Bookkeeping tips for Amazon sellers can be useful for Amazon sellers of any size. If you are an active Amazon seller it means that you have already set up your Amazon seller account, purchased products and listed them on Amazon, and opened a bank account to receive money from Amazon. At this stage, you want to focus on what you do best: run your store and drive sales. Thus, it becomes easy to procrastinate on one of the most important business tasks – your online business’ bookkeeping, accounting, and tax.
Proper bookkeeping is important not only for compliance reasons, but also for tracking your finances, understanding revenue streams, calculating costs, and ensuring profitability. Here are 5 useful tips to help you get started.
Set-up Your Business’ Bookkeeping Processes
You probably ask yourself, when is the right time to set up bookkeeping, accounting, and tax processes for your Amazon business? Our answer is (obviously…) sooner rather than later.
Bookkeeping is the process of recording and classifying income and expenses, and reconciling them with your bank and credit card transactions. There are several options for conducting Amazon seller’s bookkeeping: (i) you can perform bookkeeping yourself using Excel or a DIY bookkeeping software such as QuickBooks or Xero; (ii) hire traditional bookkeeper services, or (iii) engage with a modern platform that performs bookkeeping for you and presents your financial information on the personalized dashboard like Finaloop. Your ongoing bookkeeping work will be the basis for your business tax planning and tax filing.
For the preparation and filing of your business tax returns, you should work with a CPA. Finaloop offers both bookkeeping and CPA services under one roof.
Account for Selling Fees
If you use a marketplace platform like Amazon, the sale of products over these platforms is typically associated with selling fees. Amazon selling fees typically consist of an annual or monthly lump sum subscription fee, and a percentage fee of the overall transaction amount.
Your bank account statement will show your Amazon payouts. However, it is important to understand that these payouts do not necessarily reflect your gross income, but rather they reflect your net income, that is – gross income minus refunds, chargebacks, merchant and processing fees, and other FBA fees.
From a bookkeeping and tax reporting perspective, it is important to properly record your gross sales (sales minus merchant fee and other expenses) and separately record your merchant fees as COGS (the percentage of sales portion) or a part of your operating expenses.
The information regarding your orders, refunds, fees, charges, and payouts can be found in your transactions report on Amazon Seller Central.
Account for Refunds
Every Amazon seller refunds customers from time to time. The refunds can be for returned or damaged products, or when a customer decides to cancel the order on Amazon before the product is even shipped
For bookkeeping and tax purposes, you should book your sales as soon as you fulfill an order, no matter if you later refund the order to the customer. You should then book for refunds or returns separately, using a different account. The refunds and returns will ultimately decrease your top-line net revenue and your gross profit. Another good way to reconcile all for your Amazon refunds is by conducting an Amazon account audit.
For this purpose, we recommend having an account for refunds and returns in your chart of accounts and book them separately from your Amazon-generated income.
Collect and Remit Sales Taxes
If your eCommerce business sells products that are subject to sales tax in states you have “nexus” in, you should collect sales tax from your customers. Your business should then remit the sales tax to the relevant states, and file a sales tax return with the relevant sales tax department.
When selling products on a marketplace such as Amazon, the Marketplace Facilitator laws obligate the marketplace facilitator (in this case Amazon), to collect and remit taxes on the seller’s behalf in certain states. Therefore, it is important to check whether the sales tax for these transactions was already collected and remitted to the relevant state by Amazon, so it will not be remitted twice (Amazon and the seller). It is important to note, that if your business has a nexus in a state in which the Marketplace Facilitators law applies, you might still need to file a sales tax return in that state.
Many Amazon sellers choose to use a sales tax platform such as Taxjar, which collects sales information from the different marketplaces and then calculates the sales tax due. It will also capture states that the Marketplace Facilitator laws do not apply, and will give you an end-to-end Sales Tax solution that covers the entire United States. Sales tax platforms typically also offer sales tax return preparation and filing, as well as “nexus” check services.
From a bookkeeping perspective, it is important to book sales through Amazon after deducting sales tax. The reason is that sales tax is not part of the Amazon seller’s income (and is not subject to income tax). The Amazon seller is an ‘agent’ for collecting and remitting sales tax from the customer to the relevant state.
In bookkeeping, another common account for an Amazon seller is “Sales tax liability”. You should record the sales tax collected by the Amazon seller, which has yet to be remitted to the state, as a liability for bookkeeping purposes.
Sales tax determination, calculation, and collection, and overall handling by an Amazon seller can be complicated. Therefore, many Amazon sellers set their accounts to calculate and collect sales tax automatically.
However, it is important to note that marketplace platforms, including Amazon, typically do not perform the entire nexus handling, and this is the responsibility of the Amazon seller. In addition, Amazon does not collect and remit Sales tax in states that did not adopt the Marketplace Facilitator law. Ultimately, an Amazon seller is responsible for registering in the relevant states, filing sales tax returns with that state, and remitting the sales tax collected.
Selling on Amazon internationally
Many Amazon sellers sell in several countries. Your business and financial data are presented in a separate Amazon seller sub-account for each country you sell in. For example, if you sell your products in the U.S., Canada, and UK, Amazon will show the information about the business activity in each of these countries in a different sub-account on Amazon Seller Central.
As a U.S. based business, you should book and report sales generated within the U.S., and sales generated outside the U.S. Therefore, for bookkeeping and tax purposes, it is important to download and use the financial information available on the Amazon international sub-account separately from the Amazon seller’s U.S. account.
As an Amazon seller, it is important to set-up your bookkeeping, accounting, and tax processes as early as possible in your online business stage. This will make tax season easier for you and will allow you to stay on top of your finances in real-time. It will also help you understand your costs, so you can set the right prices for your products, and make your online business more profitable.
If you started selling on Amazon a few months ago or a few years ago, and did not set-up bookkeeping processes, do not be alarmed. Many Amazon sellers and other marketplace sellers can approach Finaloop even after launching their online business, and Finaloop can help them catch up on their bookkeeping and account, and bring it up to speed in time for tax season. We hope you found these 5 important bookkeeping tips for Amazon sellers helpful.
GETIDA has partnered with Finaloop to help Amazon FBA sellers get access to efficient, easy, and affordable bookkeeping, accounting, and tax. Contact Finaloop today and get a $100 discount on your bookkeeping as a GETIDA user.