Do you currently sell items on e-commerce sites such as eBay or Amazon? If so, you know what a great opportunity it offers to make a location independent income. However, if you are selling items in the U.S. market and you generate a steady income, make sure you are aware of all the potential tax implications.
The tips here can help you understand tax implications and help to save you both money and stress.
Hire a Quality Tax Accountant
When dealing with sales tax, it’s important to have a good tax accountant on your team. There are many moving parts that go with owning a business, but if you have an LLC or similar business entity, accountants can help you save quite a bit of money with your tax write-offs. Also, some software can help to make going through all your financial data much easier, as it’s designed specifically for this purpose.
Stay Ahead of State Sales Tax
A serious concern for many e-commerce sellers is state sales tax. If you ship only from a single state, your sales tax remains static. For example, in California, the state sales tax is 7.25 per cent, along with any local tax if there’s a city that imposes that.
However, if you sell items in a drop shipping set-up and items are being shipped from warehouses across the U.S., it’s probable that you also have to pay the states sales tax for the states where the products ship from. This makes keeping up with state sales tax complicated, which is why it’s a good idea to stay on top of things each year.
Use the Right Inventory Accounting Method
The Tax Cut and Jobs Act that was signed in December 2017, resulted in several changes to inventory accounting. If you are a smaller retailer and you have under $25 million in sales, and you hold your inventory, you can treat the inventory as a “non-incidental” material and supply. In the past, the threshold was $1 million. By doing this, it helps you to simplify the accounting and could provide tax savings.
If you are selling items online as a business, you have the legal right to deduct some of your business expenses. Some of the deductible expenses include:
- Sponsored ads
- Amazon fees
- Marketing and branding
- Travel to suppliers
- Office expenses and home offices
- Shipping expenses
Make sure you speak with an accountant to get all the deductions you are owed.
Incorporate the Proper Way
If you use the proper business structure, it can have a huge impact on your seller tax. For a non-U.S. seller, the most effective option may be to do business in the U.S. as an LLC. For a single-person LLC, income will pass through to the owner, who is then required to declare the income in the country where they reside.