INCOME AND SALES TAX FOR ONLINE BUSINESS IN 4 EASY STEPS
What are the income and sales tax implications for an online business such as Amazon Kindle and FBA?
Online businesses come with a number of benefits when it comes to sales and income taxes primarily because of the internet-based ecosystem of tools and platforms. While income tax is collected both at federal (IRS) and your state, sales tax is only collected by your state (In CA, Board of Equalization or BoE is responsible for it).
Let me summarize tax implications for online businesses.
- If you use your home as your primary place of doing business, then you take advantage of home office deductions. For simplified method as per IRS, you can claim your deductions on Form 1040 Schedule C which includes, but not limited to, to the following: your utility bills, insurance costs, learning expenses, internet bill, web/domain hosting charges, shipping and packaging, travel costs including car mileage, and any other business related expenses.
- Hiring for your online business is easy via Upwork or another freelancer platform of your choice, and there are no tax implications for you. You don’t have to do any of the 1099 paperwork.
- For digital products, that are downloadable or viewable online (which most are), there are no sales tax implications in most states. This also applies to Kindle eBooks.
- For physical products, either sold directly or via Amazon, you should be collecting and paying sales taxes to your state, when your business location(s) and your customers are co-located. For example, if your business is registered in CA or you have a nexus (or “sufficient physical presence”) then you will need to collect about 9% sales tax as we speak. You need to check your state sales tax laws for final determination. Collecting sales tax is pretty straight forward with Amazon FBA, you can pretty much set and forget.
Shopify has a nice article that details general online business tax deductions.
Last thing you want to do is to pick a model based on what’s hot or in fashion or what someone else used successfully, remember your mileage may vary.
Last but not least, subject matter discussed in this post, as well as others, is covered thoroughly in various online courses offered by Private Label Mastery.
Please feel free to share your questions or comments, I will be answering them over the next few days.