I have been away for awhile dealing with some family health issues. During that time I was PMed to do a post on what reports are needed/what you need for taxes concerning FBA.
So first, I am not an accountant ( actually I do have a degree in Accounting) so I can’t give tax advice but I can tell you what my experience is dealing with my tax guy.
So the basic thing AZ is going to give you is a report that says the total sales you had, the total fees you paid AZ and how much money they sent you.
From this point let’s say they said you sold $100k, that they charged you $33k and sent you $67k back.
The $67k is the important number. This is what the government thinks you made and wants you to pay taxes on until you take out your cost of goods (COG) and expenses.
So you need to know the value of the inventory you had in stock on Jan. 1 of 2015 and Dec. 31 of 2015. The value is what your cost was, not what it will sell for. Your tax guy needs this.
Now this is a big problem if you aren’t keeping good records or if you aren’t using Inventory Lab. ( this is the #1 reason to use Inventory Lab)
The report that you can run on Dec. 31 from AZ just tells you what you have in stock. It doesn’t give you the value. If you are using IL, it will tell you the COG of that inventory.
So if you aren’t keeping track of this, you need to have a number for the COG. I sure hope at least you coded the cost in the MSKU like I recommend you do on every product.
You would have to go through every single item, take the COG times every unit for every single item you had in stock on Dec 31 to get your ending inventory value ( oh wait, it gets better)
Now we need to know what your COG was for everything you sold for the whole year.
If you are keeping good records, then you would just subtract the ending COG from the total years COG and then you would have that COG for the products you sold through the whole year.
Let’s say that number is $33k. So the tax guy would subtract $33k from the $67k number AZ gives you, so now the government wants to tax you on $34k.
Now if you didn’t keep records, man you are SOL. You are going to have to look at every single sale you made and come up with a COG for each item. This is really hard if you have no record of what each item cost and if you had a lot of sales, you are going to be super busy.
So now that we have $34k left, this is where that tax guy is going to try to take expenses and deductions away to get this number lower. It doesn’t mean that you didn’t really make $34k, it just means that you don’t want to pay taxes on $34k.
Here are some of the things my tax guy wanted.
Mileage. This is big! You get to deduct $.54 a mile for your sourcing trips. So in this case, if you had 1000 miles of deductible mileage, then $540 is coming off of the $34k and you won’t have to pay taxes on the $540. So let’s say you pay 25% tax on the money. You just saved $135 in taxes.
The tax guy will have questions about your car, insurance, usage , etc.
So hopefully you have been keeping a record of mileage. If not, you got some work ahead of you.
Now you can claim mileage even if you don’t find any products while sourcing but I personally want to have a receipt to back up every sourcing trip.
It gets muddy when you mix personal trips with business trips. Think of grocery shopping and you pick up some FBA stuff. Do you get to claim that? Talk to you tax guy.
So my tax guy wants to know other things.
He takes a deduction for me working out of my house. So he needs to know the square footage of my house and the square footage of my work area that is used for FBA. He also needs things like how much my insurance is, the utilities, etc.
So the tax guy is going to come up with a number for what he can take off as a deduction for you working out of your house. Now if you are bigger than that with say a warehouse, the tax guy will need all the cost involved with that.
So the tax guy will take this out off the $34k, making your tax bill lower.
Expenses are another deduction that tax guy will want. Hopefully you have been keeping records of all the boxes, box tape, polybags, etc.
All this stuff is going to come off the $34k.
So how many times you see people in a FB group say ” I am not going to pay for boxes”? Well they don’t realize how little it actually cost them.
Say that you are paying 25% tax. That $1.30 box is going to come off of the $34k, so it is actually costing you $.98.
You are now a business owner and things that you need for your business that make things easier/better you should buy because you are basically getting them as a discount because you take them as expenses.
Your tax guy will be trying to get the $34k down as far as possible because that is what you will be paying taxes on.
There are probably things I forgot to include, but that is the general process of the taxes.
Now if this was your first year selling, now you have a surprise coming your way.
Uncle Sam doesn’t want you to have a free ride and wants the taxes paid before the end of each year.
Most likely your tax guy will talk to you about quarterly estimated taxes.
Basically every 3 months, you are going to start paying taxes and surprise, your first quarterly tax is due on April 15 along with your 2015 taxes.
Now quarterly taxes are a pain. Why? Well you need to pay 90% of what you owe ( which if your business is growing, becomes hard to figure) or you have to a pay a penalty ( actually you are ok if you pay 100% of the last years tax. ie, talk to your tax guy)
So this is a quick overview of the process and this is why you need to pay a tax guy to help you.
You also need to keep good records ( that is why Inventory Lab gets $50 a month)