Amazon sellers tax deductions 

What counts as a tax deduction for Amazon sellers? 

The IRS counts business expenses as tax deductions for Amazon sellers (or any business owner) if they are both necessary and ordinary.
By “necessary,” the IRS means anything that helps you run your business. The word “necessary” makes it sound like the IRS only allows you to write off strict must-haves, but anything that helps you run your business counts. For example, you could technically still sell your products on Amazon without advertising, but it helps potential customers find your products and is, therefore, deductible.
By “ordinary,” the IRS means expenses that are common and relevant to your industry. For example, if you sell pet supplies on Amazon, the IRS is going to raise its eyebrows if you suddenly start writing off designer handbags or golf clubs.

Writing off the cost of goods sold (COGS): inventory, freight, and manufacturing

You can write off the cost of goods sold (COGS) as an Amazon seller, which covers the direct costs of the products you sell on Amazon.

If you purchase products to sell on Amazon, deductible COGS includes anything you purchase from suppliers or manufacturers. If you make products to sell on Amazon, COGS includes the raw materials you purchase to make your inventory.

COGS also includes the costs of moving your inventory or raw materials from your suppliers to you, or directly to Amazon. This includes freight charges for moving inventory to Amazon’s warehouse, as well as import fees or customs duties for transporting goods from other countries.
Take note that you can only deduct COGS after you’ve sold the inventory. Until you sell it, the IRS considers it to be your business’s assets. For example, let’s say you purchase 1,000 units and sell 600. You can only write off the cost of 600 units. The remaining 400 are your assets until you sell them.
It’s for this reason that good bookkeeping throughout the year is critical for Amazon sellers. To calculate your COGS accurately, you must know your starting inventory, yearly purchases and sales, and ending inventory exactly. If you get any one of these numbers wrong, you could throw off your entire calculation.

Writing off Amazon seller fees: FBA and subscription costs

You can write off nearly all the fees Amazon charges just to sell on its platform, including:

• Referral fees Amazon charges for each sale
• Fulfillment by Amazon (FBA) fees for storing, packing, and shipping your products
• Disposal or removal fees for when Amazon destroys or returns inventory that hasn’t sold
• Refund administration fees for when a customer returns an item
• Amazon Brand Registry fees and other costs associated with protecting your brand
• Amazon advertising fees and pay-per-click (PPC) costs (more on that later)

Depending on its reporting method, Amazon may deduct many of its fees directly from your payout, which can make them difficult to keep track of. Luckily, Amazon provides detailed reports on its fees that you can pull when you file, and any time throughout the year. You can find these reports in your Amazon Seller Central account.

Writing off shipping and packaging costs

As an Amazon seller, you can write off the costs of packaging and shipping your products to your customers, including:

• Shipping labels and postage
• Mailers, boxes, bubble wrap, packing peanuts, and any other packing materials you need to package your products
• Branded inserts and other custom packaging you include with your orders

Whether you fulfill your own orders or use FBA, make sure that you keep detailed records of your shipping and packaging costs throughout the year. Amazon has specific requirements for preparing and labeling inventory before it ships to its warehouses, and you can deduct these costs, too.

Writing off advertising and PPC costs 

You can write off the costs of advertising your products on Amazon, including:

• Amazon PPC campaigns, including Sponsored Products, Sponsored Brands, and Sponsored Display ads
• Advertising spend on Amazon’s Demand-Side Platform (DSP)
• Off-site advertising campaigns on Facebook, Instagram, Google, TikTok, etc., as well as influencer marketing campaigns
• Costs associated with coupons and promotions, including Amazon’s redemption fee for running a coupon promotion and fees to participate in Amazon’s deals
• Product photography or videography for your Amazon listings
• Creative costs for advertising design and copy, including agency or freelance fees

Amazon deducts advertising costs directly from your ad account balance rather than your payments, so it’s important to keep separate records for your advertising costs, both on and off Amazon. Check your Amazon advertising console for reports on your advertising spend.

Writing off software, tools, and subscriptions

You can write off most of the software, tools, and subscriptions you need to run your Amazon business behind the scenes, including:

• Inventory management and supply chain software
• Repricing software to ensure your prices are competitive
• Keyword research and listing optimization tools
• Bookkeeping and accounting software
• Customer service automation tools
• Design software
• Email marketing software
• Review request and follow-up tools

Keep in mind that if you are using any software, tools, or subscriptions for both business and personal use, you can only deduct a percentage based on your business use. So if, for example, you have a Photoshop account that you use half the time to edit product photos for your business listings and half the time for your personal digital art, you can deduct half the costs of your subscription.

Writing off professional services: accountants, bookkeepers, and lawyers

You can write off the cost of professional services to help you run your Amazon business, including:

• Tax Pros and accountants to help you manage business deductions, stay on top of quarterly estimated tax payments, and get every dollar you deserve when you file
• Bookkeepers to help you keep track of expenses, transactions, and financial records throughout the year
• Lawyers to help you set up your business as an LLC or corporation, register intellectual property, review supplier contracts, etc.

The IRS understands that it can take a village to run a successful business, and makes the costs of professional services deductible for Amazon sellers and other business owners. Keep detailed records of any fees for professional services throughout the year to make it easy at tax time.

Writing off home office costs

You can write off the costs associated with running your Amazon business out of your home if you have a dedicated space, whether it’s an office where you manage administrative tasks, a studio where you make your products, or a garage dedicated to storing inventory. Deductible home office costs may include:

• A portion of your mortgage interest or rent
• A portion of your utilities, like water, gas, electricity, and internet
• A portion of your homeowners or renters’ insurance
• Home maintenance or repairs affecting the business space directly, or a portion of maintenance or repairs that affect the whole home
• Depreciation, if you own your home

Take note that you can only write off home office costs if you have a space you use regularly and exclusively for business purposes. If your kitchen table doubles as an assembly line, you do not qualify for the home office deduction.

You can calculate your home office deduction using one of two methods:

1. The simplified method: Deduct $5 per square foot of your home office space, with the maximum space being 300 square feet and the maximum deduction being $1,500.
2. The regular method: Calculate the percentage of your home you use for business, then apply it to your actual home expenses (rent or mortgage interest, utilities, etc.). Let’s say, for example, your home office is 200 square feet, and your home is 1,400 square feet. In this case, you can deduct 14% of applicable home expenses.

Writing off travel and business meals

You can write off the costs associated with traveling for your Amazon business, including:

• Mileage for business-related driving, like trips to your storage space, a print shop, the post office, or a local supplier
• 50% of business meals, such as meals with suppliers or business partners, or meals while traveling for a business reason
• Airfare, train tickets, bus tickets, rental car costs, rideshare fees, and hotels for business travel

Whether you’re traveling down the street to meet with a business partner or overseas to meet with a new supplier, it’s important to keep close track of your travel expenses and business meals, including receipts and documentation.

Writing off education, courses, and training

You can write off the costs of education, courses, and training to help you run your Amazon business more effectively, including:

• Amazon-specific courses on PPC advertising, listing optimization, product research, etc.
• Workshops, conferences, or seminars related to your product category or e-commerce in general
• Mentorships and coaching on growing your Amazon business
• Books, guides, and paid newsletters related to running your business
• Online training and certifications for business tools or software

The IRS draws a line between training you use to improve your current business vs. training you use for a future business. This goes back to the IRS’s rule that an expense must be ordinary to be deductible, so it must be relevant to your business right now.

If you sell pet supplies on Amazon, you could deduct the cost of tickets for a trade show promoting new pet products or even a course on ingredients and pet nutrition. But you could not deduct a training course on opening a physical pet store if you are thinking about opening a new business.

Writing off bank and payment processing fees

You can deduct banking and payment processing fees associated with selling on Amazon, including:

• Service fees and/or monthly management fees for business banking
• Currency conversion fees if you sell or source products or materials internationally
• Wire transfer fees to pay manufacturers or suppliers
• Annual fees for business credit cards
• Interest on business credit cards or loans
• Payment processing fees for the platform you use to pay contractors, like Amazon’s payment system or PayPal

One important thing to note is that you can write off the annual fee and the interest for a business credit card only if the purchases are business related. If you use the same credit card for both personal and business purchases, it can muddy the waters when calculating your deduction. Having a dedicated business credit card makes calculating your deductible expenses simple.

How to track deductions throughout the year

As an Amazon seller, there are many kinds of expenses you can write off, and it’s critical to keep track of them as you go. Waiting until it’s time to file to compile your write offs is one of the easiest ways to lose track of and miss out on deductible expenses, as well as receipts and documentation you may need if the IRS ever asks you to back up a deduction.

Here are a few bookkeeping tips to help you keep track of your deductions throughout the year:

• Open a dedicated business bank account and/or credit card to keep your business and personal expenses totally separate.
• Categorize expenses as you make them with bookkeeping software, rather than sorting through statements after the fact.
• Save digital copies of receipts and invoices instead of holding onto paper receipts that you could lose or could fade over time.
• Reconcile your Amazon Seller Central reports every month to stay on top of fees, refunds, and advertising costs.
• Keep a record of the business purpose of expenses that may be less obvious to the IRS, such as a business lunch with a potential supplier, in addition to receipts.
• Schedule a time every week or month to log your expenses.
• Work with a Tax Pro not just at tax time, but throughout the year to help you stay on top of your deductions and ensure you don’t miss a single one.

With so many potential business deductions, taxes can often be complicated for Amazon sellers, and with quarterly estimated tax payments, tax time extends well beyond April 15. The good news? Your local Jackson Hewitt is here all year and ready to help. Find tax services near you, then walk in or book now.