Are you a small business owner looking to take advantage of what Amazon FBA has to offer? Whether you're new to Amazon FBA or more seasoned, managing your finances can be one of the most challenging tasks. Fortunately, with a few tips and tricks, you will be able to properly manage and track your Amazon FBA account for steady growth. This blog will give you an in-depth look at some practices that can help reduce large expenses and improve efficiency. So let's get started!
The Basics of Amazon FBA Accounting for Amazon Sellers
First, let's talk about what Amazon FBA is and how it works. The Fulfillment by Amazon initiative allows you to store all of your products in their centers. Through the FBA platform, you allow the team from Amazon to pick up, pack, ship, and provide customer services for your products. This means you no longer have to worry about warehousing, shipping, and customer support, as Amazon takes care of everything for you.
Moreover, you can pause shipments and wait until you have several items that are to be delivered to the same location. This feature helps you save on overall shipping costs, making running your business more cost-efficient. But, as with any other business model, there are some things you need to keep in mind when it comes to Amazon bookkeeping.
One of the most important things is sales tax. You must know the tax rules of any place where your business has a physical presence. This is important for understanding how much sales tax you need to pay. As an Amazon seller, you may have business activities in multiple states. Therefore, navigating sales tax compliance can be quite overwhelming.
This is where an experienced Amazon accountant comes in. Amazon accounting is all about managing your business's financial information accurately and efficiently. A good accountant can help you understand the unique accounting requirements of your business. They will also provide the necessary tax and accounting services to keep everything on track. With a skilled accountant by your side, you can ensure that your books are always up-to-date and your financial statements are accurate and meaningful. This way, you will navigate the complex web of sales tax regulations without any problems!
What Should You Look for When Choosing an Amazon FBA Accountant?
First and foremost, you should look for an accountant experienced in working with ecommerce businesses. This particularly means those operating on Amazon. This ensures they are familiar with the platform, helping you save money in the long run.
You should also know that transactions can take up to weeks to complete. Therefore, it is vital to use a proper accounting system that can track these transactions accurately. When looking for an accountant for your ecommerce business, make sure they know how to use cloud accounting software like QuickBooks Online or Xero. These programs can help make financial transactions easier and give you updates about how your business is doing.
Another important aspect to consider is cost. Many business owners tend to go with the cheapest accountant they can find. But remember: you get what you pay for. Investing in a quality accountant may seem like a larger expense upfront, but it can actually do wonders for your online business!
Taxes Matter: Important Things to Keep in Mind
Taxes can seem overwhelming at times, but it's important to stay on top of them and understand the basics.
First and foremost, it is important to know the difference between cash accounting and accrual-based accounting. Many small businesses utilize cash accounting, meaning income and expenses are recognized only when cash physically changes hands. However, Amazon FBA sellers typically report their income using accrual accounting. This means that income and expenses are recognized when they occur, regardless of when the cash is collected. It is important to track your revenue and expenses on an accrual basis to accurately measure your profit margins and make decisions that optimize cash flow.
Moreover, forecasting cash inflows is essential for all Amazon FBA sellers. Seasonality and unexpected expenses can impact your cash flow, so it's important to plan ahead and ensure you have enough cash on hand to cover expenses.
We've already mentioned sales tax before. Collecting sales tax is another important consideration in the Amazon marketplace. As we said, each state has different tax requirements. Because of that, it's important to stay up to date with the latest laws and regulations. Some states require tax based on the seller's location, while others require it based on the location of the buyer. Properly collecting and reporting sales tax is not only the law but also helps avoid headaches during tax season.
Don't forget the proper inventory management! Keeping track of inventory levels, costs, and margins can determine the profitability of your overall business. Double-entry accounting can be used to track your inventory and ensure you are recognizing the cost of goods sold properly.
Integrating Amazon's 1099-K Form With Tax Return Sales: Key Considerations
Amazon issues the 1099-K form, providing crucial information about the gross receipts earned from sales. However, the process of reconciling these figures with the actual sales can be complex and time-consuming. This is especially true when Amazon sellers rely solely on their own bookkeeping.
Here's what you should pay attention to. One common pitfall is only considering the cash deposits that make their way into your bank account when filing the tax return. Unfortunately, this approach fails to account for the fact that Amazon deposits funds every two weeks. That further leads to discrepancies between the cash received and the sales reported on the 1099-K form. This inconsistency can trigger unwelcome attention from the IRS and potentially result in a notice of deficiency, causing significant stress and the potential for an audit.
To navigate these challenges effectively, we highly recommend partnering with an experienced Amazon FBA tax accountant specializing in Amazon seller bookkeeping. Attempting to handle all aspects of Amazon sales and ecommerce accounting can be quite overwhelming. Therefore, many FBA sellers find that the intricacies of Amazon seller bookkeeping require a level of expertise that is best entrusted to professionals. They can maximize cash flow forecasting and ensure perfect compliance with tax regulations for your specific business.
Keep Accurate Records of Income and Expenses
As someone who manages an Amazon business, keeping records of income and expenses is crucial. It can be a daunting task, but it can make all the difference in seeing how your business grows and identifying areas where you can improve.
One of the main reasons why accurate records are important is for purchasing inventory. Without a clear understanding of your income, expenses, and cash flow, it can be difficult to determine how much money you have available to invest in inventory. This can lead to cash flow shortages and potentially hurt your business in the long run.
You can create cash flow statements that help you make better business decisions by tracking your monthly sales and expenses. For example, you can see which months are typically slower in sales and adjust your inventory accordingly. On the other hand, if you have a particularly good month in sales, you can reinvest that money back into the business and purchase more inventory.
You also have to keep accurate records for tax purposes. You need to be able to provide the IRS with financial records that reflect your income and expenses. This ensures that you are paying the correct taxes and can prevent any issues down the road.
Bank statements are a great starting point for keeping track of your income and expenses, but they don't tell the whole story. You need to have a system in place that tracks all of your business transactions. This includes expenses that are not processed through your bank account (such as cash purchases). This can include using software like QuickBooks or hiring an Amazon accountant to manage your finances.
Research All Available Tax Deductions
Running an Amazon business means you are required to pay taxes to the government. Therefore, it is vital to reduce your tax burden by researching all available tax deductions for your FBA business.
Obtaining a sales tax permit is one of the crucial steps in reducing your tax burden. It authorizes you to collect sales taxes from your customers, and it varies by state. Not having one can result in fines and penalties.
Tax time can be overwhelming, but you will be able to manage it with the right preparation and knowledge of deductions. The more informed you are about the tax deductions, the more you'll be able to reduce your overall tax liability and retain more profit. Remember to keep track of all expenses and revenue, as it will simplify filing your tax returns.
Bookkeeping for Amazon is also of great importance for minimizing your tax liability. It lets you track your expenses, sales volume, and cash flow on time. By regularly updating your bookkeeping record, you can identify tax deductions that could save you money in the future. Doing this will reduce your tax liability, enhance your financial reporting, and save you time and effort.
Lastly, federal taxes are among the essential taxes you are required to pay. Understanding their regulations can save you a lot of money on your tax liability. Researching and understanding your federal tax responsibilities can ensure you comply with the regulations, avoid fines, and minimize your overall tax burden.
Review the Monthly Financial Reports for Insights
As an ecommerce seller on Amazon, one of the most important aspects of your business is monitoring your financial performance. Your Amazon seller central account has all the data you need to see how your Amazon store is performing. But sometimes, it may not be enough to have a clear insight.
The good news is that Amazon offers helpful resources for Amazon sellers to understand their financial performance. Amazon's default reports provide a comprehensive analysis of your store's financials. These reports cover everything from your revenue and expenses to your profitability and inventory turnover rate. By regularly reviewing these reports, you can gain valuable insights and identify areas for improvement.
Amazon also offers a feature called the Amazon Brand Registry, and you should definitely check it out. It provides additional insights into your sales performance, brand protection, and intellectual property rights. Using Amazon Brand Registry can help you learn more about how your brand is doing and make it stronger.
California FBA Accounting for Your Small Business
The Amazon boom is changing how we shop, sell, and run our businesses. So it's no wonder that the FBA program from the world's largest online retailer has taken off like wildfire! However, as exciting as it may sound, it's important to remember that the thrill doesn't come without a cost.
That's where Profitwise Accounting comes in. Our team of expert accountants is here to provide exceptional Amazon accounting services. Our goal is to help you make sense of your financial reports and prevent any tax-related issues. As a trusted provider of Amazon FBA bookkeeping services in California, we've had the pleasure of helping countless Orange County-based FBA entrepreneurs tackle their bookkeeping matters.
Speaking of trust - we have firsthand experience in the importance of it when it comes to Amazon FBA. One of our valued clients, an FBA entrepreneur in Orange County, found themselves in hot water with the IRS. Fortunately, we were able to identify and promptly fix the issue before it could trigger an audit. Therefore, we saved them from many headaches and showed them how their business could shine when entrusted to Profitwise Accounting.
Give us a call today at (619) 819-0252, and allow us to make your life easier with our top-of-the-line bookkeeping services. We're here to help you focus on growing your businesses and achieving your goals!
About the Author
David Heistein, CPA
Dave is co-founder and managing partner at Profitwise Accounting. Dave is a Certified Public Accountant in the state of California, as well as an advanced QuickBooks Pro Advisor and Instructor. As a small business owner, he is dedicated to educating and informing other business owners on bookkeeping and accounting matters.