As a fellow Amazon business owner, you know firsthand how overwhelming tax season can be. It’s that time of year again, and you’re probably wondering how to file taxes with less liability.
But don’t worry; we’ve got your back.
We’ve been through this before and learned a thing or two about tax deductions that can help you save some serious cash. So, let’s roll up your sleeves and review the top 10 tax deductions for Amazon FBA Sellers in 2023.
Turn on your Notepad and take notes now!
Tax Deductions for Amazon Business Owners
As an online business owner, you may be eligible to deduct certain business expenses from your taxes, which can lower your overall tax bill.
Now, when we say “ordinary and necessary” costs, what do we mean by that? “Ordinary” expenses refer to standard and accepted costs within your business industry.
For example, purchasing inventory is an ordinary expense if you sell products on Amazon.
On the other hand, “necessary” expenses refer to costs that are helpful and appropriate for your business operations.
For example, if you use a laptop to manage an Amazon FBA business, then the cost of purchasing that laptop is necessary for your business operations.
To give you a better idea, here are some examples of ordinary and necessary expenses that you may be able to deduct from your taxes:
- Shipping and handling fees for products sold on Amazon
- Costs of inventory or raw materials
- Amazon seller account fees
- Advertising and marketing expenses
- Office supplies and equipment
- Professional fees, such as accounting or legal services
Look at some of the most common tax-deductible business purchases and expenses for Amazon FBA sellers.
1. Costs of Goods
First, the cost of goods sold (COGS) is crucial when calculating your taxable income.
It includes all the production costs, labor, wholesale costs of the products you’re reselling, and storage associated with the products you sell on Amazon.
Here’s where things can get a bit tricky. Some Amazon Sellers might misunderstand how to claim this tax deduction.
For instance, some assume that the entire cost of their inventory can be claimed as COGS. But that’s not the case.
Only the cost of the products sold during the tax year can be claimed as COGS. So, you need to track how much inventory you have at the beginning and end of the year and the cost of the stock you purchased during the year.
With that said, claiming the correct COGS can significantly lower your tax burden and help you keep more of your hard-earned money. So, don’t let this tax deduction slip through the cracks.
2. Inventory Storage
You’re likely storing your products in an Amazon warehouse, which is a convenient way to manage your inventory. Also, you can deduct the costs associated with this inventory storage.
Storage from Amazon
If you’re using Amazon’s storage facilities, you can deduct the cost of these services as a business expense. This includes the monthly storage fees and additional charges for services such as labeling or prep work.
Remember that long-term storage fees may apply if your inventory sits in the warehouse for too long, so monitor your inventory levels regularly to avoid surprises.
3. Home Office
If you work from home, you can deduct a portion of your home office expenses, which can be a big money saver. This includes rent, mortgage interest, utilities, and internet and cell phone bills.
To qualify for this tax deduction, you must have a dedicated space in your home that you use exclusively for business purposes. This means you can’t use the space for personal use or share it with anyone not involved in your business.
It’s important to note that there are specific requirements you need to meet to take advantage of this deduction. For example, your home office must be your principal place of business, or you must use it regularly and exclusively for business purposes.
Now, here’s the thing: many people don’t take advantage of this tax deduction simply because they’re not aware of it or they think it’s too complicated.
But, we’re telling you, it’s worth exploring. The money you save can add up quickly, and it’s a great way to lower your tax burden.
However, with that said, tax laws can be complex and confusing. So, consulting with a tax professional or certified public accountant is crucial to ensure you follow the law and take advantage of all available tax deductions.
Tax professionals from XOA Tax can help you navigate the process from tax advice and ensure you’re not leaving any money on the table. See how we can solve your problems.
4. Shipping
As an Amazon FBA seller, you’re probably aware that you incur shipping costs when you send your products to Amazon’s warehouses. You may not know that these costs can be deductible as a business expenses.
Shipping costs include any records of delivery charges, postage meter subscriptions, and extraneous postage that you pay to send your products to Amazon’s warehouses.
Just keep detailed records of these expenses to accurately claim them as deductions on your income tax return.
Now, it’s important to note that not all shipping costs are deductible. For example, if you’re shipping products directly to customers, those shipping costs cannot be claimed as a qualifying expense.
However, those costs can be deductible using a third-party shipping service or shipping products to Amazon’s warehouses.
5. Packaging
Next, are these costs also deductible as qualifying expenses?
The cost of packaging materials includes everything from labels and envelopes to printing costs, packaging, tape, and adhesives. It even includes any other materials that you use during shipping.
Now, here’s the thing: packaging costs can add up quickly, especially if you’re selling many products. But, by deducting these costs, you can lower your burden in tax time and save money.
It’s a win-win situation!
One tip to remember is to keep track of all your packaging-related expenses throughout the year. This can be tedious, but ensuring you’re claiming everything correctly is crucial.
6. Office Supplies and Materials
The other deduction you can take advantage of is office supplies and materials. When we say “supplies and materials,” we talk about a wide range of items you might use in your business operations. This includes printers, ink cartridges, paper, pens, and staplers.
It’s important to note that these expenses must be directly related to your business operations to be deductible. For example, suppose you purchase a printer for personal use and occasionally use it for your business.
In that situation, you can only deduct the portion of the expense related to your business use.
7. Software and Technology
Moreover, you’re probably using various software and technology tools to manage your Amazon business. This includes accounting software, web hosting, and domain registration fees. Also, many of these expenses can be tax deductible.
These tax deductions can only be claimed if used solely for business purposes. So, if you’re using a computer or a phone for personal and business use, you can only claim a portion of the expenses related to your business operations.
8. Advertising and Marketing
As you know, marketing your business can be a game-changer for driving growth and increasing sales. Fortunately, many advertising and marketing expenses are tax deductible, which can help you save money on your taxes.
These expenses include advertising on Amazon or other platforms, pay-per-click advertising, social media advertising, email marketing, and additional promotional costs.
The key is keeping detailed records of these expenses to ensure they are adequately deducted from your taxable income.
For example, if you attend a conference or trade show to promote your business, the cost of attending is not considered a marketing expense. However, the cost of printing brochures or business cards to distribute at the event is deductible.
9. Professional Services
As an FBA seller, there may be times when you need some extra help to keep your operations running smoothly. That’s where professional services come in.
Business Services
There are many types of business-related services that you may need, including accounting, bookkeeping, legal services, and more.
These services are tax deductible as long as they are considered “ordinary and necessary” for your business operations.
For instance, if you hire a tax professional or certified public accountant to help with your Amazon business, you can deduct the cost of their services as a business expense. The same goes for any other type of business service provider you hire.
Contractors
Now, let’s talk about contractors. Suppose you hire virtual assistants, photographers, or graphic designers to help with your Amazon business. In that case, you can also deduct the cost of their services.
However, it’s important to note that if you hire a contractor, you must collect a 1099 form before they start working for you. This form will be used to report their earnings to the IRS, so it’s crucial to file it appropriately to avoid any penalties.
10. Business Travel
Additionally, you may have to travel for business from time to time. And you can deduct certain travel expenses, including vehicle use, business meals, and entertainment.
Vehicle Use
If you use your personal vehicle for business purposes, you can deduct the cost of gas, maintenance, and other related expenses.
With the requirements, you need to keep accurate records of your business-related mileage, including the date, starting and ending points, and the purpose of your trip.
Business Expenses
About business meals and entertainment expenses,
If you entertain clients or customers as part of your Amazon business, you can deduct 50% of the total cost from these expenses. These expenses include meals, drinks, and other forms of entertainment, such as attending a sporting event or concert.
The records of the fees must consist of the date, location, and purpose of the meal or entertainment. These records should also include the names of the people who attended and their business relationship with you.
Final Thoughts
As an Amazon FBA seller, many tax deductions are available to help you lower your business taxes and maximize your profits.
It’s essential to keep accurate records of your expenses and consult with tax professionals or certified public accountants to ensure you’re following the tax code and taking advantage of all available deductions.
Don’t let tax law be a burden. By understanding the tax-deductible expenses and opportunities available to you as an Amazon business owner, you can confidently file your taxes and keep more of your hard-earned money.
Take control of your tax liability and start claiming these deductions today! Seek advice from a tax expert, keep accurate records, and follow all applicable tax laws.
Be sure to get started before the last minute – the earlier you begin, the better off you’ll come tax season. Make tax season less stressful today!
