5 Facts to Know About Deductible Expenses

5 Facts to Know About Deductible Expenses

Are you confused about business tax deductions?

A question commonly asked by Amazon sellers is what is deductible on a business tax return. The key to understanding what is and isn’t deductible is whether or not an expense is ordinary and necessary.

The IRS definition of “ordinary and necessary” is this: an ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business.

Please note: This post is a general guide for Amazon, eBay, and other inventory-based business owners and should not be used when preparing your tax return. It is very important that you hire a Certified Public Accountant (CPA) to prepare your tax return for you. You can certainly hire a bookkeeper to do your books, or you can do them yourself, but please be sure you budget adequately so you can hire a CPA to prepare and file your tax return for you.

Amazon 1099-K Explained

Amazon 1099-K Explained

It's important to understand who will receive a 1099-K, what it is for, and how you use it as part of your year-end process. 

WHO:
You will receive a 1099-K from Amazon (and any other entity that processes payments for you like PayPal or a bank if you receive credit card payments directly) if you have over $20,000 in payments processed (not product sales) AND over 200 transactions for the year. 

If you do not receive a 1099-K this does not mean that you do not have to report the income or that no tax is due. There are levels below which no income or self-employment tax is due but they are based on your entire tax picture for the year, not just your Amazon sales. If you are not sure about the taxability of your Amazon income it's best to speak with a tax professional.

3 Steps to a Successful Year-End

3 Steps to a Successful Year-End

Here is your 3-step year-end to do list:

1. Generate report of unsold inventory held by Amazon at 12/31 (It is NOT necessary to do this at the stroke of midnight on New Year's Eve.) 

2. Reconcile your 1099-K to your Annual Sales Report from Amazon.

3. If you use InventoryLab, reconcile numbers in InventoryLab to the data above (because these numbers will be going into your tax return and it is crucial that you understand and document any differences between InventoryLab and Amazon).