Method for Business Purchases
When businesses use multiple payment methods, such as cash, checks, and credit cards, it can be challenging to keep track of all the transactions and ensure they are correctly recorded for tax purposes. As much as possible, online sellers need to use one payment method for tax management for several reasons.
First, using a single payment method helps simplify the tax management process and reduces the likelihood of errors. Second, a single payment method makes reconciling bank statements and identifying discrepancies easier. This can be crucial during tax audits, as businesses need to provide accurate and complete financial records.
A single payment method can also help companies benefit from tax credits and deductions. Some deductions and credits require specific payment methods or documentation, and using multiple payment methods can make it difficult to qualify for these tax breaks.
Make Plans for Your Payments
Planning tax payments is advantageous for online businesses. By understanding their tax obligations and planning, businesses can ensure they have enough cash flow to cover their tax liabilities and make timely payments to the internal revenue service. Planning tax payments helps businesses avoid penalties and interest charges for late or incomplete tax payments.
Planning tax payments also has the benefit of improving cash flow management for firms. Businesses can plan their budgets and make sure they have enough cash to cover their bills and invest in development prospects when they know how much they will owe in taxes and when payments are due.
Be Aware of the Due Dates
After collection, you also have to file taxes. As an Amazon seller, it should be your responsibility to know the necessary tax information. There are several tax obligations and dues that business owners and individuals should know about.
- Income tax: This pertains to filing annual income tax returns and is usually due in mid-April. Depending on the type of taxpayer, filling dates can be extended.
- Estimated tax payments: Businesses, independent contractors, and other individuals who are not subject to withholding taxes may be asked to make estimated tax payments. You can pay them quarterly, benefiting small businesses so that tax payments don't pile up.
- Payroll taxes: Businesses with employees must withhold taxes such as federal taxes, state income tax, social security, and Medicare taxes. These taxes are due monthly, semi-monthly, or quarterly, depending on your tax jurisdiction.
- Sales tax: Sales tax filing frequency can be monthly, quarterly, or annually, depending on the business's volume of sales and certain rules of jurisdiction.
- Business license renewal: Some businesses are subjected to the law to renew their business license. The renewal process may have some tax implications, so you should be aware of the due dates to avoid penalties.
Get a Professional Accountant
Due to the complex nature of tax laws and regulations, small businesses need a professional accountant for their taxes. Professional accountants possess the expertise to navigate the intricacies of tax codes which can result in maximizing tax savings and minimizing the risk of penalties and fines. Small business owners can also save time by outsourcing tax-related responsibilities to a professional accountant, allowing them to focus on running their businesses.
Additionally, professional accountants can provide valuable tax planning and financial advice, helping small business owners make informed decisions that align with their business goals. Hiring a professional accountant for taxes provides small businesses with expertise, time savings, compliance, tax planning, financial advice, and peace of mind.
Get Professional Tax Help at Unloop
When tax season comes around, are you sure your business is ready? Luckily for Amazon sellers, Unloop offers a sales tax collection and filing service. Our expert services include the following:
- Identifying which sales tax nexus your business belongs to.
- Registering your business and securing a sales tax permit for collection.
- Handling your Amazon Seller Central account and its tax settings to collect sales taxes automatically.
- Helping file sales tax for your business.
With our services, you can ensure that you pay taxes accurately and timely. Stop worrying about your sales tax, and let the professionals handle it. Book a call and start working with us today!