📍How do I find my Amazon FBA Sales Tax Nexus?
Amazon is one of the most popular choices for starting a new business. So much so, that some 100,000+ new Amazon businesses open their doors each year. Of course, not all of those businesses survive - one of the primary reasons is poor amazon bookkeeping and accounting.
Properly managing income, expenses, cash flow, and otherwise vital financial statistics over the long-term will make or break a business.
The good news is that you don’t necessarily need to be an accounting expert just to be in business. That said, you should at least know the basics and understand how to track your money. We’ll start out by looking at the most important aspects and terms of Amazon Bookkeeping.
1. Basic Amazon Bookkeeping
Amazon Bookkeeping can seem like a daunting task, particularly if you have a lot of orders. As long as you do it regularly though it becomes far more manageable.
Here are some of the basic accounting information and terms that you should know as an Amazon seller:
Accounts receivable is a summary of the money that you are due from customers. For each product you sell, unless the payment is made upfront, you will get “receivables” to monitor and ensure the money comes in on time.
Staying on top of your accounts receivable means having healthy cash flow. A healthy cash flow lets you plan for the future including purchasing inventory and other expenses.
Accounts payable is the money you owe to suppliers.
While seeing all the money that you owe can be disheartening at times, having a clear understanding of what is due – and when it is due – helps with making timely and accurate payments. It also helps you to avoid paying off someone twice.
There are even cases where paying off invoices early earns you a discount! So you can see the benefits of staying on top of accounts payable.
Inventory is pretty self-explanatory. It’s the lifeblood of your business. How many products do you currently have in stock? How quickly did they sell? When should you next order more inventory from suppliers to meet current demand?
You should carefully account for all of your products and monitor them.
Keeping track of seasonal sales trends is a great way to predict how much stock you need in the coming months, particularly when heading into the festive season.
You should be sure to account for any business-related purchases where you pay for everything upfront. This includes things like office supplies, professional subscriptions, equipment, as well as travel, entertainment, and meals.
Purchases are an integral part of working out the Costs of Goods Sold, and you subtract purchases from sales to determine overall profit.
Did you use a loan to get your business started? Did you borrow money or hired products, equipment, and other business essentials? Just how much you borrowed, whom you borrowed from, what you currently owe, and when those payments come due.
Every business owner loves to watch sales come in, and you should keep a good sales record. Not only will this help to show you what cash you have available, but it also gives you a clear picture of where your business currently is and where you are heading.
Not every Amazon seller will have their own employees. If you have hired people for your business then you need accurate and up-to-date accounts of payroll expenses.
For sole traders, owner’s equity is just a record of how much of your own money to put into the business. For businesses with more than one owner, there must be a record of everyone’s financial input to keep everything above board in regard to the ownership of the business.
2. Tips and Tricks for Amazon Bookkeeping
Now that we understand the basic terms for Amazon bookkeeping, let’s look at some best practices.
Break Large Tasks Down into Smaller Ones
It’s all too tempting to leave accounting until the end of the year, or quarterly when taxes come due. It’s important that you continue to keep track of income and expenses on a monthly – if not weekly – basis though.
Knowing just how much is spent on supplies and materials allows you to better spot discrepancies. It also gives you a good idea of whether you should consider charging less or more for your products.
Taking the time to do your accounting more frequently helps you notice how much time and energy you are putting into your business. This will show you if you should consider hiring some help for certain aspects of the business.
One reason sellers don’t track their finances more often is because it takes time to go over the books. One way to make this task more manageable is to break down large tasks into several smaller during the week.
Set aside time once a week to do your taxes, and use another day to manage income and expenses, and another to do some reviewing and budgeting. This allows you to cover all of your bases each month without spending a lot of time each week away from your regular business duties.
Separate Business and Personal Finances
Amazon sellers need to be aware of the dangers that come with commingling their finances. It’s vital that you keep your personal and business finances as separate as you possibly can.
If you use a personal credit card for business purchases, then that could be okay. However, make sure that you only use that one card for business transactions and make sure that you never commingle business and personal expenses.
Avoiding mixing your finances is of particular importance if your business is a sole proprietorship. For a sole proprietorship, all of the business profits, losses, and liabilities are tied personally to you and your finances. This could cause some real issues if you ever get audited by the IRS.
During an audit, the proof of burden is on you to disclose the income and expenses of your business. It’s important that you have good records so you can show which purchases were for business and personal reasons.
Keeping two separate accounts makes the distinction between the two clearer and saves a lot of time and effort if problems do arise. It also reduces legal liability and can help you to better manage your taxes and business bills.
Pay Attention to Taxes
Taxes are another major area that sellers either forget about or like to hold off as long as possible. Failing to understand the basics of taxes can do some major damage to your business though.
Amazon sellers are liable for collecting sales taxes in all states they hold a “nexus” – basically a physical business presence. You will have a nexus in any state that stores or ships your products from Amazon Fulfillment Centers (over 20 states).
Determine where your products are held by Amazon by doing an Inventory Event Detail report from Amazon Seller Central.
After determining where you hold a sales tax nexus, register to get a sales tax permit, and start collecting from your customers in those states.
You should also consider the “materiality” of your sales tax, or whether it is worth collecting based on how much you are selling. There are times when the cost of collecting and remitting tax exceeds that generated by the tax when you have a low sales volume.
If you’ve got a nexus and you are selling products that are taxable, but the tax is negligible, then you may want to avoid collecting. However, continue to keep track of sales volume on a regular basis to avoid owing more money when your taxes come due.
3. Automated Amazon Accounting Solutions
It doesn’t matter how big or small your business is, there’s no need to manage Amazon accounting and bookkeeping by yourself. One of the best things you can do for your business as far as Amazon bookkeeping goes is to use an automated solution to better gather, analyze, and manage data.
One great solution for this is to use a combination of taxomate – which posts income and costs of goods sold from Amazon to QuickBooks or Xero. That combination will collect almost all of the accounting data needed to do business for you.
Maybe you aren’t good at managing numbers on your own. Or you don’t like the idea of having your own Amazon bookkeeping. Or maybe you just don't just trust anyone to do it for you. Using automated solutions is a great way to easily keep accurate records.
While it might not be easy to keep track of the finances as an Amazon seller, it is no doubt important. You can take some steps to make the job easier by taking advantage of accounting tips, tricks, and tools.
Don’t leave it until the end of the year to start with your accounting. Break down the large tasks you have to do into smaller, more manageable ones. Do little things each month and stay on top of the latest sales numbers.
Not only does this help with projects and other data, but it also makes it much easier to deal with your taxes as you know whether you need to charge sales tax or not – as well as how much you need to charge.
If you find yourself overwhelmed at the thought of doing all of your own Amazon bookkeeping, then you should allow automated solutions, such as taxomate, to allow you to focus on your business.
Disclaimer: The above information is made available on a good faith basis and is intended only for general education. vWe recommend getting in touch with a duly certified tax professional or CPA to assist with any topics raised by this article.