The main reason that people will comfortably buy things from Amazon – and thus the people selling on there – is because they know that Amazon Prime allows them to receive their packages in two days, if not less. Everything great must have some kind of catch to it though, for Amazon sellers, the catch is Sales Tax Nexus.
Amazon can deliver products nationwide so quickly because they have them sent out to distribution centers before they are even ordered.
You must be registered as a Pro Seller to get Amazon sales tax, which is important because their reports are far more comprehensive for a Professional Seller than they are a regular one.
Amazon FBA Sales Tax
What is Sales Tax Nexus?
The word “Nexus” comes from the Latin word meaning to “tie” or “bind.” A sales tax nexus could be considered something that ties your business to the state.
U.S retailers are required to collect the sales from buyers where they hold a “sales tax nexus.” The following activities may establish a sales tax nexus:
Location: This includes any physical place of business such as an office, store, or warehouse.
Personnel: The personnel at your business are individuals who are employees, salespeople, contractors, installers, and anyone else who works for your business in some capacity.
Inventory: Many states will consider holding inventory in-state to create a nexus even if you don’t have any other employees or places of business there.
Sales (the Economic Nexus): For about half of states with a sales tax, sellers who generate revenue or transactions over a set threshold will be required to collect sales tax. The threshold for revenue is around $100,000 and the transaction threshold is around 200, but it can vary state by state.
Affiliates: An affiliate is someone who advertises your products and services for a piece of the profits and having one can create a nexus.
Drop-Shipping: There are some situations where having a third-party shipping service that delivers products for you creates a nexus.
Selling products at an event (i.e. a tradeshow): Some states consider you to have nexus even when selling only temporarily, such as at an event.
What is Economic Nexus?
An “economic nexus” is when sellers are required to collect sales tax because they reach a threshold of either money from the sales or number of transactions. These thresholds are usually $100,000 in sales or 200 transactions in a year.
Economic Nexus is The Newest Kind of Nexus
The economic nexus is the newest kind of nexus for the United States. Around half of the states with a sales tax have their own economic nexus laws. More states have announced they will introduce laws or regulations about economic nexus too.
The economic nexus only came into effect in June of 2018, following a Supreme Court ruling in the case of South Dakota vs Wayfair, which is why it’s a relatively new issue.
How to Determine you Have a Sales Tax Nexus in a US State
Here are the questions you can ask yourself to determine if you’ve got nexus with a state;
Do you have a physical presence in the state, such as a location or warehouse?
Do you have anyone working for you in the state such as a contractor, employee, installer, or salesperson?
Do your sales or transactions in a state exceed the economic nexus threshold of that state? If you don’t know, then check with TaxJar’s Sales and Transactions Checker
Do you have a relationship with a drop-shipper in the state?
Do you have an affiliate program and any affiliates in the state?
Do you cross state lines to sell products at events like craft fairs and trade shows?
If you answered yes to any of those questions, then here’s how you can explore if you have nexus or not;
You have nexus. Now what?
Amazon Sales Tax Nexus
Amazon makes it easier to determine sales tax nexus thanks to their Amazon Fulfillment reports. These reports will tell you where Amazon stores your inventory. Here’s how to access the Amazon seller sales tax report:
Open Seller Central
Open Reports
Open Fulfilment
The Inventory Event Detail section shows you where Amazon stores you inventory
There’s a lot of information on the Amazon Inventory Event Detail report, but it’s better to download the report for yourself then try to read it all on the screen.
Choose the download tab and then pick a time-frame that you want. If you’re interested in determining the states where you have sales tax nexus, choose the date when you first started selling products on Amazon.
You can do this using the exact date option on the report. Choose the dates you want and then wait a few minutes for the report to be generated. It can take longer if there is more data to collect.
You can download the report when it finishes generating. The report will be available as a .txt file and you can open it as is or import it into Excel. Select All and copy and paste it into the spreadsheet. The “fulfillment-center-id” column is where you can see information on all the Fulfilment Centers where Amazon stores your inventory. This is where you have nexus and where you would need to collect sales tax.
After opening the Inventory Event detail, you’ll be greeted with something like this;
The column that is most interesting to us right now is the fulfilment-center-ID. In the worksheet, click the top row of the column and choose the filter symbol, either on the Quick Access Toolbar or with the ribbon, and this puts a down-arrow in the top row of the worksheet.
Click on the down-arrow and you’ll find a list of all the fulfillment centers where your inventory has been stored. Warning - this may be quite a lot of information!
Fulfillment Centers where Amazon stores your inventory
Determining Your Sales Tax Nexus
You’ve now got a complete list of all the fulfillment centers where Amazon has stored your products.
If there are any centers that you don’t expect to see then uncheck “Select All” and click the boxes for the centers that seem questionable. This brings up a list of all the products stored in those centers. This is just for your information though. You need to know all the fulfillment centers where your inventory is located.
You might be wondering what fulfillment centers the letters and numbers represent. The center names are determined by the airport closest to the fulfillment center. DFW would mean Dallas Fort Worth Airport, which is – of course – in Texas. CHA is the Chattanooga, TN airport, meaning Amazon stores your inventory in Tennessee.
Amazon Fulfilment Centers
The numbers after the airport designation indicate how many fulfillment centers are near the airport. This website has a list of all airports by code and state, and here is where you can find a list of all the many Amazon Fulfillment Centers.
There are several guides out there on how to have a successful business on Amazon, but we at taxomate always found it easier to watch someone explain it than to read thousands of words. That’s why we collected a list of some of the top YouTube channels for Amazon sellers for you!
Creator of what he calls the “Freedom Movement” - a massive movement of people looking to financially free. He quit his 9-5 accountant job to focus on making money online, including passive income. He shares his experiences and knowledge with the rest of us, so we don’t feel the stress of feeling trapped in a desk with a tedious job that has nothing more to offer.
The official YouTube channel for Fulfillment by Amazon goes into detail on how FBA works. Ship to an Amazon FBA center and they take care of your inventory doing all the work for you while you still get an income for each sale. If you think this option applies to what you want to make sure to check it out!
Created in 2015 by Greg Mercer as a solution to the struggle new Amazon sellers usually go through. He created a toolkit that people can acquire full of tools and resources to launch and grow a business on Amazon.
Stefan James from Project Life Mastery focuses not only in giving handy tips and strategies for making money online but also how to change your mindset and to live a healthy life as well while you are at it. Sometimes that’s all we need to make that one decision that can change our whole life into a positive outcome.
Created by Stephen and Rebecca Smotherman, they have been in the Amazon selling the business since 2011 and 2013, meaning they have many years of experience to back them up and know what some of the common mistakes new sellers make are. Stephen and Rebecca both part-time work hours selling online, which combined, works great for them and their family. This allows them to have the commodity of having your schedule working from home.
Dan Vas is a self-made internet millionaire entrepreneur, YouTuber, and influencer. He believes everyone has a significant potential to achieve great things and live their best life. Through his videos, he shares his experiences and tips to make this happen and help those people awake from their monotonous life and opt for new business opportunities. He is living the dream!
This YouTuber known as Derrick Struggle started as young as 14 years old selling t-shirts and built his official first company at 16, he confirms he has made over 8 figures thanks to different e-commerce business and passive income. His goal is to share his knowledge with the rest of us. I wonder what we were doing at 16 instead of making millions like him.
With 24k in debt, living a miserable life and fed up with his job, Seth decided enough was enough, so he started to make changes with a single dime. Today he is a self-made millionaire, he has different passive income businesses and is ready to help people like us, live their dream lives.
At wholesale Ted, you can find creative and engaging content about e-commerce, Amazon tips, training, case studies & tutorials. Their videos focus on actionable advice on how you can start, grow & scale your own business
Although still considered a small channel compared to the previous ones mentioned, Life success Engineer has so much to offer and will grow without a doubt. They say their mission is to help people take MASSIVE ACTION in life to achieve the goals and visions they have! Make sure to check them out in their journey to help other people grow with Amazon tips and tricks.
Looking to stand out from the crowd and protect your assets by turning your Amazon seller business into an Amazon Seller LLC (Limited Liability Company)?
Why it Makes Sense to Establish an Amazon Seller LLC
There are many advantages to establishing an Amazon Seller LLC, including:
1. Increasing Reputation
Plain and simple, when customers see a product is from an established business with a business name, they are more likely to make the purchase.
2. Protect your Assets
LLCs are separate legal entities from you as a person. In other words assets of your business and your assets are kept separate. Anything that happens to the company shouldn’t impact your assets.
3. Easier to Manage Finances
Having a different business bank account for your business makes it much easier to track income, outgoings, and profits. Taxes at the end of the year are easier since you only have business expenses in your accounts, instead of having to sift through and separate personal and business expenses.
LLCs are one of the best business entities for small business owners such as Amazon sellers:
Simple and often less expensive to establish.
Easy to run: primary business entity for small business and solopreneurs (sole proprietors).
Less legal and compliance obligations compared to other business structure types.
How to Pay Yourself From an Amazon Seller LLC
Now you know the reasons behind forming an Amazon Seller LLC, let’s look at how to pay yourself from one. The two main options to pay yourself as from an LLC are to:
Paying yourself as an employee of your Amazon Seller LLC means giving yourself regular compensation that you can plan around. This is the right choice if you want to get a steady income. In order to pay yourself a salary from a single member LLC or any other kind of LLC, you have to be actively working with the business. You need to have a real role in the company and have real responsibilities to justify your wages.
Multiple LLC Owners: Where there are several LLC owners, and all participate equally in running the business, you aren’t able to pay just one person a salary without paying one to the others.
Single Member LLC: If you were the only person with a management role though, then you could set a salary up for yourself without needing to pay salaries to other LLC members.
Employee wages are operating expenses and deducted from the LLC's profits. The IRS will only allow you to deduct reasonable wages, so make sure that the salary you pay yourself is fair and within the norms of your industry. You can also provide employees with bonuses, and that includes yourself. Once again though, these businesses have to be reasonable compared to the salary you are paying yourself.
You’ll have to file the W-4 IRS Form to determine how much payroll withholding from each paycheck you’ll receive. The LLC pays you as a W-2 employee and therefore withholds income and employment taxes from the paycheck you receive. You will also have to pay income tax for the wages that you earn.
Option 2: Receive Distributions from Profits
Another way to pay yourself from an Amazon Seller LLC is to receive distributions of the LLC’s profits.
Each member owns their percentage of the LLC, called their capital account. The year-end profit is then distributed based on the size of these percentages.
For example, if an Amazon Seller LLC made $100,000 in profit and you own half of the company, you are entitled to receive $50,000.
Setting Up Draws
You can set up a draw to receive payments across the year or draw against the year-end profits.
If you believe that your percentage would be worth $12,000 by the end of the year, then you could arrange to receive $1,000 a month. The total amount drawn across the year is deducted from year-end profit. So if you were to draw $12,000 and the profits for the business ended up being $15,000, you can still get $3,000 at the year’s end.
If you are the sole member of the LLC, you pay income tax on distributions and have to file Schedule 3 to report the profits and losses of your LLC with your personal tax return.
If the LLC has more than one member, then the LLC is considered a partnership by the IRS. It is up to each member to report their share of the profits and pay their income taxes on their share.
The LLC should file an IRS Form 1065 to report profit distributions.
NOTE: You should keep in mind that these two options – receiving a salary and receiving distributions – are not mutually exclusive. If you receive a paycheck, you are still an LLC member and are still entitled to receive year-end distributions.
Other Options to Consider
These aren’t the only options you have at your disposal for paying yourself as from an Amazon Seller LLC. You also have the option of paying yourself as an independent contractor. This doesn’t come with many benefits though.
There is, of course, also the option of not paying yourself anything and letting the LLC keep the profits. You’ll still have to pay income taxes on the profits earned though.
How you choose to pay yourself is up to you, and can change depending on the kind of business you run, how many people are a part of the LLC, and how simple you want to keep things.
Let's get one thing clear, when it comes to your Amazon 1099, you're going to be in for a challenge. This form doesn't match any other downloadable report from the same Amazon platform.
Sellers are often worried - Amazon submits the 1099 report submits to the IRS.
Fear not! We've written the following post to take all the guesswork out of your Amazon 1099 numbers. This article will help you:
Understand your IRS Amazon 1099-k Report.
Determine your gross revenues so it squares with the figures on your 1099-k Amazon report
Calculate all the expenses you're charged at Amazon
Figure out any Amazon refund amounts
Gain a clearer understanding of how your biweekly Amazon payments are calculated
Understanding the Amazon 1099-k
The revenue figures you see on your Amazon 1099 report is the total of the following:
Sales of products
Credits for shipping
Promotional rebates
Sales tax collected
To track down these numbers, you simply need to download your account's date range transactions report.
To access the transactions report, follow these steps:
Click Payments on your Reports tab
Select Date Range Reports on your Payments page
Select Generate Report on your Date Range Reports section
Pick Transaction among the options in the drop-down list under Select Report Type
Under Select Reporting Range choose Custom and select a time span of January 1 - December 31 for the applicable year.
Click on the Generate button
Download the resulting report.
After you have a copy of the report, filter it using Type. Make sure to include only Order transactions.
Once you have added the four columns listed earlier, the figures should mirror the 1099-k numbers reported by Amazon.
For the life of me, I am still confused about why Amazon did not make the transactions report and 1099 amounts easier to access.
Amazon 1099-k Figures and Bookkeeping
Amazon reports your 1099 to the IRS, so it is extremely important that your 1099 figures from Amazon match the revenue you report to the IRS.
Additionally, you don't want to end up paying more money than you have to in taxes.
To ensure this does not happen, we highly recommend you need to use some sort of bookkeeping tool. We created taxomate to automatically send all your financial accounting information (including data for 1099) to QuickBooks or Xero.
Whether you go with Xero or Quickbooks Online, the process I'm going to describe below is fairly similar among those two platforms. If you would like to see a detailed comparison of the two accounting software check out our article on the topic.
Amazon 1099 by Example
To get started, create or link your bank account to QuickBooks or Xero. This bank account will represent the accrual account credited when your Amazon store makes a sale. I dubbed this account the "Amazon Payment Account" on my accounting software (feel free to name it however you would like).
It's very important to note that the system that I've described below considers Amazon income to be earned once the customer completes the transaction. This is very important because the alternative way of accounting for this is to calculate income when Amazon actually distributes cash. This way, we're able to get the exact same revenue numbers which Amazon reports to the IRS using the 1099-k form.
All the numbers that you need are going to be listed by the transactions report you downloaded from Amazon earlier.
To get started, create a Sales Receipt or Journal Entry in your accounting software for each settlement period with the customer "Amazon Marketplace Place".
The revenue amounts should total the numbers in your 1099. The income figures you may see include:
Collected sales taxes
Promotional rebates
Credits for gift wrapping
Credits for shipping
Product sales.
Expense figures will not show up on your Amazon 1099-k but will show up in your transaction report. The expenses figures you may see include:
FBA fees
Amazon selling fees
Advertising Fees
Any other fees listed in the transaction report.
The deposit represented by the Sales Receipt or Journal Entry is accounted for in the Amazon Payment account, the accrual account. This allows for easy reconciliation with the bank deposit.
Once you save the receipt or entry, you can then match them over your bank deposits.
This article should have given you enough information to provide you with an idea of how to reconcile your 1099 with Amazon's reports!
Integrating QuickBooks with taxomate is quick and easy. After connecting your accounts, simply map your accounts QuickBooks with income and expenses from your Amazon statement.
After sending a statement to QuickBooks for testing, you can now set up Amazon to auto sync with QuickBooks!
Step 2. Importing from QuickBooks to TurboTax
QuickBooks Online doesn't yet directly integrate with TurboTax Online.
However, worry not!
a. For TurboTax Online
You can easily run reports in QuickBooks Online to capture all the data required to enter into TurboTax, such as Profit & Loss and Balance Sheet reports.
b. For TurboTax Desktop
TurboTax Desktop (Mac or PC) allows you to import the QuickBooks Online file. Here are the steps to import:
Step 1. Open your return in TurboTax Business.
Step 2. From the File menu in the upper left corner, select Import > From QuickBooks.
Step 3. Follow the on-screen instructions to import.
Step 4. That's It! taxomate really makes Amazon Seller Central and TurboTax integration easy
Six Reasons to Use TurboTax
1. Taxes done right, guaranteed
The guarantee that they claim is 100% accuracy. Their solid error checks ensure that your tax return is finalized well. If you pay state penalty or IRS or interest due to any error TurboTax could possibly incur, they will pay the charge for you. That’s how confident they are that they can do their job spot on.
2. Expert help, live on-screen
An actual TurboTax expert will guide you on screen with their SmartLook system. They’ll draw right on your screen to get the answers you need in order to file seamlessly. All you need to do is follow the guide and head towards the best track.
3. Fastest tax refund possible
You can get the fastest tax refund here by simply filing your tax return digitally. If you buy the TurboTax Online or their CD/Download, you can even get the e-file of your federal tax return FREE of charge.
4. Capture your W-2 in a snap
Just capture a photo of your W-2 with your smartphone or tablet, confirm the information and watch as your data is carefully placed into each tax form suitable for you.
5. Security and confidentiality assured
Your information is in safe hands with TurboTax. You can file taxes with confidence with them.
6. Service on the go
Wherever you are, whenever you need to, you can get your taxes done with TurboTax mobile app. You can easily pick up where you left off even after switching devices.
What do I need to get started with TurboTax?
You don’t need anything complex. All you need to ready is your email address. In just a few clicks, you can get everything set with a breeze. Just answer a series of easy questions, and you’re good to go. You do not even have to get your 1099s or W-2s. TurboTax can import your data directly from over a million participating financial firms and employers.
Despite the convenience of TurboTax and other online tax solutions, only 21% of Americans actually use them. The majority of the rest still use live tax professionals to get the job done.
TurboTax costs less than a hundred bucks, and actual tax experts cost up to four times higher. Perhaps it’s about time for a wide adaptation of this resource to save cash and to promote real automation. TurboTax is a great solution for your Amazon seller bookkeeping needs.
So . . .
It's not an easy task to export your Amazon statements to QuickBooks/TurboTax. However, once you get started using taxomate it becomes much easier. Let taxomate do the heavy lifting!
As a new (or expert) Amazon Seller it is always important to understand Amazon UPC codes. Amazon requires all products to have a UPC prior to being listed.
The only requirement Amazon places on these codes is that you purchase a “GS1 UPC code”. However, you can't just create your own UPC Code, you have to buy through a reputable website (see below).
Do you Need Amazon UPC Codes to Sell Products on Amazon?
The reason you need a UPC code to sell on Amazon is that you can enter something into the product ID field when you list a product for sale. Select “UPC” from the drop-down menu of the “Product ID” section. You can’t even list a product to sell on Amazon without an appropriate UPC code.
UPC Codes are also known as “barcodes”.
What to Put In the Amazon Product ID Section
EANs and UPCs are the main Amazon product IDs used in Australia, New Zealand, and many Western and European countries (including USA, UK, Canada)
How to Purchase Cheap Amazon UPC Codes
Buy Amazon UPC codes through a reputable website (see below)
Download the barcodes through an Excel spreadsheet and JPEG images
Create your Amazon Product Listing
Enter the UPC code into the “Product ID Field” to verify its authenticity
Complete your product listing
Where to Buy Amazon UPC Codes
When people look for cheap UPC codes they turn to shady sellers and get them from eBay. It’s most likely that these cheap codes are recycled. Using recycled codes may lead Amazon to believe you sell fraudulent products, which get your account shut down. Let's take a look at some trusted sellers of cheap Amazon UPC codes:
Snap UPC: a trusted UPC code seller for Amazon. They also have codes for other sites including eBay. Sellers can buy individual barcodes for five dollars each, or get bundles for better savings – up to $0.10 per barcode.
Order Barcode Labels is another trusted seller. Amazon sellers can use the website to generate barcodes for their products and purchase them. The prices for labels range between $15 for 250 labels up to $25.50 for 1000 labels. Labels are also available in a variety of materials and sizes, including the option to purchase waterproof labels.
Buyabarcode.com: An online store where you can purchase barcodes at a range of prices from $75 for a single barcode to $995 for 200.
Barcode Mania: One of the most reasonably priced barcode providers around. They have barcodes available for just $4.99 for a single barcode, with prices going up to $140 for 600 codes.
UPC Code for Amazon FAQ
1. How many UPC codes do I need per product?
You only need to list one UPC code for new products on Amazon. For example, one UPC code will cover all “t-shirts”, no matter how many shirts you sell.
2. I’ve never sold products on Amazon before but want to start a private label business. It asks me for a product ID whenever I go to create a new product. Is that where I enter the UPC code?
This is where the UPC code goes. You need a product ID to list a new product on Amazon. Choose UPC from the menu and enter the appropriate UPC code.
3. Will the UPC code be the same for the same products?
The UPC code for the same products will be the same. You can use one UPC code for many matching products. If you have already listed an item, then just change the amount of product you sell.
4. Do I need a UPC code to list a product I’ve already got a listing for on Amazon?
If you will list the same item more than once on Amazon you should be able to piggyback on the current details page instead of having to make a brand-new one. This means you don’t need to purchase a UPC code if you already have the item up for sale. Choose ASIN for the product ID and enter the ASIN number from the existing listing.
5. Do I need to physically put the Amazon UPC code on the products I list?
You can list as many products as needed through a single UPC code. If you are selling 100 hairbrushes, then you only need the one UPC code for the product listing on Amazon. You don’t need to actually put the UPC code on the product either.
Amazon gives each item you list a unique identifier. This code is what you put on the actual products. The UPC code is only there for listing the product.
6. What are some other common terms in the Amazon Product ID section of Amazon listings?
ASIN
The ASIN is the Amazon Standard Identification Number. It is a 10-digit alphanumeric unique catalog number assigned by Amazon that won’t actually be generated until the product is listed.
When creating a new product listing with a UPC code, Amazon assigns the new listing an ASIN identification. This is how the systems at Amazon keep track of which sellers are selling which versions of which items when multiple people list the same products.
GCID (for Advanced Users Only)
When creating a brand on Amazon you will be given a unique identifier for your brand to list products under.
The ID can only be used when adding new products that are part of the approved registered Brand list.
Registering your brand on Amazon allows you to circumvent the entire UPC code stage of listing a product. It allows you to sell products without a UPC code. It’s something to consider once your sales ramp up on the platform.
GTIN
A GTIN is part of another code, such as an EAN or UPC code. These are 14-digit codes used to identify products, services, and items. Think of them as the umbrella that collects the GS1 barcodes we’ll be using, including UPC codes.
Keep things simple by keeping in mind that all product listings require a UPC code. This should be standard practice for you.
So . . .
Remember that you only need a UPC code to make an initial listing on Amazon. You don’t need to physically apply them to each product. You also only require one UPC code for each variation of your product. You don’t need UPC codes if you sell via retail arbitrage. Products you get via arbitrate are shipped with barcodes that you can use to list and sell products.
Don’t forget that you just want to sell your products on Amazon. You don’t want to have to worry about UPC codes and logistics. You don’t need to get much deeper into the discussion on UPC codes. This is only a small part of ranking products on Amazon and running your own Amazon business.
When the calendar switches to a new year, business owners from all over the United States breathe a collective sigh. You can almost hear it. This tells you that it's almost time to deal with terms such as Cost of Goods Sold during tax season.
This is not exactly the most popular time of year for many business owners. It is that time of year when invoices, receipts, and other financial records are gathered together, so these entrepreneurs can see how much they owe the government.
Online businesses are not immune to this. You probably are feeling the same pressure as tax time gets nearer and nearer. When I first started selling on Amazon, I was told “cost of goods sold" is an important term to understand.
What the heck does cost of goods sold mean? This article defines what the term means, how it's calculated, and how to estimate, for tax purposes, your inventory value.
Business tax returns require that you supply COGS (cost of goods sold). This amount reduces your business income. It has the effect of DECREASING the amount of business taxes you have to pay.
It is important that you get this number right so you can reduce your tax liability. WOHOOO!!!
To calculate COGS formula, you have to take into account all the costs involved in producing or buying the products you have sold. Calculating these expenses can get quite messy. This is especially true if you manufacture or sell many different product lines.
What follows is a step by step guide that helps you calculate COGS. This is a manual process.
If you already chose automated tools like the inventory control software we offer at taxomate, you should still read the information below. It gives you a clear understanding of the COGS concept and the numbers you need to calculate it.
Calculating Cost of Goods Sold
This is a step by step sample process which calculates Cost of Goods Sold for just one product.
Step #1: What goes into a COGS calculation?
The COGS equation is as follows:
Starting inventory + Any Additional inventory - Final inventory = COGS
Quick Example:
$20,000 (the year starting cost of inventory) + $10,000 (inventory bought and added to existing stock for the rest of the year) - $20,000 (inventory available at the end of the year) = $10,000 (this is your cost of goods sold)
COGS calculation enables you to deduct the product costs of the inventory you move. It doesn't matter whether you are a retailer or an actual manufacturer.
Understanding Direct and Indirect Costs
COGS has two components - direct and indirect costs.
Direct costs relate to expenses incurred when you purchase or produce your products. Indirect costs are expenses tied to the processes associated with selling your products. This can include equipment, labor, facilities, and storage.
Step #2: Defining your direct costs
At this stage, you have to calculate what your direct costs are. These can include the following:
The cost of completed product inventory
Direct expenses you have to pay due to production-related overhead
The value of the supplies you had to buy to produce your products
Cost of packaging
The raw material costs to manufacture your product
The amount you had to pay to acquire products so you can resell them
Step #3: Defining your indirect costs
You also have to calculate the amount of indirect costs you incurred. These include:
Depreciation value of the equipment you used to package, produce, process or store your product
Equipment administrative costs (these are expenses related to equipment that is not associated with the production processes)
Administrative labor expenses (these are paid to people who supervise the production process)
Costs of storage
General labor costs (these cover the wages of any production employees you may hire. This also includes temporary workers)
Step #4: Calculating your facilities costs
Usually, this step is best handled by a trained tax professional or CPA. Facilities costs are quite tricky and hard for lay people to calculate.
Complicating things is the fact that a certain percentage of expenses related to facilities involved in production is prorated to each unit of product you produce. This can include anything from utility costs, mortgage interest, rent, etc. Best to leave this one to the pros!
Step #5: Determining your initial inventory
This figure is pretty straightforward. This is just your inventory you had from the previous year. This figure covers completed units, products in the process of production, as well as stock available for sale.
Step #6: Adding the cost of inventory purchases
This amount is the cost of any product you added to your inventory (after the starting inventory). This can cover manufacturing costs as well as shipping costs of products manufactured by somebody else.
Step #7: Calculating your ending inventory
Ending inventory costs are calculated by physically counting whatever stock you have on hand. Please understand that if you have any obsolete or damaged stock, this can reduce your year-end inventory costs.
Step #8: Determine your COGS
If you've properly calculated the figures for all the previous steps, you should have all the data required to figure out your COGS. You can choose to do this on your own. But if you want to protect yourself, you should have a professional tax preparer assist you.
Let's Calculate the Value of Your Inventory
The last thing you need to do is to choose the valuation method for your inventory. The IRS allows for the following three methods:
1. Retail Method
This is the retail value of the product you offer minus your markup percentage.
2. Cost Value Method
The amount you spent to acquire the item you're going to sell plus the cost of shipping.
3. Lower of Market or Cost Value Method
The IRS allows you to pick the lower figure between the cost of your inventory on a particular date every year or its market value.
Which inventory valuation method should I choose?
Among the three valuation methods above, the easiest to track is No. 2 (Cost method). Most small businesses prefer this method.
On the other hand, if you deal with products that have costs that are very difficult to figure out, you can use either of these following methods to track your costs: FIFO (first in, first out method) or LIFO (last in, first out method).
Consult with your qualified tax professional to see the pros and cons of each of the methods above. They will help you pick the method that would work best in your situation.
What's important is that once you have selected one of these methods, you have to stick to it. Otherwise, you're going to have to get permission from the IRS to switch out of the particular method you have chosen.
Keep these tips in mind:
COGS deductions only cover items that you have sold. If you bought or produced inventory that has not sold, you could not expense their costs.
Existing tax regulations do not require small businesses (those that make below $1 million in annual sales) to report their inventory.
To get more information on inventory valuation and other issues, take a look at IRS Publication 538.
Free tools for Amazon Sellers can truly take your amazon selling selling game to the next level without having to invest hundreds of dollars a month.
It’s always worth getting professional grade tools, but until you’ve got the money for these kinds of things here are the top 10 free tools for Amazon sellers.
Self-described as the "The World's Slowest Keyword Tool" Scientific Seller is by far our favorite of the free tools for Amazon Sellers.
Scientific Seller helps you find low-competition long-tail keywords. Use the keywords in your PPC and the "stuff" words in your listing keywords. Check it out!
CamelCamelCamel is a great tool for FBA users and is a Google Chrome Extension. It will send you an alert whenever the price drops on a particular product, and it offers you the latest updates on the price history and sales ranks of products.
Keepa is a tool similar to CamelCamelCamel and is also a Google Chrome Extension. The main difference between the tools is that they offer different time frames into a product history.
CamelCamelCamel focuses on the long-term and overall performance, whereas Keepa is more about the short term.
It offers an immediate overview of how products perform on Amazon. The history of a product is important, but that doesn’t mean you can overlook the short term.
Knowing what keywords and prices to apply to your products is only part of the overall battle of selling on Amazon. You should also have a means to calculate the profit margin of a product after charges and fees. The great thing about FBA Calculator for Amazon is that once you install it you can use it directly through the product page.
Much like products and prices, keywords have their own historical trends and their own patterns.
Google Trends lets you learn more about how keywords have performed over time. You’ll be able to take the data and use it to find out what keywords to use at the right time. For example, you shouldn’t use winter-based keywords during the summer.
Google Keyword Planner lets you type in some search terms and see what their monthly hits are in an instant. You’ll also be able to see the competition for the different terms.
Even better than all that, is that Google Keyword Planner also highlights some related keywords, just in case you need more information. There’s also live support, for total peace of mind.
Bit.ly is the best ways to shorten your URLs. A URL shortener makes it easier to promote your product links. They also track how many times the links are clicked on, giving you a basic idea of how interested people are in your products.
Unicorn Smasher is a great tool, but you should be prepared for a crazy design when you first open it up. There’s a lot of graphics and colors to get past. Once you do though, you’ll see a service with lots of great features, including monthly estimates, revenue estimates, data analysis, and more.
It gives Amazon sellers the kind of information they need to make informed decisions and have a good idea of where their business is headed.
Last but not least we have Sonar Tool. This free tool for Amazon sellers aggregates product data to create an effective database. It’s a useful tool for researching which products are worth investing in and which aren’t.
Final Thoughts on the Top Free Tools for Amazon Sellers
There are a lot of great tools out there that can help you in your journey as an Amazon seller. These are only ten of the best free tools.
There are plenty of other free tools, and some paid ones that are worth your time and attention too. Try out these tools and take your Amazon game to the next level!
With pipemonk shutting its doors a while back, we figured we would continue the incredibly helpful "Massive List of Tools for Amazon Sellers" started on their blog. Please us know if there is anything that you suggest adding to our list of top tools and software for amazon sellers in 2020. Here is an overview:
The Listing Tool allows you to batch list hundreds of items all at once with a few mouse clicks. It also supports FBA shipment management and label printing.
Analytics Software for amazon sellers with a One-Stop Dashboard. Leverage 2+ Years of your Amazon sales data to compare & evaluate by custom date ranges, products, variations. Starts at $97 / month.
Sellonaut is a purchase order automation platform for Amazon sellers. Upload a list of UPCs or ASINs and let Sellonaut update your data 24/7, allowing you to filter and export up-to-date data whenever you'd like. Starts at $49 / month.
An Amazon statistics tool built by Amazon Sellers for Amazon Sellers. Get all data on products, sales, performance, inventory, etc from one dashboard with this software for amazon sellers. Starts at $19.97 / month.
eComSpy gives you fast and accurate intelligence on items before you add them to your inventory. Seller tested and proven, eComSpy can help you save time, reduce risk and boost profits.
KeywordInspector is a suite of multiple tools at once to help you find/sell/optimize more products, faster on Amazon. Their Keyword Trends Tool provides a searchable database of what is now 50 Million plus Amazon Buyer Keywords.
Intelligent search analysis of Amazon buyer keywords. Scientific Seller is a marketing suite for Amazon Sellers that provides scientifically-based tools to improve the performance of your products on Amazon.
AMZBase is a free and useful software for amazon sellers for assisting you in your search to find products to sell on Amazon. It helps sellers to quickly obtain the ASIN No. and the title description of listings on Amazon. It provides immediate access to CamelCamelCamel, Alibaba, AliExpress, eBay and Google search engines, while also calculating FBA fees to estimate your potential profits.
Neatopricer utilizes a barcode scanner, a PDA (Portable Data Assistant) or iPhone/Android device, and a headset to allow you to quickly and easily determine the value of books and other merchandise while disconnected from the internet.
Product research and sourcing tool for online merchants. Make educated merchandising decisions and have a strategy when it comes to growing your business.
This powerful Amazon seller tool helps sellers monitor product reviews, automatically matches reviews with orders and enables sellers to contact buyers directly to remove negative reviews from all marketplaces.
AMZDiscover is an online search engine which can help you find the Amazon reviewers and potential customers. More importantly, you will get their contact info including email address, Facebook, Twitter, YouTube and other SNS accounts.
Automatically solicit feedback from customers, review negative and neutral feedbacks received, monitor trends, request removal of negative feedback, and even manage Amazon Product Reviews.
All-in-one software for amazon sellers to manage your Amazon orders, repair seller feedback, monitor and fix product reviews, and send out automated emails to buyers.
Wizard-Industries helps keep track of items as you pack your inbound FBA shipments. When your box is full, print the barcode. The barcode on your box allows you to skip manually entering information in Seller Central.
Top choice of Amazon sellers for shipping, inventory and dropshipping. Ordoro is fully integrated with FBA, SFP, MCF and FBM. Ordoro does not charge extra fees for Amazon Prime orders.
Manage Jet, Walmart (Marketplace, DSV, Canada), and eBay products from within GeekSeller. GeekSeller also offers tools for transferring products between most of our available platforms, including from Shopify to Jet and Walmart and from eBay to Jet and Walmart.
Refund Retriever will automatically detect issues with your shipments, apply for refunds, and verify those refunds appear. And your only cost for these services is a portion of the refunds we find for you!
RestockPro provides a powerful FBA dashboard that gives you all the critical information you need and then helps you execute the right inventory decisions for your business.
TradeGecko’s inventory and order management software for amazon sellers works with Amazon to streamline operations and help you reach more customers worldwide
taxomate is an automated cloud sync service used by Amazon merchants to import their Amazon sales and fee transactions and to post summarized transactions to Xero or QuickBooks accounting systems.
A top alternative to QuickBooks for Amazon sellers. Xero connects you to all things business. Its online accounting software connects you to accountants and bookkeepers, your bank, and a massive range of business.
Webgility is an accounting automation solution that saves time and resources by automatically posting all Amazon sales, fees, and other transactions directly into your bookkeeping software. It eliminates the redundancy and human errors of manual data entry, and it works with dozens of marketplaces, payment processors and shipping providers.
Amazon Seller Central integration with QuickBooks: automated transaction export from Amazon and import to QuickBooks for orders, refunds and Amazon fees.
Accounting by Wave is a double entry accounting tool. Services include direct bank data imports, invoicing and expense tracking, customizable chart of accounts, and journal transactions. Accounting by Wave integrates with expense tracking software Shoeboxed, and e-commerce website Etsy.
Video-enhanced squeeze page for Amazon™ Sellers with list building and promo code distribution tools. AmazoPage Combines the best in squeeze page psychology, traffic conversion, and promo code distribution.
A collection of tools to improve your Amazon listing and sales. The toolkit includes Keyword Rank Tracking, Seller rankings, Review Club, Sales Tracking, Negative reviews notification and more…
A collection of essential tools to help Private Label FBA sellers build and grow their Amazon business. Tools include Keyword Relevance Checker, Amazon’s Best-Seller analyzer, Hijacker Smacker and more.
A German Amazon marketplace optimization tool for merchants. They provide profit, keyword and product research, the world’s most developed keyword and sales tracking, review management, etc.
10.OTHER MARKETPLACES & E-COMMERCE TOOLS FOR AMAZON SELLERS
Profit Whales is Amazon PPC Automation Software that fully automates Amazon PPC management for Third-party Sellers and Brands on Amazon Marketplace in One Click with the help of custom-built algorithms and Data Science. Profit Whales automate bidding, keywords harvesting, campaign creation, negating and pausing duplicate keywords, day-parting, and many more. Try with a 14-day trial.
Making it easier than ever before to manage and automate Amazon Sponsored Products campaigns, always-affordable Zon Tools delivers improved Pay Per Click conversion rates, increased Advertising revenue and lower ACoS for any Amazon Sellers.
An outsourcing platform for Amazon Sellers to find affordable virtual assistants, freelance specialists, and boutique agencies to help grow your business within 1 business day.
Hire freelancers to do work in areas such as software development, writing, data entry and design right through to engineering, the sciences, sales and marketing, accounting and legal service.
In the world of fast-growing Amazon ecosystem, FBA Monthly attracts progressive Amazon sellers that monitor all latest developments in the space and keen to try new tools to take their business further. Twice a month (on 1st and 15th) FBA Monthly spreading free curated news summary for Amazon sellers and geeks via Email, Twitter, Facebook Groups, Reddit and website with RSS feed.
Our top-rated Amazon seller consultants provide affordable, expert consulting services for all your Amazon seller needs. If you are new to Amazon, we can help you set up your Amazon seller account, prepare your initial product listings, and get you started selling on Amazon quickly, efficiently, and cost-effectively. If you are an experienced seller, we can help optimize your product listings, assist with product suspensions/account rescue, or even manage your Amazon seller account for you.
ZonGuru is an all-in-one toolset to free up your time and scale your Amazon private label business. They have a world-first collaboration with Alibaba.com designed to pair you with the perfect supplier.
Click here to get 50% off your first month and a 7-day free trial of ZonGuru.
Accounting by Wave, is a double entry accounting tool. Services include direct bank data imports, invoicing and expense tracking, customizable chart of accounts, and journal transactions.
Keyword research tool that allows you to find the right keywords to target. Good for finding search volume, since amazon does not release their keyword search volumes.
Branded as the "The World's Slowest Keyword Tool," the free amazon keyword tool allows you to get the keywords that users are searching for. Essentially it compiles a list of long tail keywords that you could use for PPC and optimizing listings.
If you have any tools you would like to be added, please let us know!
