hey it's patti scharf CPA and co-founder of catching clouds the leader in
e-commerce accounting and today I want to talk about taxes for Amazon FBA
sellers if you are looking for a video on sales tax I have a whole bunch of
them but they are down below that's not what this video is I'll give you some
links down below you can go check those out this one is going to be on income
tax and the reason I'm doing it now is because now is the time that you can
actually still take action that will impact your 2018 taxes so let's get
started
all right so I was not born as CPA actually started my first business
before I even did any of the accounting thing so I I remember what it was like
when I didn't understand any of the the numbers or like what is I don't even
know what a tax deduction is or anything like that so I want to give you kind of
the basics I want to also remind you that our firm does not actually do taxes
and I haven't done taxes for a long time I just want to share my knowledge with
you but for your own personal tax situation you should be talking to your
own tax CPA so there's my disclaimer
all right so big picture you are going to be taxed on the net amount of income
that you make not on the amount of money you pull out of your business okay so
net income is income minus expenses to get your net income all right now income
should be pretty obvious income is going to be the money that comes into your
business for products that you sell all right so if you're selling on Amazon you
list your products and what the customer is paying you for your products that is
gonna be income to you any deductions from that income is typically going to
be Amazon fees so storage fees or shipping expenses or whatever else you
know Amazon has a hundred billion of them and all of those are gonna be
expenses if you had no other expenses for your business no payroll no postage
no bank charges or anything like that it was all in Amazon if your net income is
going to be the total that you got from your customers - all of Amazon's fees
right easy enough the issue that you have is you may have sales from January
till December but you might actually collect money from Amazon like mid
January to mid of the following January and things don't really fall in the
right reads and there's not really good break
out that ties to what lands in the bank I want you to go watch this video to see
what some of the issues are with the accounting and I would recommend that no
matter what size business you are if you are selling on Amazon you should be
using a 2x with either zero or QuickBooks Online my preference is zero
I think it's cleaner and easier but whatever works for you if you use these
tools together then it is going to solve 95% of your headaches because your tax
CPAs unless they are specializing in e-commerce accounting they don't really
understand Amazon and they're gonna pull their hair out trying to figure it out
or they're gonna do it wrong so if you're using these tools and you have
them in place you'll have solid accounting so that they can actually do
their job and record and report your income in the right periods or if you're
doing your taxes yourself you're going to know you can trust your numbers so if
you need extra help on knowing how to set things up and like the different
chart of accounts and things like that I actually have a course called accounting
for Amazon I'll give you a link to that down below there's also a discount code
down below if you want to check that out but that'll take care of most of your
headaches with your accounting the next biggest headache is going to be cost of
goods sold okay so if you don't know what cost of goods sold is let me tell
you when you buy products that you're going to resell to somebody else you buy
that product it becomes an asset of the business it is inventory okay it is not
an expense of your business it is inventory which is an asset and then as
you sell products you get to pull a little bit of cost away from that until
you sold all of your products and then you go buy more products and yada yada
okay there is a funky rumor going around that this year because of the tax plan
changes with the Trump plan that you can be a cash basis taxpayer and in the year
that you buy your products you can deduct all of it all at once
I don't personally think that's true and I did a whole video on it if you hear in
to the contrary and you want to take that position I would say just do so at
your own risk make sure you watch my video before you take any action
okay so let's assume that you agree with me and you have products that are in
inventory you turn around you sell them you're keeping track of the costs of the
items that you're selling all you do is you tally that up for the whole year
that becomes your cost of goods sold remember it's not cost of goods
purchased its cost of goods sold if your company is a lot higher volume and more
complicated and things like that I actually have kind of step-by-step
information on how to do that my accounting for Amazon video and you can
use a 2x to help with that process as well
okay so then after you've got the income you've got the cost of goods sold you've
got all those Amazon fees that's really 95 percent of your books in most cases
all right so then after that you want to know what expenses you can deduct so to
deduct just means that you're taking whatever your income is so in this case
it's going to be gross profit you've got income minus your direct cost whatever's
left over you just have overhead type costs that
you know you need to run your business so bank fees and different things that
I'll talk about in just a second and then whatever is left over is going to
be what you are going to have as your net income so let's talk about overhead
expenses in general the IRS is going to allow you to deduct expenses that are
ordinary and necessary for your business so basically what they're doing is
they're saying hey an ecommerce seller in your situation is that like an
ordinary kind of an expense for your business is it necessary to run your
business so for example if you buy a stair climber for your business they're
gonna go would most Amazon sellers need a stair climber to run their business
yeah probably not right but maybe a fitness studio would so it's kind of an
industry by industry thing so in general I would say just use your best judgment
you know anything that you're gonna be spending money on that's going to help
you make money is a pretty good bet that it works
your business as a deduction okay so here are some examples bank fees
materials and supplies you know like packaging and stuff for
your business postage for sure office supplies shipping expenses things
like that here are a few things that are kind of funky then I want to talk about
one is automobile expenses I know a lot of people are like oh I'm I have my own
business and so I bought this fancy schmancy car and I'm just gonna write it
off well that's not really how that works go talk to a tax CPA before you do
something like that because really the way it works is you're supposed to only
be deducting a portion that's related to your business usage of the vehicle so
like if you're working out of your basement and you're the only one in your
business and you're not retail arbitrage you're just selling online and you
hardly ever leave your house you're gonna have almost no business miles and
you're not going to have a big deduction for that okay other things penalties are
not deductible like if you have fines and penalties if you park your car
legally and you get a ticket for it you don't get to write that off because the
IRS does not want to encourage illegal behavior other things donations any
political contributions are not going to be deductible and even charitable
contributions depending on your business tax entity type you you might be able to
take the deduction but it would be on say your personal tax return and it
would be subject to whatever limits you have for your personal return sales tax
sales tax is not an expense it's actually a liability when you are
collecting sales tax from your customers you have a legal obligation to give that
money to the government it does not belong to you so you basically hold it
and then when you when you need to file and pay in your sales tax you give it to
the government when you spend that it is not an expense it's just a reduction of
the liability of the business so liability is just another word for loan
it comes to you it's loan that you have to pay out and then you pay it out
done there should never be any sales tax expense on your books and the last one
I'll talk about is meals and entertainment
I think they recently changed the rules I'm not sure how much is deductible now
so check with your tax EPA but I know that a lot of people will just be like
oh I've got a business so I will just start making the business pay for all of
my lunches and dinners and breakfasts and everything else and the IRS does not
like that they there should be a business purpose for the meal or
entertainment and on your receipt whether it's digital or whatever else
you need to keep track of who was in attendance what the business purpose of
it was you should be if you have like a physical receipt this is what I always
do you just write on the receipt who was in attendance what the business purpose
was and then like I use hub dock and take my phone take a picture of it and
it flows into my accounting system so I would recommend something like that so
so I think that's it if you've got a really small business your accounting
should be pretty straightforward just use some common sense make sure you keep
track of everything keep receipts for everything
having just bank statements or credit card statements is not proof of the
transaction so you want to have actual receipts for all of your stuff if you
are intending to deduct it the IRS will disallow deductions if they audit you
and you don't have receipts it'll just be like prove it you can't prove it then
done you just have to pay tax on all that deduction money that you took so so
I would recommend keep your stuff together and orderly I hope you like
this video if you did please like comment and share if you haven't already
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