Essential Tax Deductions for Amazon Sellers in 2024
Table of Contents
- 1. Home Office Tax Deduction
- 2. Deduct Your Health Insurance
- 3. Consider Your Retirement Plan
- 4. Consider the Structure of your Business
- Seek Help If Needed
Nobody likes taxes. Well, nobody except the government. The only thing worse than having to do taxes is having to read about them, yet here we are. Tax season is coming up, after all, a time when people start asking about tax deductions.
Tax Deduction Tips
One thing your taxes pay for is the US Census Bureau, and the data nerds report around 90% of all employed Americans are working for someone else. They receive a W2 form from their employer and punch the numbers into a program like TurboTax.
Things are a little rougher for the other 10% that manage their businesses. The good news is that there are lots of ways to trim tax bills. It’s not too late for you to apply some tax deduction tips and keep a little more of that money you worked hard for when the taxman comes calling.
Here are the top 4 tax deductions for Amazon business owners:
- Home Office Tax Deductions
- Health Insurance
- Retirement Plan
- Corporate Structure
1. Home Office Tax Deduction
For your home office to legitimately qualify as a business expense, you only have to prove that you use it exclusively for business purposes. The kitchen table, for example, won’t fall into that category.
Let’s say that you have a spare room in your home/apartment that you use purely as an office. You can legally claim $5 in taxes per square foot of your home office up to 300 sq. ft.
Let’s say you live in a 1,500-square-foot apartment and have a 150-square-foot home office; you’d be able to write off a 10% tax deduction of your monthly rent as a business expense!
Utilities
If you can deduct your home office from your taxes, you should also be able to deduct some of your utilities. This includes your bills for heating, electricity, and the internet. That means that you can write off around 10% of the total cost of your heat, electricity, and internet.
Home Office Equipment
Don’t forget all of the equipment in your office such as your chair, desk, lamps, paper, etc. As long as you use those supplies for your business, and you can prove this, they are fully deductible from your taxes.
Did you buy a new computer this year for your business? Well, that’s another deductible right there! Don’t forget to factor in personal use of your computer though, such as using it to access personal social media and mess around on the internet. The IRS won’t let you do deduct the entire computer, but if 75% of the time you spend on the computer is for business, then you’ll be able to expense 75% of the cost of your new computer.
Learn more about all of this through the IRS website at:
2. Deduct Your Health Insurance
The self-employed, including sole proprietors, are in charge of getting their health insurance. In other words, you can deduct the cost of that health insurance, as well as the health insurance for their family, from their tax bill.
Keep in mind the rules are different if you are married to someone who receives employee health insurance from their job. The IRS the tax deduction on health insurance if they are members of an employer-subsidized family insurance plan.
Learn more about deducting health insurance here:
3. Consider Your Retirement Plan
Many people who choose to start selling on Amazon do so with a complete focus on the present. They want to make sure they have enough money coming in each month to keep the business going. That’s an understandable viewpoint of course, but one of the best ways to reduce your taxes is to put money aside in a tax-deferred retirement plan.
We encourage all Amazon sellers to put together their own tax-deferred retirement plan, even if you only make the minimum contributions necessary to maintain it. This is a great way to boost your tax deductions
Learn more here:
4. Consider the Structure of your Business
If you’ve filed taxes as a sole proprietor before, you understand that you need to pay self-employment taxes. One way to get around this is to form an LLC and reduce self-employment taxes with an “S Corp Election.” An S Corporation allows you to pay yourself a “reasonable salary,” with the remaining profits taken as being a profit distribution. These aren’t subject to self-employment taxes.
Let’s say your business brings in $130,000 in a year. Ordinarily, you’d have to pay tax on the whole amount. But as an S Corp, you can pay yourself a salary of $70,000 – which was subject to self-employment tax – and then have a profit distribution of $60,000, which isn’t subject to the self-employment tax.
Seek Help If Needed
You’ve probably got lots of questions about taxes after reading through this post. If you do, then we recommend consulting tax professionals. Self-employed people should aim to avoid bending the rules too far, but everyone should still take advantage of the deductions that they are rightfully owed.
Large corporations have entire teams of tax advisors working to pay as little tax as possible each year. As one of the 10% of people working for themselves, you might have to do some of the hard work yourself but running your own business is proof that you can do it.
You wouldn’t have chosen the life you did if you were afraid of hard work after all.
Disclaimer: The above information is made available on a good faith basis and is intended only for general education. The article should not be construed as tax or legal advice. We recommend getting in touch with a duly certified tax professional or CPA to assist with any topics raised by this article.
