Selling on Amazon can be exciting, especially when you see your sales go up. But what’s not exciting? Setting aside some of that money for taxes.
However, it doesn’t have to be all bad. As an Amazon seller, there are certain tax deductions available that can help you keep more money in your pocket.
In this guide, we’re going through the Amazon seller tax deductions guide that you should take advantage of in 2024 to maximize your savings.
Let’s start with the home office…
Home Office Deduction
Are you managing your Amazon business at home while taking care of the kids and squeezing in some personal time in between? If you’ve been doing this for some time now, have you been maximizing the home office deduction? If not, now’s the time to get those deductions.
To qualify for the home office deduction, you need to select a specific area in your home as your office for your Amazon business. You can repurpose a vacant room as an office or even construct a new one.
Here are the items that you can deduct:
- Rent or mortgage: A portion of rent or mortgage cost can be deducted for tax purposes (e.g., if 10% of the home is allocated for the home office, 10% of the rent or mortgage is tax deductible).
- Utilities: You can deduct the home office’s consumption of electricity, water, and internet as a home office deduction.
- Maintenance: Similar to utilities, maintenance cost that are exclusive to the home office can be deducted as well.
Alternatively, you can choose the simpler option for home office deduction. You can deduct $5 per square foot of office space for up to 300 square feet or a maximum of $1,500 per year.
Cost of Goods Sold
COGS is another fully deductible item for tax purposes. However, many people think that only the purchase price of goods sold is considered as COGS. Take note that aside from the purchase price, you also need to deduct the following:
- Shipping costs incurred when shipping your products from the fulfillment center to the customer
- Custom duties and import fees are incurred when ordering inventory from abroad
- Storage costs incurred for storing inventory in warehouses or at the Amazon fulfillment centers
Amazon Seller Fees
The fees that Amazon charges to you are fully deductible as business expenses. These fees include referral fees, subscription fees, fulfillment fees, advertising fees, and other service fees. If you’re not deducting these for tax purposes, you’re definitely leaving money on the table.
Advertising & Marketing
Online selling also means investing in advertisements and marketing campaigns. Given the competitive nature of online selling, you must’ve paid for sponsored ads, SEO services, content optimization services, and other marketing services. These costs are also fully deductible as business expenses.
There is no maximum or minimum limit for advertising and marketing costs. You can deduct all of them to enjoy lower taxable income. However, take note that though it’s 100% deductible, be mindful as well that only ordinary and necessary marketing costs can be deducted.
Office Supplies & Equipment
Did you buy a faster laptop or invest in upgrades? Do you use office supplies such as printer ink, toners, papers, and postage? All of these expenses can be deducted for tax purposes.
- Office supplies: There is no cap for this deduction. You can deduct the actual cost of supplies as long as it’s reasonable and necessary for the business. So, if you bought coloring pens for your kid, you cannot claim that as a valid deduction because it’s not for your Amazon business.
- Equipment: You can claim the Section 179 deduction and deduct the full cost of the equipment. You can only deduct up to $1,160,000. Aside from that, you can also take advantage of bonus depreciation, which is 80% of the equipment’s cost.
Mileage
Do you use your personal car for your Amazon business? You can deduct mileage costs as long as your mileage is related to your Amazon business. The IRS allows a deduction of $0.65 per mile for 2024. This rate changes every year, but it has been increasing over the past few years.
Make sure to always track your business miles, or use a mileage tracker to track miles. The IRS is also strict about mixing personal miles with business miles. If you don’t want to get in trouble, just don’t try adding personal miles as deductions.
Professional Fees
The fees that you pay for accounting and bookkeeping services, legal services, tax preparation, and even consulting services are fully deductible as business expenses. There is no cap on the deduction as long as you have the documentation to support the deduction.
Professional fees are valuable and helpful for Amazon businesses because professionals like CPAs and lawyers can help you get through complex accounting and tax requirements, especially if you have no knowledge in these areas.
Maximize Your Amazon Seller Deductions The Right Way
The IRS is strict about deductions. You can’t simply write off any expenses you want to lower your tax bill—you could end up in trouble with the IRS, and nobody wants that.
To stay stress-free during tax season, the team at MuseMinded is here to help. We’ll carefully review your books and identify all possible deductions to reduce your taxable income.
Visit our Getting Started page to schedule a discovery call with us, and let’s explore ways to maximize your tax savings.
Until next time!
