Check your calendar. Is it April? If not, you might think there's no reason to be thinking about tax deductions for Amazon sellers.
As I'm writing this, it's a mild December day, and it's actually the perfect time for me to start thinking about next year's income taxes and any appropriate tax deductions!
That's because if I wait until April when income taxes are due in the US, then it's TOO LATE for me to make any changes for the current tax year! And that's like leaving money on the table.
The only things that can be used to reduce your taxable income for the tax year are items that you spend money on in the same calendar year (January-December).
If this is your first year as an Amazon Seller, you may have never filed taxes as a self-employed person. One of the things we as online business owners try to do is get our “taxable income” as low as possible — because that is the portion that we actually have to pay income tax and self-employment taxes on.
In today's post, we are going to cover some of the things that you can use in your business, and that we feel are good purchases to not only bring down your total taxable income but also increase your productivity for the upcoming year.
That last sentence is important. I would never advise you just to start spending money on things you don't need just to lower your taxable income. After all, running a profitable business is certainly the goal!
But if you're on the fence about a business upgrade or some other expense that you might make anyway, then making the purchase before the end of the year can benefit you the following April.
Disclaimer: I am not an accountant and do not play one on the internet. These are ideas/thoughts from running my own business and should not be taken as legal or tax advice 🙂 These are ideas that you can run by your own CPA or tax professional.
Cashing In on Tax Deductions for Amazon Sellers
At the end of every calendar year, I like to sit down and make a list of all of the things our business could really use. Coming off of a Q4 high, and of course a windfall of taxable income, it's a great time to see how we can make some business purchases.
One thing my accountant has always commented on is the fact that Amazon Sellers just don't have that many tax deductions overall.
It's pretty simple for us, right?
- Inventory (COGS – Costs Of Goods Sold) ← this is a big one!
- Amazon Fees
- Shipping Supplies (labels, boxes, tape, etc)
A lot of times as new business owners, we try to keep our expenses to a bare minimum, because we need as much profit as possible.
Tax time is one of the only times that actually hurts us!
Once you have become profitable in your business, I highly recommend looking for ways you can improve your business set-up and systems.
What could make it easier to prep your inventory? How could you source faster? What could you outsource? How could you learn to add a new income stream to your biz?
These are all things that help bring your taxable income down and your productivity levels up.
If you have been waiting for the perfect time to purchase some upgrades (or even bare necessities), now is the perfect time to get off the fence.
Here are some of the often overlooked tax-deductible purchases you can make as an Amazon seller
Education & Training to Grow your Amazon Business
If there is a new niche you have been thinking about getting into, why not get the course now and then tap into it in January?
There's no better time than the first of the year to add some new strategies to your business.
In fact, I actually recommend choosing one new technique to add to your business each new year. This keeps your business constantly evolving, which is a great thing!
Diversify your Amazon Business with New Skills
I wanted to help you get the ball rolling on some possible new techniques that you could incorporate into your Amazon FBA business.
For example, maybe you've thought about adding some Merchant Fulfilling to your strategy for next year, but you've been too afraid of losing money on shipping. The new Shipping Templates on Amazon can be pretty confusing!
So if this is a skill that you want to learn (and I think it's a great way to increase your revenue!), you could go ahead and pick up our training on How to Merchant Fulfill on Amazon.
One guide I highly recommend that all Amazon sellers pick up heading into the new year is Stephen Smotherman's “The Reseller's Guide To A year In FBA.” This guide is awesome because it walks you through each month of the year and what Amazon sellers should be focusing on. Never forget any important seller dates with this guide!
You can take $10 off “The Reseller's Guide To A year In FBA” using coupon code: JESSICA10
Perhaps you would like to try product bundling next year? The right bundling strategy can help you eliminate the competition on your listings (without having to spend $$$ for a private label item).
Kristin Ostrander and Amy Feierman have a step-by-step video course that covers bundling rules, pricing strategies, photography techniques, and packaging ideas for bundles. More importantly, you'll learn their signature strategy for creating one-of-a-kind bundles that can’t be copied by your competition.
Grab their Amazon FBA Bundle Strategy course today and start creating bundles ASAP (maybe even in time for Valentine's Day!!).
Software & Subscriptions to Streamline your Systems
Now is a great time to upgrade any of your monthly services to a yearly subscription if offered.
If you have the funds available, it is a great way to both save on the cost of the subscriptions (because they usually offer a discount when you pay by the year) AND get the larger tax deduction for the current year.
Yearly subscriptions add up to a good amount of tax deductions for Amazon sellers.
If you are not utilizing these services, now is a great time to evaluate your business and see which ones will help you to move forward.
Here are some of our favorite subscription services and software tools that we recommend to Amazon sellers.
BoloMart – BoloMart is our Facebook Group that's filled with profitable Retail Arbitrage finds. You can mastermind with other sellers and share (and receive) BOLO finds that you can “Be On the Look Out” for at stores in your area.
Source Mogul – If you'd rather source from home instead of hitting the stores for Retail Arbitrage, then Source Mogul is a great tool. Use Source Mogul to find inventory to buy through Online Arbitrage. Have it shipped right to your home (or prep center) and then sell it for a profit on Amazon!
Use this link to get a 10-day free trial of Source Mogul. Source Mogul offers a discount for paying for a full year in advance if you do decide to join.
RevSeller – This is actually one of my favorite Chrome extensions right now, and one of the only ones I'm willing to pay yearly for! This brings all of the features of the FBA Calculator right to the Amazon product page you are looking at.
Plus, with one click of a button, you can see if you are approved to sell the item or not. This is a major issue when looking for inventory, as you need to know if the brand / specific item is restricted or not! It's great for RA, OA, and even Wholesale leads.
We have a special Selling Family discount for you, too 🙂 You can grab RevSeller for $20 off the normal price and get it for just $79/year. Coupon Code: THESELLINGFAM
Tools for Running your Business
Inventory Lab – With Inventory Lab you can take control of your listing workflow and inventory management. You can list much faster here than in Seller Central. You can also enter your costs right as you list, which makes for easy, automated calculations of per-item profitability.
Inventory Lab also handles box contents, replenishment recommendations, and business reports with ease. You can pay month-to-month or get about 2 months free by prepaying for a full year.
Tax Jar – Tax Jar handles the bulk of the work for submitting sales tax to the states you are registered in. Sales tax is one of those topics no one likes to talk about or do, so I like to give the bulk of the work over to them 🙂
Go Daddy Bookkeeping – This is the bookkeeping service that we use for our business. It is very simple to use and integrates directly with Amazon.
I know that these last 3 services may seem to overlap, so I've got a post to break down the difference for each one and why we use all three in our business!
Also, remember that using tools like InventoryLab and GoDaddy Bookkeeping will make expense tracking so much easier. If you're categorizing your expenses as you buy them (in software like GoDaddy or QuickBooks), then that info is all ready to go when you're preparing your taxes.
Stock Up on the Essential Tools for Amazon Sellers
If you have been a reader of The Selling Family for some time, you will know that we love to have the best tools to get the job done. This is one area we try not to skimp on. Check out our Top 10 Must-Have Tools For Amazon FBA Sellers and see if there are any that you must add to your business this year!
Self Sealing Poly Bags – I always get at least one case of our most-used sizes this time of year. A case is 1,000 bags, so it will last a majority of the year. The sizes we always have on hand: 8×10, 11×14 & 14×20. We order them from Uline by the case. You can also order them on Amazon by the 100.
Heavy Duty Packing Tape – Tape is one of the areas that we no longer try to save on. We have found that when we use “cheap” tape, we use way more and it costs us more in the long run. The best tape we have found is the Scotch Heavy Duty Shipping & Packing Tape. Amazon has a great price on the 6-pack! I usually buy at least 24 rolls which will last us almost all year since we also have a tape machine.
USB Scanner – Help yourself out when it comes time to create your shipments. A handheld barcode scanner will save you from having to enter all of those UPC codes for every item you are sending to Amazon. You can also use it to scan your FNSKU barcodes to generate your box contents in Inventory Lab. This model is wireless which means you can even scan inventory that's in a different room than your computer!
Dymo Printer – If you want to print labels as you create your shipment, then you definitely need a Dymo Printer! The Dymo 450 Turbo is basically the gold standard for Amazon sellers. It prints super fast and there's no ink!
Upgraded Shipping Scale – After we finally upgraded our shipping scale, we loved it! You wouldn't think a scale matters much, but not having to move the box before we can see the weight and having a bigger base has made a big difference.
Laser Printer – We actually now have TWO laser printers in our house — one in each office. They save us so much money on ink in the long run and are so fast!
Handheld Scanner – A mini Bluetooth barcode scanner is great if you're doing a lot of retail arbitrage. It's much faster than getting your phone's camera to read a barcode and it's certainly more discreet.
This little gadget will fit in the palm of your hand, but it will also set you back about $200. However, it really will speed up your sourcing so it's a great investment to make in your RA business.
Here are other small things to consider stocking up on that you may use in your Amazon business. Even if you're thinking that a ream of paper is “only” $5, these expenses really do add up over time.
- Large size permanent markers
- Dymo Labels
- Avery Shipping Labels
- Post Its
- Printer Paper
- Boxes (for FBA & FBM)
- Bubble Mailers & Poly Mailers (for FBM)
Upgrade Your Office Space for Comfort & Efficiency
Your home office as a whole is deductible for your taxes. It is important to make sure that you are ONLY using the space for business, though.
As a general rule, you must use a part of your home regularly and exclusively for business purposes. If your office is your principal place of business (as it is for most Amazon sellers), it’s definitely a tax deduction you’ll want to carefully & thoroughly investigate. If you have questions, it’s important to reach out to the IRS directly or a tax professional. (Source)
We recently made a lot of upgrades to our office spaces. Here are some of the things we purchased:
New Desk – My office got a new corner desk with hutch (LOVE IT)
New Macbook – I got a new Macbook Pro for the business. This is used for creating shipments and on-the-go work.
New iMac computer for the upstairs office where I do most of the computer work.
New iPhones – We both got new iPhones. Man, we seem to be Apple People for sure 🙂
Color Laser Printer – I use the black and white printer for all of the shipping needs of our Amazon business. But last year I upgraded my main office to include a color laser printer so that I could print nice printable sheets and ebooks.
New Office Chair – Comfort is a plus when working from home!
Business Operating Expenses
Here are a few other expenses that relate to running an Amazon business. It's easy to overlook some of these or dissmiss them as “not big enough,” but it's important to take those allowable deductions!
If you used your vehicle to source products for your Amazon business, you may be able to deduct some of your travel expenses. The 2018 IRS mileage rate is 54.5 cents per mile for business miles driven. (See the IRS topic Business Use of a Car.) Beyond sourcing trips, think about other business drives like driving to a UPS Store to ship boxes or pick up OA packages.
The important thing with mileage is it needs to be tracked as you go. We recommend using a small mileage notebook in your car to write your trips daily, or a smartphone app like MileIQ that can automatically track your trips using GPS.
As a business owner, you can deduct 100% of your health insurance premiums from your taxable income. If you are self-employed full time and also have your family members on your insurance plan, this includes their premiums as well.
Hire Your Kids
I think this is a really great one! I had heard about it but didn't know all of the details so I wanted to gather some more information. I spoke with Marilyn Parham who is a CPA over at TheBottomLineCPA.com. Here's what she had to say:
“One big benefit of being a small business owner that I don’t see many taxpayers taking advantage of is having their kids work in the business and paying them. No matter how young, as long as your kids can follow some simple directions, you can start teaching them the value of work and pay them to do things in and for your business. The business gets an expense and the child gets income that is tax-free up to the standard deduction for a minor. That’s a win/win for both.
With the increase in the standard deduction with the TCJA, that limit is $12,000 before the child’s income becomes taxable. You must make the payment prior to 12/31 in order to have the expense deductible in your business (if you are a cash basis taxpayer which most small business owners are). So…I advise you to sit down and determine what your kids have helped you with throughout the year and what they could still help the business with prior to 12/31 and pay them a reasonable wage for that.
Document it (that’s important) as you have to defend the payments in the event of an audit but don’t be scared of it as it is legal and a benefit of being a 100% owner of your own business.”
Definitely talk to your CPA about this if you have kids that are old enough to help out. Remember, this can be tasks as simple as removing labels or placing items in polybags.
If you're paying sales tax on items that you bought to resell, the tax is deductible. Now, if you're including your sales tax in your COGS, then this is already accounted for when you deduct your COGS. But if for some reason you've just been tracking the cost of an item but not the sales tax you paid, then that amount is also deductible.
Going forward, it's probably easiest to just include sales tax in your cost. If you list in Inventory Lab, for example, they have a little calculator where you can calculate your true COGS by entering item price, discounts, and sales tax. That way you have an accurate number for your deductions.
If you're tracking on a spreadsheet, you could probably easily add a column for your region's sales tax rate so that you don't have to do the math in your head.
Misc. Business Expenses
Business checking fees. Charges for checking accounts, ATM withdrawals, and other bank services are deductible. Love it! Even more good news? Some of the interest on your credit cards may be deductible if you’ve used a card to finance a qualifying business expense.
Cell phones. Hang onto your cell phone bills because a portion can be deducted come tax time. It boils down to what percentage of your phone is used for business, so great record-keeping is important. (Warning: claiming 100% of your cell phone for business use can trigger red flags for the IRS because that’s so unlikely to be the truth.)
What a list! Don't forget that these deductions will only lower your tax bill, not make it go away! So when you're shopping, be sure to keep enough money to pay your tax bill in April.
Now that you have some ideas on how to get some last-minute tax deductions, which items will you choose? Are there any purchases you made recently in anticipation of lowering your tax bill?