Keeping Up With Amazon Seller Tax Changes
Every experienced seller is likely familiar with paying referral fees through Amazon, but new fees take effect on January 17th, 2023 that will affect Amazon accounting. These FBA fulfilment service changes have increased significantly. On top of that, the new 1099-k threshold that is set to take effect in 2023 is going to be a significant change for online businesses and resellers.
In order to keep up with your Amazon accounting, you need to take a look at these changes and find a bookkeeping solution that works for you. Learn about the changes coming in January for the Amazon FBA fees and get more details about the 1099-k limit decrease here.
Fulfilment by Amazon (FBA) allows businesses to outsource order fulfilment to Amazon. By sending products through the Amazon fulfilment centres, Amazon picks, packs, and ships the order to the customer while also handling customer service issues and processing returns.
Amazon’s referral fees, which are applied whether you use FBA or not, are between 8% and 15% for each item sold, with the fees depending on the product category. If your business uses FBA, there has been a recent increase in Amazon seller taxes. This may impact a business’s profitability, so understanding these changes is vital for their business’ Amazon accounting.
These new fees take effect on January 17th, 2023. FBA outbound fee rates have increased by $0.22 on average. Peak monthly storage fees have now risen by 20 cents per cubic foot for any non-sortable network, while off-peak storage will rise by 3-4 cents per cubic foot. Amazon sellers who store a high volume of inventory will see a new storage space utilisation charge if their sales are not matching the volume.
Inventory stored between 271 days and 365 days will also see an increase in surcharges, including aged inventory surcharges that apply to 180-270 days. These extra surcharges will begin on April 15, 2023.
Amazon seller accounting can be complex to keep up with. Amazon is looking at nearly doubling the cost of removing items from its fulfilment centres by January 2023, throwing more of a wrench into the process. It will now be $2.20 to remove or dispose of an unsold item from your inventory; other fee changes may be on the horizon. Stay on top of these costs quarterly and consider using an Amazon accounting software for additional assistance.
New 1099-k laws will likely make things more complicated for Amazon, eBay, Etsy, and other online selling platforms. The recent law change now requires 1099-k forms for anyone who makes over $600 in sales from online sales, which was enacted in the American Rescue Plan Act of 2021. The large piece of legislation is over 200 pages long, but one of the most impactful lines for businesses is under Section Eight - Miscellaneous Provisions which enacts this change.
The tax change means that if you sell over $600 on these platforms, you will be sent a 1099-k from the online platform. This used to be issued only to those who sold 200 items or $20,000, a much larger minimum. Now, there is no minimum number of sales. If you reach $600, you get a 1099-k form, which goes to the IRS to compare whether or not you have reported a $600 business income.
The IRS has already once delayed the requirement for electronic payment networks to report transactions over $600, but that information is changing day by day. Keep up your research and be mindful of changes to Amazon seller taxes. Research on fees and taxes should be done quarterly so that a change doesn’t catch your business off-guard.
Tax laws and regulations change often, and if you’re not in compliance with them, your business could get hit with fines or penalties. By researching changes quarterly, you can make any adjustments to your business operations or financial reporting before that happens.
With the changing fee structure, Amazon accounting has given anyone who manually tracks their business transactions an extra hurdle to jump. The time spent calculating the shifting sales, fees and taxes could be used to grow your business. The most efficient way to keep track of details and keep documentation handy for tax time is to use a program like Link My Books.
This might be a good time to update the way you manage your expenses. With Amazon accounting software, you can track whether you are over-calculating or under-calculating your tax liabilities. Manual data handling can have inaccuracies, with frequent mistakes or human errors when working in spreadsheets and tracking down numbers on invoices or payments. Professional programs like these make it easy to enter and maintain accurate financial data in one location.
All purchases and transactions should be recorded in digital documentation. By keeping these on hand, you’ll have proper documentation when handling your Amazon seller accounting. Invoices from clients and vendors should be saved along with all the associated paperwork from the purchase, including any receipts from shipping services, packaging materials, and anything else involved with the transaction.
You need this information when filing and in the event of an audit by the IRS. Any missing documentation could result in discrepancies that lead to more charges and taxes on your business. Make sure to keep your digital documentation backed up in a cloud and other multiple places as well. You should be updating this often to ensure you have documentation to back up your financial reporting.
If you run an ecommerce business, personal and business finances should be kept completely separate. This maintains financial clarity and organisation and provides you with legal and tax benefits. With the easier tracking of expenses and income, you can ensure that personal assets are protected in the event of a lawsuit.
Separate business-only financial accounts often have perks and services through banks that support your business as it grows. Every invoice, transaction, and deduction could later impact how you want to file your taxes, and having a separate business account will make it easier to match up these documents and keep track of tax write-offs and business expenses. You should always maintain an accurate picture of your business cash flow to better understand how it’s doing.
Ultimately, the bookkeeping software you use, the documentation you keep, and the tax research you do come down to your decisions. Amazon seller taxes are complex; there is always some new adjustment to keep up with if you want to ensure your business stays profitable. There is no shortage of resources out there that can help you better understand business finances, but finding what works best for you will allow you to focus on growing your business. Stay ahead of your Amazon accounting by staying organised and using bookkeeping software.