As an Amazon seller, you should know a few areas of accounting for the eCommerce platform. By understanding these concepts, you’ll be able to maneuver managing your financial data on Amazon. While you’re organizing your finances, you will surely learn general accounting basics like the difference between cash basis and accrual accounting, the distinctive tasks accountants and bookkeepers do, and the best financial management tools. But you also need to learn about bookkeeping for Amazon sellers, tax software, and everything Amazon accounting.
To help you get started, check out this blog post as we review the four basic concepts of Amazon accounting.
1. Amazon Bookkeeping
Every business owner should understand the essence of bookkeeping and accounting on Amazon. The knowledge will encourage you to begin the tasks as soon as you launch your business. You can handle all the tasks below effectively through bookkeeping and accounting.
You can track your inventory through bookkeeping and check which products are in stock and need replenishment. With the updated data, you can be sure not to purchase more than suggested to avoid oversupply. Then, when the sales come, you can keep sending customer orders out without running out of stock. You can also track the monetary value of the inventory through bookkeeping.
Tracking of Sales
Tracking your sales will inform you of your total income, and give insights on which products are best sellers and which items are lagging. As a result, the numbers can help you analyze the reasons behind a product’s sales success and another's failure. After the analysis, you can create action plans.
Fulfillment by Amazon
Fulfillment by Amazon (FBA) is a go-to fulfillment method for many Amazon FBA sellers because of the convenience the service gives. FBA offers packing, storage, and sending of orders on your behalf. They even have a gift wrapping service if you send something for birthdays and holidays. However, these services come at a cost. After seeing the data from bookkeeping and accounting, you can decide whether being an Amazon FBA seller is sustainable for you or not.
Data for Taxes and Loan Applications
You do not need to rummage through old documents and receipts when you begin bookkeeping early. When all Amazon transactions are recorded, tax seasons will be easier to go through as you have all the data you need. And if you ever go under the microscope through an audit, you have a proper document trail.
Not only will complete data help during tax time but also when you apply for loans. Some requirements in acquiring a loan are income, credit history, and debit-income ratio, which are all in the books.
When you invest in the best accounting software for Amazon sellers like Quickbooks and Xero, report generation will be easier and can be generated in just a few clicks. Quickbooks and Xero already store all your business financial transactions, so all the data you need is in a single place. With the tools’ report templates, you can quickly generate income statements, cash flow, and balance sheet reports. You can customize reports according to your key performance indicators and other goals.
2. Amazon Tax Forms
You need to familiarize yourself with the different Amazon tax forms to know which one you are required to accomplish when tax season comes. Although some forms are submitted by Amazon directly to the Internal Revenue Service (IRS), it pays to be aware of these documents:
- Amazon Form 1099: This is the form sent by Amazon to the IRS when a seller reaches an income of $20,000 or more. You can use this form to apply for tax refunds.
- Form W-9: The form accomplished by all Amazon sellers during their tax interview with Amazon.
- Form W-8BEN/W8-BEN-E: This form is meant for foreigners who undergo the tax interview with Amazon. These documents declare the sellers’ foreign status.
- Form 1042S: This is the form that states a foreign Amazon seller's income.
These tax forms are available on your Amazon seller account. You can accomplish the tax interview using the same account. For the tax interview, supply the basic information asked and business TIN for document submission. When tax refund season comes, you can download these forms or delegate the task to tax professionals, so they can help you pay just the right amount you are due.
3. Amazon Sales Taxes
Like any other store, you must also pay sales taxes for every item you sell on Amazon. Sales taxes are sensitive to changes, and the rules vary per area. Some areas collect taxes based on the package's origin, some by destination, and others through unique rules. Some do not charge sales taxes too. It takes time to understand sales tax workings, and doing it alone can be quite challenging. The good news is that Amazon will do the sales tax computation, collection, and remittance for you through the Marketplace Tax Collection (MTC).
The data of these transactions are all available on Amazon Seller Central, which you can acquire and integrate into your main Amazon accounting software for data storage and generation of reports.
On top of the MTC, you can also invest in Amazon seller tax software like Taxify, Taxomate, or Taxjar. They are as updated as the tax system on Amazon.
Despite Amazon doing this task for you, it still pays to know about sales tax, especially if you have other stores outside the platform. Knowing the rules and regulations can help you independently compute sales taxes. And during your routine inspection of books, you will be able to spot sales tax mistakes because you know the facts about them.
4. Amazon Tax Exemption Program
Taxes may empty your pockets, but there are tax exemptions that can help you save money. As a seller, you must familiarize yourself with the Amazon Tax Exemption Program (ATEP). ATEP applies to individuals or businesses who are tax-exempt by law or are proven as manufacturers using the product (and not the final user).
To qualify for this program and acquire a tax exemption certificate, buyers need to provide the following:
- The area they wish to enroll in
- Your organization type
- Organization address
- Tax exemption number/form
Application is easy and usually takes just a few minutes. Once customers acquire their tax exempt certificate, they can upload it and get tax-free purchases.
As a seller, your role is to keep track of these tax-free purchases for tracking and reporting later. To get reports, you can access all tax exemption certificates in Seller Central’s “Tax Documents” tab. You’ll know which among your sales are sold tax-free.
By optimizing your tax settings on Seller Central, you can also make it easy for tax-exempted customers to purchase your products easily. To do this, you need to go to the “Members” section and tick groups and individuals who are tax exempt.
Amazon Bookkeeping Assistance
As an Amazon seller, competition will be a part of your everyday life. Selling on the largest eCommerce platform worldwide means exposing your business to as many customers as possible, but it also means selling side by side with millions of sellers.
Your plate will be full of tasks, like optimizing your product listings and advertisements for the search engine, and measuring the success of your game plan. You also have to ensure that your products and offers are on par with what other sellers offer. On top of this is financial management.
To make sure that you get all these done correctly and efficiently, seeking expert assistance is a smart move. It also takes some tasks off your plate. For Amazon bookkeeping and accounting, you can partner with a virtual bookkeeping service company for:
- Collection of accurate costs of goods sold and inventory data
- Accrual accounting, which provides you with a full view of your eCommerce business finances
- Management of bookkeeping and accounting tools
- Acquisition of financial reports
- Live bookkeeping
Aside from a virtual bookkeeping and accounting company, you can hire in-house or freelance eCommerce accountants and bookkeepers. The choice is yours—whichever works better for your business. Nevertheless, remote assistance proves to be as efficient, if not better, than other options as it’s less costly.
Amazon Bookkeeping By Unloop!
Small business owners should know the four essential areas of Amazon seller accounting. We hope you are now introduced to Amazon bookkeeping, tax forms, sales taxes, and the Tax Exemption Program. You’ll handle these duties as you continue to scale your Amazon business.
And if these tasks are too much for you to handle, know that you can always delegate them to bookkeeping and accounting experts.
Unloop offers Shopify and Amazon seller accounting services, and multichannel business assistance. We can handle your business’s bookkeeping, accounts payable, forecasting, payroll, and taxes using the best bookkeeping and accounting tools available. The best part is that we operate remotely, so you do not have to worry about managing another in-house team.
If you think this service is what you need, call us today. We’d love to explain our offers in detail. Talk to you soon!