hey it's patti scharf CPA and co-founderof catching clouds the leader in e-commerce accounting and today I wantto talk about taxes for Amazon FBA sellers if you are looking for a videoon sales tax I have a whole bunch of them but they are down below that's notwhat this video is I'll give you some links down below you can go check thoseout this one is going to be on income tax and the reason I'm doing it now isbecause now is the time that you can actually still take action that willimpact your 2018 taxes so let's get started all right so I was not born as CPAactually started my first business before I even did any of the accountingthing so I I remember what it was like when I didn't understand any of the thenumbers or like what is I don't even know what a tax deduction is or anythinglike that so I want to give you kind of the basics I want to also remind youthat our firm does not actually do taxes and I haven't done taxes for a long timeI just want to share my knowledge with you but for your own personal taxsituation you should be talking to your own tax CPA so there's my disclaimer all right so big picture you are goingto be taxed on the net amount of income that you make not on the amount of moneyyou pull out of your business okay so net income is income minus expenses toget your net income all right now income should be pretty obvious income is goingto be the money that comes into your business for products that you sell allright so if you're selling on Amazon you list your products and what the customeris paying you for your products that is gonna be income to you any deductionsfrom that income is typically going to be Amazon fees so storage fees orshipping expenses or whatever else you know Amazon has a hundred billion ofthem and all of those are gonna be expenses if you had no other expensesfor your business no payroll no postage no bank charges or anything like that itwas all in Amazon if your net income is going to be the total that you got fromyour customers – all of Amazon's fees right easy enough the issue that youhave is you may have sales from January till December but you might actuallycollect money from Amazon like mid January to mid of the following Januaryand things don't really fall in the rightreads and there's not really good break out that ties to what lands in the bankI want you to go watch this video to see what some of the issues are with theaccounting and I would recommend that no matter what size business you are if youare selling on Amazon you should be using a 2x with either zero orQuickBooks Online my preference is zero I think it's cleaner and easier butwhatever works for you if you use these tools together then it is going to solve95% of your headaches because your tax CPAs unless they are specializing ine-commerce accounting they don't really understand Amazon and they're gonna pulltheir hair out trying to figure it out or they're gonna do it wrong so ifyou're using these tools and you have them in place you'll have solidaccounting so that they can actually do their job and record and report yourincome in the right periods or if you're doing your taxes yourself you're goingto know you can trust your numbers so if you need extra help on knowing how toset things up and like the different chart of accounts and things like that Iactually have a course called accounting for Amazon I'll give you a link to thatdown below there's also a discount code down below if you want to check that outbut that'll take care of most of your headaches with your accounting the nextbiggest headache is going to be cost of goods sold okay so if you don't knowwhat cost of goods sold is let me tell you when you buy products that you'regoing to resell to somebody else you buy that product it becomes an asset of thebusiness it is inventory okay it is not an expense of your business it isinventory which is an asset and then as you sell products you get to pull alittle bit of cost away from that until you sold all of your products and thenyou go buy more products and yada yada okay there is a funky rumor going aroundthat this year because of the tax plan changes with the Trump plan that you canbe a cash basis taxpayer and in the year that you buy your products you candeduct all of it all at once I don't personally think that's true andI did a whole video on it if you hear in to the contrary and you want to takethat position I would say just do so at your own risk make sure you watch myvideo before you take any action okay so let's assume that you agree withme and you have products that are in inventory you turn around you sell themyou're keeping track of the costs of the items that you're selling all you do isyou tally that up for the whole year that becomes your cost of goods soldremember it's not cost of goods purchased its cost of goods sold if yourcompany is a lot higher volume and more complicated and things like that Iactually have kind of step-by-step information on how to do that myaccounting for Amazon video and you can use a 2x to help with that process aswell okay so then after you've got the incomeyou've got the cost of goods sold you've got all those Amazon fees that's really95 percent of your books in most cases all right so then after that you want toknow what expenses you can deduct so to deduct just means that you're takingwhatever your income is so in this case it's going to be gross profit you've gotincome minus your direct cost whatever's left overyou just have overhead type costs that you know you need to run your businessso bank fees and different things that I'll talk about in just a second andthen whatever is left over is going to be what you are going to have as yournet income so let's talk about overhead expenses in general the IRS is going toallow you to deduct expenses that are ordinary and necessary for your businessso basically what they're doing is they're saying hey an ecommerce sellerin your situation is that like an ordinary kind of an expense for yourbusiness is it necessary to run your business so for example if you buy astair climber for your business they're gonna go would most Amazon sellers needa stair climber to run their business yeah probably not right but maybe afitness studio would so it's kind of an industry by industry thing so in generalI would say just use your best judgment you know anything that you're gonna bespending money on that's going to help you make money is a pretty good bet thatit works your business as a deduction okay sohere are some examples bank fees materials and suppliesyou know like packaging and stuff for your business postage for sureoffice supplies shipping expenses things like that here are a few things that arekind of funky then I want to talk about one is automobile expenses I know a lotof people are like oh I'm I have my own business and so I bought this fancyschmancy car and I'm just gonna write it off well that's not really how thatworks go talk to a tax CPA before you do something like that because really theway it works is you're supposed to only be deducting a portion that's related toyour business usage of the vehicle so like if you're working out of yourbasement and you're the only one in your business and you're not retail arbitrageyou're just selling online and you hardly ever leave your house you'regonna have almost no business miles and you're not going to have a big deductionfor that okay other things penalties are not deductible like if you have finesand penalties if you park your car legally and you get a ticket for it youdon't get to write that off because the IRS does not want to encourage illegalbehavior other things donations any political contributions are not going tobe deductible and even charitable contributions depending on your businesstax entity type you you might be able to take the deduction but it would be onsay your personal tax return and it would be subject to whatever limits youhave for your personal return sales tax sales tax is not an expense it'sactually a liability when you are collecting sales tax from your customersyou have a legal obligation to give that money to the government it does notbelong to you so you basically hold it and then when you when you need to fileand pay in your sales tax you give it to the government when you spend that it isnot an expense it's just a reduction of the liability of the business soliability is just another word for loan it comes to you it's loan that you haveto pay out and then you pay it out done there should never be any sales taxexpense on your books and the last one I'll talk about is meals andentertainment I think they recently changed the rulesI'm not sure how much is deductible now so check with your tax EPA but I knowthat a lot of people will just be like oh I've got a business so I will juststart making the business pay for all of my lunches and dinners and breakfastsand everything else and the IRS does not like that they there should be abusiness purpose for the meal or entertainment and on your receiptwhether it's digital or whatever else you need to keep track of who was inattendance what the business purpose of it was you should be if you have like aphysical receipt this is what I always do you just write on the receipt who wasin attendance what the business purpose was and then like I use hub dock andtake my phone take a picture of it and it flows into my accounting system so Iwould recommend something like that so so I think that's it if you've got areally small business your accounting should be pretty straightforward justuse some common sense make sure you keep track of everything keep receipts foreverything having just bank statements or creditcard statements is not proof of the transaction so you want to have actualreceipts for all of your stuff if you are intending to deduct it the IRS willdisallow deductions if they audit you and you don't have receipts it'll justbe like prove it you can't prove it then done you just have to pay tax on allthat deduction money that you took so so I would recommend keep your stufftogether and orderly I hope you like this video if you did please likecomment and share if you haven't already please subscribe and I'll catch youlater.