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Amazon FBA Taxes and Everything About the Amazon FBA Program

Michael Pignatelli
Last Updated on September 28, 2023

It's no secret that Amazon is the biggest online shopping platform in the world for sellers and buyers alike. Each year, there's an increase in users on Amazon. So if you have a business and want to extend your store into the online world, Amazon is the best way to do so. It allows small business owners to reach more people and increase their revenue.

Amazon also has an FBA program that helps merchants sell their products more easily. If you plan to start a business on Amazon, here's everything you need to know about the Amazon FBA program.

What is Amazon FBA?

If you have a product-based business, you need a warehouse to store your products and a reliable company to ship your goods. Amazon addresses those worries, and its program offers to take responsibility for storing your goods, packing them, and shipping them to your customers.

When you use their program, your items will be eligible for Amazon prime shipping. Furthermore, Amazon also covers damages and will give you a full refund when they happen. The Amazon FBA makes online selling more convenient and economical for merchants.

How to Join the Amazon FBA Program?

If you want to become an FBA seller, you can start applying to the program by checking it out in your Amazon Seller Central account. Amazon will ask you to specify what items you will be selling to help identify which warehouse to send your products to. Then, once your products are in the warehouse, every time a customer orders from you, Amazon will do the rest.

Additionally, every time an order is complete, Amazon notifies you about the status of your products in storage. Since Amazon is doing the bulk of the work for you, there are FBA fees you need to fulfill to keep the program running. Here are some of them.

FBA fees

FBA fees are the ones you pay Amazon for doing the work for you. The cost of FBA fees may vary depending on how big or small your item is. The price may also differ depending on your product category. One important reminder is that the FBA fee is levied per unit.

Sales charges

Amazon charges a merchant a fee every time you sell a product using Amazon. There are two payment options for this charge. The basic plan is to pay Amazon $0.99 for every unit you sell. The professional plan charges you $39.99 per month regardless of how many items you sell in that period.

You should have your approximate Amazon monthly sales to help you determine which plan to use. For example, if you sell hundreds of items monthly, the professional plan will save you from excess sales charges.

amazon fba taxes - amazon seller account 

A Walkthrough on Amazon FBA Taxes

Whether you have a physical store or are an Amazon seller, one thing is for sure—you need to collect sales tax. Amazon collects sales tax for their sellers, but it's your responsibility to fill up important details for proper sales tax compliance. Furthermore, there are other taxes involved when you have an Amazon business.

Here is an easy guide for online sellers to help you navigate the confusing part of tax filing.

Form 1099-K

The most important form to accomplish when dealing with Amazon FBA taxes is form 1099-K. This form contains all the business income you must file and declare to your government. The information you should include in this form are:

  • Annual gross income
  • Monthly gross income
  • Sales tax
  • Shipping fees

Additionally, to make it easier for you to track your tax obligations, Amazon generates the form for you. Although, as an Amazon seller, it's your responsibility to check if there are any discrepancies in the tax data before you file it to your tax collection agency.

Understanding the Amazon Sales Tax Report

Sales tax is a consumption tax levied by the government on the sales of goods and services. If you are a product-based business, most of your goods will be imposed with sales tax, and you have to collect them as a seller. However, sales tax rates may vary depending on where the sales originates.

You can collect the correct sales tax rate by identifying your business's sales tax nexus. In most cases, the nexus you belong to is the state where your base of operations is. But other business functions can also dictate what sales nexus you belong in.

  • Personnel working for your business in different states
  • Business affiliates
  • Selling products during events in different states
  • Economic nexus
  • Inventory storage

As a general rule, your tax nexus should be your home state, but for Amazon FBA sellers taxes, it's not always the case. Since your products are sent to an Amazon warehouse, there are situations in which your items are in another state. In this case, your sales tax nexus will follow where your inventory storage is.

How Does Amazon Collect FBA Sales Tax?

If you're worried that you must manually collect sales tax every time someone purchases from your business, you can relax. Amazon handles the sales tax collection. Once a customer checks out an item, Amazon automatically adds the proper sales tax to the final cost. You see reports of your sales tax collections on your Amazon seller central account.

However, before Amazon can start collecting sales tax, you must first apply for a permit to collect them. After which, you have to set up the collection rate in your Amazon account. If you have products that are eligible for exemptions, you have to put it in your tax settings so the platform can collect sales tax properly.

Filing Sales Tax Returns of Amazon FBA sellers

Since Amazon generates almost all the forms and reports you need for your sales tax, all you have to do is to file them. You have time to prepare for filing your taxes and ensure that all data is valid and complies with the taxation laws. Here are several ways to file your taxes.

  1. Hire a professional. If you have the extra budget to hire a tax professional, then this is the best option you can go for. You can let the professional handle the filing process and can even do the checking for you. If you have little knowledge about taxes, a professional will ensure that all data on your forms and reports are valid to avoid delays and fines.
  1. Accounting software. There are accounting software options that can help you file your taxes. These filing programs will guide you through the process and upload all your needed forms. However, you still have to ensure that all information on your documents are valid before uploading them to the software.
  1. Filing online. The IRS and other tax collection agencies allow you to file online to avoid long lines. You can file independently if you are confident about your understanding of taxes. This way, you won't need to pay a professional or software for tax filing processes. Just remember to review your documents several times to ensure they are error-free.
    tax filing online

    Unloop: Accounting for Amazon Sellers

    Whether you have a physical store or you own an online store, accounting is part of running a business. Unfortunately, accounting is also one of the messiest, most time-consuming, and most confusing tasks to handle. As a business owner, you need to oversee many aspects of your business, and you can't spend all your time on accounting.

    Unloop offers accounting services for Amazon sellers so business owners can focus on other parts of their business. Our services include:

    • Figuring out your business numbers from COGS—inventory to sales
    • Using accrual accounting to make financial reports for your business
    • Automating your business by connecting it to accounting software
    • Connecting you to CPAs to help you with tax filing at the end of tax season

    Final Thoughts

    The Amazon FBA program is a big help for sellers to run their businesses conveniently. From storing and packing to shipping your goods, Amazon handles it all for you. But, of course, even as you enjoy their services, it is your responsibility to comply with tax laws. 

    We hope this short guide on handling your Amazon FBA sales taxes helps you understand and prepare your tax for the incoming tax season. If you need professional help, Unloop has a team of ecommerce experts to help you with your business accounting. Book a call with us today!

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    About unloop

    Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.