December 8

30 comments

How to Stick it to Uncle Sam as an Amazon Seller

By Christopher Grant

December 8, 2016


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*Note:  I am not a CPA.  I’m not even good at math.  However I have been self employed since the tender age of 18.  I have spent a lot of money on CPA’s, I have made a few mistakes, fixed said mistakes, and gone on to save a lot of tax money.  Not all of these ideas may be for you but they are available for you to use.

As an Amazon seller I believe it is our duty to keep as much money from the taxman as possible (that may make some of you cringe).  I say this because we have a duty to our families, to our employees, and to our business to grow, succeed, and invest.

Taxes may do some good.  We all like roads, bridges, and Yellowstone National park.  However, I believe, we can do much more with our money than the government can.  Heck, they are spending like 4 Billion (with a B) dollars on some new Air Force One planes.  I know they need to be replaced but you would think we could spend just a few nickels less to do it.

Anyway, enough talk about the government.  Let’s chat about how you can keep more of you green in your pockets and in your business as an Amazon seller and stick it to Uncle Sam.  In a legal loophole kind of way.

I’m going to break this up into a bunch of smaller points so it is easy to read and you can easily refer back to this at a later date.

Broke Uncle Sam

Home Office Tax Deduction

As an Amazon seller you probably work out of your home.  That means you can likely get the home office tax deduction.

This deduction can be tricky.  If you use your home as your exclusive place of business then you qualify.  If you have a warehouse but typically reprice, call vendors, do Online Arbitrage, or other things related to your business and that part of your home is exclusively used for that it’s expenses qualify for the home office deduction as well.

What you will need to do to get the proper discount is figure out how much space your place of business takes up.  For example, my business takes up 400 sq ft of my 1400 sq ft home (honestly).  That equates to 28.5% of my home.  I can now deduct electricity, gas, internet, cost of repairs, etc. for my home as an indirect expense to my business.

I suggest, even if you have a warehouse, trying to maximize this loophole for everything you can while staying within the confines of the law.

Here is a IRS Publication 587 regarding home office deductions so you don’t have to go looking for it.

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Mileage Deduction

This is one of my favorite deductions as an Amazon seller.  Why?  Well, let me answer with a few questions.

Do you go to the bank?

Do you practice retail arbitrage?

Do you ever go to the post office or UPS store?

Do you ever go pick up prep and packing supplies?

My guess is the answer is yes to all of the above.  Unless you have a huge operation and everything gets delivered.  Even then you will have mileage expenses.  Someone has to cash the big checks!

If you properly track your mileage you will be able to deduct 54 cents per mile from your gross income.  I do this using the Quickbooks Self Employed App.  It keeps track of all my mileage and then all I have to do is sort what is business and what is personal.

This tactic helped me drop my income in 2015 by over $10,000.  Here is some boring legalese to backup my claims.

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Education

No, you don’t have to go back to school to take advantage of this deduction.

This deduction applies to courses, books, conferences, and more.

This is one of the reasons I never feel bad about buying educational resources for myself.  Not only am I often learning something new and supporting a small business owner but I also get to remove that money from my income at tax time.

As long as it is quality information I am usually exceedingly happy to spend the coin to gain even a few ideas.  Chances are I will be able to make even more money from those ideas in the future.

Supplies & Equipment

This is actually two separate deductions.  However they are similar, minus one rule.

Office supplies, shipping supplies, and all the other things that go along with running your Amazon business are tax deductible.  Make sure to keep track of those items, of course.  Any time you buy boxes, labels, scotty peelers, extra scanners for retail arbitrage, pay your prep center, and so on.  Those little things will add up over time.

Equipment can also be a huge deduction.  These types of purchases can be deducted in one of two way.  You can either take 100% of the cost in the year you purchased the equipment or you can depreciate the equipment over 5 years.

I tend to take the deduction in the year I bought the equipment.  For example, I picked up a new Macbook Pro this year.  That will be deducted from my income.  However, in some instances, say buying a forklift or a gaylord dumping machine you may want to depreciate those purchases over 5 years.  This may be beneficial if your income isn’t extremely high but you have purchased equipment.  You can spread out the tax relief over several years.

Do not be worried which way you decide to go with this decision.  There really is not a right or a wrong answer.

Subscription Based Software

We Amazon sellers tend to have a lot of subscription services.  It can make sourcing, packing and shipping, and inventory management so much easier.

Just remember that these subscription costs are tax deductible.  So, as long as you can afford it, load up on them.  Not only will they reduce your taxable income but many of them are extremely helpful.  If they aren’t please cancel them.

Here are some services that I personally use and get quite a bit out of.  Much more than the actual fee.

Tactical Arbitrage – Arguably the best Online Arbitrage Software on the market

StoreFront Stalker Pro – A killer extension designed with Tactical Arbitrage in mind.

RevROI – This is self-serving since I built it, but, this helps you make sure you are maximizing cashback and discount gift cards.

Flippin.it Pro – This is a great and inexpesnive tool to help you with Amazon to Amazon Flips

Travel, Entertainment, Gifts, and even Meals

We are Amazon sellers.  We don’t travel much.

WRONG!

I have been to more conferences while being an Amazon seller than ever before.  Three of them in the course of about four months.

All of those expenses.  Airfare, hotel stay, tips, Uber rides, dry cleaning, and everything else that goes along with life on the road is tax deductible.

Except meals.  Meals are only 50% deductible while traveling.  I’m ok with that, you have to eat anyway and you get to take a bit of it off on your taxes so I’m not sure we can complain much.

If you are buying gifts for store managers, wholesale contacts, or meeting with suppliers and taking them out on the town.  All of it is deductible.  Make sure to maximize those savings.

Insurance Premiums and Retirement Savings

Since you are self employed you probably pay your own health insurance.  Those premiums are also 100% deductible from your taxes.  Go ahead, splurge on the platinum plan!

You are also able to maximize your retirement savings.  Did you know you can contribute up to 25% of your net earnings to a SEP IRA?  You also have the ability to sock away up to $18,000 in a 401k plan if you choose to do so.  You get to do this and deduct the money from your income!

Child Labor

Yeah, you read that right.  You can actually hire your kids and deduct what you pay them from your taxes.

Now, you have to be a sole proprietor or a partnership where only you and your spouse are the only partners.  The children must actually be paid.  Then there are several other caveats you can read about  if this is a strategy you wish to employ.

On top of the savings, you get to teach your kids work ethic and have them involved in something that isn’t sedentary like video games.

The Tax Drawback

Here is the one place I really dislike the tax law.  If you are self employed you have to pay double the social security tax.

This comes out to 15.3%.  The good news is that it is on your net profits not gross.  So be sure to maximize every single deduction you can.

Let’s Help Each Other

I am sure I have missed something here.  I’m only human.

So, would you do me a huge favor?  Would you leave a comment with your best tax saving strategy (not paying them doesn’t count, I’m looking at you Wesley Snipes).  Then share this with your Amazon seller friends.

I’d love your help in trying to make this a go to post for people to learn how to stick it to Uncle Sam!

Christopher Grant

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    1. I’m wondering who will I have to do you taxes that understand Amazon FBA? I live in Ohio any help or suggestions would be great as this is our first year and I’m feeling overwhelmed 😕

  1. Bro? I love you. This was such a great article and there were things in it that I didn’t know. Thank you for teaching me Master Jedi. ;0)

  2. This will be my first year as a seller and have been thinking a lot about taxes. Thanks for the advice. I was assuming that I could also deduct my expenses for the inventory I purchased to sell, correct?

    I was also wondering about inventory that hasn’t sold… could I donate it to goodwill or another nonprofit and deduct the costs of purchasing the items. I don’t have a lot, but I did buy a few things that I shouldn’t have at the very beginning & they aren’t worth selling on eBay.

  3. Hey Chris,

    To me, the following is the most important, structure your business correctly. By structuring as an LLC electing to be taxed as an scorp, you get the benefits if an LLC, you then pay yourself a minimal salary, and then pay taxes on the remaining profit as business profit, which means you do not pay social security and Medicare on the profit, if you make 70k, pay yourself a salary of 25k, and take 45k in profits, that’s a savings of almost 7k!

    Caveat, you must elect to be taxed as an scorp within the first 60 days of the year.

    1. Thanks for this! I should probably update this with some information on being taxed as a corp. I did write this from the stand point of either being a sole proprietor or using an LLC as a pass through to an individual.

  4. Excellent post, Chris. Many ideas for deductions that people may not think of. The comments definitely show that there was a need for this information.

  5. Great info! A few others come to mind. You first year in business, your startup costs are deductible. As are your license renewal fees each year after. You can also deduct sales tax that you remit to your state. In addition, any credit card or loan interest that you might pay is deductible, as are any bank fees (think ATM fees, cost of checks, etc). You can also deduct web hosting fees if you have your own site. Just a few other ways to stick it to the man 😉

  6. Doing taxes now. When things get more complicated, do you recommend hiring an Account, CPA, or other? If so, what, where, how, etc? Do you have a guide or post for that?

    1. I do not have a post for finding a CPA but I can certainly put one together.

      I would start by using the google machine and interviewing several before making a decision.

      Honestly, even with difficult taxes you can still do them with the software out now. However, doing your weekly or monthly accounting is definitely something that could be outsourced using bench or a similar service.

  7. I guess I need a new tax advisor because most of what I thought was deductible (My meals on travel, A lot of my education expense , etc) didn’t really effect the bottom line like it should have. Any tips to find a good tax person who understands e-commerce? Thanks

    1. Honestly, the best thing you can do is ask for referrals from other ecom friends or start interviewing a bunch of different tax people until you are comfortable.

      I have found that most of them are extremely conservative and rather than do their best to save you money from the tax man they do the bare minimum for you and make sure they have no issues with there licensing.

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