4 Tax Deductions for Your Amazon Business

Shane StinemetzUncategorized3 Comments

4 Tax Deductions for Your Amazon Business

 

Taxes. Yuck. The only thing worse than saying the word out loud is reading an entire blogpost on the topic. But you’re here now, and the deadline for American businesses to file taxes is 4 weeks out. Press on.

 

We can blame the ancient Greeks for modernizing taxes. Alexander the Great levied property taxes on citizens of the Empire so he could buy shiny brass spears and shields for his military. In turn, people slept well at night knowing well equipped soldiers guarded the kingdom from being pillaged and conquered by angry neighbor states. Not a bad tradeoff (until the Romans rolled up on the block and snapped their spears like toothpicks). Moving on from the history rathole. Taxes are necessary and imminent. We should probably get on board and start considering the best, LEGAL, methods to avoid overfunding the government.  

 

According to the tax-funded data nerds that track everything about you and me (the US Census Bureau), 90% of employed Americans work for the man. They get a W2 from their employer and plug the numbers into Turbo Tax. Pretty easy. The 10% of us that run our own businesses are in a tougher position, but there are plenty of ways for us to trim our tax bill. It’s not too late to apply these tax deduction tips and hold onto more of your hard earned cash this tax season. I have an imaginary friend named Jethro and he’s really good at finding tax deductions for his Amazon business. Let’s see how he does it…

 

  1. Deduct your home office

In order for your home office to qualify as a legitimate business expense, you have to prove that it’s used exclusively for business activities. Your kitchen table probably doesn’t meet this criteria. Jethro uses a spare room in his rental apartment as his home office. He can claim $5 per square foot of the office, up to 300 sq. ft. Jethro’s apartment is 1,500 sq. ft. and the office is 150 sq. ft. Jethro can write-off $5 per square foot of the office space. Writing-off 10% of his monthly rent makes Jethro happy.

 

If you’re eligible for the home office deduction, you’d also be eligible to deduct a portion of your utility bills. This can include electricity, heating and internet bills. For Jethro, this means 10% of his total electricity, heating and internet bill. See a pattern here?

 

Don’t forget office equipment like desks, chairs, lamps, printer paper etc. As long as you can prove that these supplies are being used for business purposes, they are all fully deductible. Jethro also bought a new MacBook in 2015. Deduction! Keep in mind that Jethro also uses the MacBook to photoshop funny pictures of his siblings and post them on facebook. Naturally, the IRS considers that personal use and ineligible for deduction. But, 75% of the MacBook’s usage is dedicated to selling Beard Hats (a new niche market targeting hipsters who can’t grow beards) on Amazon. He was able to expense 75% of the cost of the MacBook!

 

Read more details here…

https://www.irs.gov/publications/p535/index.html

https://www.irs.gov/uac/Form-8829,-Expenses-for-Business-Use-of-Your-Home

https://www.irs.gov/publications/p946/

 

  1.  Deduct Your Health Insurance

Self-employed individuals (including sole proprietors) like Jethro are also able to deduct the cost of health insurance for themselves and their family.

 

Keep in mind that Jethro isn’t married to someone who has access to insurance through their employer. If your spouse is able to participate in an employer-subsidized family insurance plan, you won’t be eligible to deduct this expense.

 

Read more details here…

Form: https://www.irs.gov/publications/p535/index.html

 

  1.  Consider Your Retirement Plan

Many Amazon sellers who’ve quit their jobs to run an Amazon business are financially focused on the present and making sure the monthly cash flow is available to fund their business. This is understandable. However, stashing away money in a tax-deferred retirement plan is one of the best ways to lower your taxes. Jethro encourages every Amazon seller to establish a tax-deferred retirement plan, even if you can only contribute the bare minimum in the early days.

 

Read more details here…

Form: https://www.irs.gov/Retirement-Plans/Retirement-Plans-for-Self-Employed-People

 

  1.  Consider Your Business Structure

If you’ve ever filed taxes as a sole proprietor, then you understand that you’ve also got to pay self-employment taxes. Jethro hated doing this and decided to form an LLC and make an “S Corp Election” which helped reduce his self-employment taxes. With an S Corporation, you can pay yourself a “reasonable salary,” and all remaining profits can be taken as a profit distribution, which aren’t subject to self-employment taxes.  As a sole proprietor in 2014, Jethro made $95,000 and had to pay self-employment taxes on the whole amount. In 2015, his business brought in $130,000 in revenue. He paid himself a $70,000 salary (which was subject to self-employment tax) and gave himself a profit distribution of $60,000 (which was not subject to self-employment tax). Win!

You probably have tax related questions for Jethro after reading this post, but I should warn you that he failed the Bar exam in California. I recommend consulting with a tax professional. In general, the self-employed need to be careful not to stretch the rules, but we should all be taking advantage of the deductions we are eligible for. Large corporations have throngs of tax advisors fighting to lower their tax bill every year. As a 10 percenter (only 10% of Americans work for themselves, remember?), you may have to do some of the grunt work on the tax front, but hey, you’re a 10 percenter. You can do it!

 

Author: Shane Stinemetz

Jiu Jitsu fighter, Sci-Fi lover and Digital Nomad. After becoming an FBA seller, Shane left the tech scene in Silicon Valley to work on Fetcher and travel around the world.

3 Comments on “4 Tax Deductions for Your Amazon Business”

  1. Hi Gregg, I am a complete newbie to Amazon & as yet I have not launched any products yet. I feel I would need to set up the most solid foundation, starting with the structure first. I am finding the information on taxes really confusing.
    Q1: I live in Australia & if I set up Amazon for the US market, do I have to pay taxes in both countries?
    Q2: Can I claim on expenses for educated programs that assist me with my Amazon business? i.e. JS, Amazon mthly fees, or programs to assist me with starting my Amazon business…
    I realise I would need an accountant, but feel I need to understand taxes better, can be confusing when living in one country and selling from another. Thank you – Cheryl

    1. Hi Cheryl,

      For tax related questions, it’s best to consult with Amazon or a tax professional on the specifics.

      I can say with confidence that you will need to pay sales taxes in the US if you are selling in the US Amazon market.

      I’ll be posting more about Amazon taxes in the coming weeks.

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