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Revenue Recognition
Your local accountant does not understand your Amazon Revenues! The deposits that hit your bank account from Amazon are not your revenues. Instead,n these deposits are a net number that includes, refunds, chargebacks, Amazon Fees, Market-Place Sales Tax and potentially other items! Revenue recognition is the most common area in which we notice that most Accountants in (that don’t specialize in Amazon Accounting) make mistakes!
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Inventory Accounting
Did you know that your inventory spend is not always deductible? One of the most common mistakes that we see e-commerce businesses make is assuming that all of your inventory spend is tax deductible. According to the IRS, if you produce, purchase, or sell merchandise, in your business, you must keep an inventory and use an accrual method for purchases and sales of merchandise. In simpler terms, your inventory is nondeductible for accounting or tax purposes until it is actually sold!
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We Understand You and Your Issues!
All of our clients are E-Commerce Entrepreneurs and many of these sellers have direct-to-consumer sales channels including Amazon, eBay, Walmart, and others. This direct-to-consumer group is very diverse including companies that drop ship, wholesale, warehouse inventory, Amazon FBA, 3PL inventory, and even Print-on-Demand. These companies also advertise and market across many platforms including Facebook, Tiktok, Bing, Pinterest, Google, Snapchat, and even influencers.
As you likely already know, each of these areas has its own built-in complexities that only an e-commerce accounting firm can truly understand.
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Sales Taxes
As you likely already know but struggle to understand, all direct-to-consumer sellers (including Shopify) need to consider sales tax compliance in all jurisdictions for which you have nexus.
What makes this topic extremely difficult to understand is that online sellers are diverse. Nexus risk and sales tax compliance for a Direct-to-Consumer (D2C) e-commerce seller such as Shopify, WooCommerce, or Click Funnels can be DRASTICALLY DIFFERENT than a Market Place Seller such as Amazon, Walmart, Etsy or eBay.
To further complicate this issue, nexus risk can arise for either business physical presence (such as inventory, employees or office space), or business economic presence such as sales volumes in particular jurisdictions.
Frequently Asked Questions
What is Ecommerce Accounting?
- Traditional accounting tasks focused on a business that has e-commerce sales channels. Three factors make e-commerce accounting more complex than usual
- Cash or bank related activity do not always correspond with revenue related activity. For example, bank deposits from payment processors are ordinarily not revenues, but instead include a combination of merchant fees, refunds, chargebacks, and revenues.
- Accounting for inventory. For accounting purposes, the cost of inventory can only be expensed on the income statement when the individual units are sold. For example, if there are 10 units of inventory purchased, and 2 are sold to customers, then 2 units of inventory are eligible to be expensed on the income statement while the other 8 units are not yet deductible and must be included on the business’s balance sheet.
- For a successful online seller, there is often a very high volume of transactions that need to be accounted for.
What is Amazon Accounting?
Traditional accounting tasks focused on a business that has an Amazon sales channel. There are three factors make Amazon accounting more complex than usual:
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- Cash or bank related activity do not always correspond with revenue related activity. For example, bank deposits from payment processors are ordinarily not revenues, but instead include a combination of merchant fees, refunds, chargebacks, and revenues.
- Accounting for inventory. For accounting purposes, the cost of inventory can only be expensed on the income statement when the individual units are sold. For example, if there are 10 units of inventory purchased, and 2 are sold to customers, then 2 units of inventory are eligible to be expensed on the income statement while the other 8 units are not yet deductible and must be included on the business’s balance sheet.
- For a successful online seller, there is often a very high volume of transactions that need to be accounted for.
Do I Really Need an Amazon Accountant?
It is in our professional opinion that there is a direct correlation to the growth of your business and the urgency of working with a specialized professional that understands e-commerce and Amazon accounting specifically. In other words, the larger your company grows, the more important it is to find a professional that understands your business specifically. Some of the complexities surrounding Amazon businesses include: marketplace facilitator sales tax rules, accounting for Amazon sales, revenue recognition, and inventory accounting.
Do I need an e-commerce Accounting Firm?
It is in our professional opinion that there is a direct correlation to the growth of your business and the urgency of working with a specialized professional that understands e-commerce accounting specifically. In other words, the larger your company grows, the more important it is to find a professional that understands your business specifically. Some of the complexities surrounding ecommerce businesses include: Sales Tax rules, Accounting for Sales, E-Commerce Revenue Recognition, and Inventory Accounting.
Why do my sales per my Quickbooks not match the Amazon Dashboard?
Unfortunately this means that your Quickbooks revenue recognition is probably not correct. It’s very likely that your local accountant or bookkeeper does not fully understand your Amazon Revenues!
The deposits that hit your bank account from Amazon are not your revenues. Instead these deposits are a net number that includes refunds, chargebacks, Amazon Fees, Market-Place Sales Taxes and potentially other items! Revenue recognition is the most common area for which we notice that most Accountants (that don’t specialize in Amazon Accounting) make mistakes!
Does Amazon handle sales tax for me?
The answer is (for the most part) yes.
Amazon calculates, collects, and remits tax on sales made by merchants shipped to customers located in the states that have enacted Marketplace Facilitator (or similar) laws. These laws, which have been adopted by almost every single US state, shift collection responsibility from the merchant to the marketplace facilitating the merchant’s sale.
In plain English, this means that, for most states, Amazon is obligated to handle all sales tax filing obligations that are triggered upon the sales transaction with the Amazon customer.
Do I need to register for sales tax for my Amazon business?
Amazon sellers ordinarily do not need to register for a sales tax permit.
Although sellers ordinarily do not need to register, there are certain scenarios for which you will need to register for sales taxes and/or file sales tax returns. Some of the examples include:
- Resale (re-sale) Certificate Compliance
- Multi-channel Sellers
- Other Specified Nexus Rules determined by certain states.
What are resale certificates and do I need one?
Resale certificates allow business owners, to buy or rent property or services tax free when the property or service is resold or re-rented.
A common scenario for e-commerce businesses is when a seller acquires goods from a US based supplier or manufacturer. In many cases the supplier or manufacturer is required to charge sales tax upon the sale of goods to customers (including you as a reseller) UNLESS they are provided with a resale certificate.
We highly encourage all e-commerce entrepreneurs to consider registering for a resale certificate to avoid paying sales taxes on goods that they plan to re-sell.
Chris Rivera, CPA-Founder
Chris founded the E-commerce accountants in 2019 which specializes in tax, accounting, and business structuring for eCommerce companies in Albany, NY, including Digital Marketers, Drop Shippers, Amazon Automation, Amazon FBA, and Internet Coaches/Gurus. Chris works with some of the most high-profile and influential individuals and businesses in the eCommerce space.
Prior to the start of his firm, Chris spent six and a half years with Ernst & Young specializing in tax and accounting for retail consumer products and service companies. During this time, Chris worked entirely with multinational businesses (both public and private) providing services including business structuring, accounting consulting, auditing, tax compliance, and tax planning.
Chris graduated from the University at Albany and is a New York State Certified Public Accountant in Albany, NY.