Do you ever find your head spinning when trying to figure out all the in’s and out’s of your ecommerce business’s taxes? Don’t you wish there was someone who could cut through all the clutter and give you clear answers to some of your top questions regarding taxes? On this episode of The Amazing Seller, you’ll hear from Josh Bauerle as he addresses common questions and issues ecommerce sellers like you run into. He covers topics like bookkeeping, keeping separate bank accounts, quarterly taxes, and more! Make sure you have your pen and paper ready for this helpful episode!
How Important is Bookkeeping?
It's probably one of the least sexiest yet MOST important subjects when running an ecommerce business… bookkeeping. What do you need to do to protect yourself and make sure you are operating within the confines of the law? How do you start small and scale your approach as your business gets off the ground? On this episode of The Amazing Seller, Josh Bauerle breaks down why you should focus on keeping your business account separate from your personal account. He also provides helpful tips on which tools you can use that will ensure that you have a clear accounting of all your business details. To hear Josh go further with this topic, make sure you catch this episode!
How Should You Pay Your Taxes?
So you have your business up and running and your product launch ready, but you still have to figure out details like how to pay your business taxes. What do you do? What is the best way to pay for your taxes, quarterly or annually? On this episode of The Amazing Seller, Josh Bauerle explains why paying your taxes quarterly is the best solution. He also provides a helpful tip for estimating how much you should pay each quarter so you aren’t left with a huge difference or even a penalty at the end of the year. Josh’s insights might be just the thing you need to make sure you have all your ducks in a row, don’t miss it!
Why You Should Set Up An LLC
Did you know that if you don’t set up an LLC you are personally vulnerable to any lawsuits brought against your company? Is setting up an LLC the best option for you and your ecommerce business or are there other routes to take? On this episode of The Amazing Seller, you’ll hear from Josh Bauerle as he goes over the benefits of setting up an LLC and how other business entities work. Josh explains how an LLC can provide an extra wall of protection for business owners like you should your company become the subject of a lawsuit. In addition, he goes over how virtual assistants and contractors fit into the tax equation. Don’t miss this helpful episode!
Navigating Sales Taxes
One of the most complicated areas of running an ecommerce small business is dealing with sales taxes. The reason this can be so complicated is due to the fact that there isn’t a unified explanation from the government on how to respond to this issue. It's complicated by the fact that your location, your product’s location, and where you customer buys the product can all be in different states which increases the difficulty of assessing what sales tax level you need to pay. To help you make some sense of this issue, Josh Bauerle joins Scott on this episode of The Amazing Seller. Josh doesn’t have all the answers on this topic because it's such a complicated and difficult one, but he does have a place for ecommerce seller like you to start. Make sure to catch this episode!
OUTLINE OF THIS EPISODE OF THE AMAZING SELLER
- [0:03] Scott’s introduction to this episode of the podcast!
- [3:00] Josh Bauerle joins the podcast.
- [4:30] Josh talks about the necessity of good bookkeeping.
- [11:00] Why you need to have a separate bank account for your business.
- [17:00] Can you use product inventory as a tax deduction?
- [20:30] Why should you pay quarterly taxes?
- [22:00] A great tip for projecting your quarterly taxes cost.
- [28:30] How do business entities work?
- [31:30] Why you should set up an LLC.
- [47:00] Josh and Scott discuss the role of sales taxes.
- [55:00] Josh talks about the exciting service that he is developing for FBA Seller!
TRANSCRIPT TAS 384
TAS 384: Top TAX MISTAKES to Avoid and How to Run Your Amazon Business Correctly with Josh Bauerle
[00:00:06] Scott: Well hey, hey what’s up everyone! Welcome back to another episode of The Amazing Seller Podcast, this is episode number 384 and today we are going to be talking about some top tax mistakes to avoid and…
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…also how to run your Amazon business correctly and we are going to be doing this with my good friend and my CPA, Josh Bauerle. He is going to be joining us here shortly and yeah, it was a great conversation that we had.
We really dug into a lot of the things that he’s been seeing Amazon and not just Amazon but private labelers making because you guys know your business is not just dependent on Amazon, it’s not just running under Amazon maybe. You may be selling on your own website, you might be selling on Walmart or any other platform, all of these principles, all of these mistakes that we are going to be talking about and also some of these best practices can be used in any online ecommerce business. I wanted to invite my friend Josh because, well, he knows a thing or two about this, and it’s been a little while since we’ve had him on.
Plus, he just got done with the tax season, so he is kind of like fresh as far as like some of these things that he sees that are mistakes and this way here we can also address these and fix these for anyone right now that’s currently running their own business or they are starting their own business.
Now, there is one tool that I’m going to mention. I normally don’t mention tools here in the beginning but I’m going to today because this is the tool that I’ve been using and it's really made my life a lot easier and that is Fetcher. Now Fetcher is a bookkeeping and an accounting, really a whole suite of tools for your accounting and your bookkeeping and you are going to here josh talk about how important that is.
Until I was using that particular software, I was just using a spreadsheet. I used to say, well you can do that, and you can but man oh man is it so much easier now that Fetcher is here and it’s also super affordable. I’m going to give you guys the link to that now and I will probably give it to you guys later, but that can be found at theamazingseller.com/fetcher.
[00:02:04] Scott: Yes that is the shameless plug for Fetcher but I’m a believer, I use it every single day and Greg Mercer I know him personally, good guy, good company, go check that out for a 30-day trial and you can go ahead and test this thing out and see for yourself, it makes your life super, super easy.
Now today’s show notes can be found at theamazingseller.com/384 and then also the transcripts and all that fun stuff over there as well. You are probably going to want to download this one. He goes over some really good, good tips but also some best practices and really how to run a solid business.
So, this way here you are not caught off by surprise. Alright guys, I’m going to stop talking now so you guys can enjoy this conversation that I had with my good friend, my CPA, Mr. Josh Bauerle, enjoy.
[00:02:53] Scott: Well, hey Josh, what’s up man, it’s been a while man. How are you doing?
[00:02:58] Josh: I’m good, man, it has been a while. I spend a whole tax season has been like a lifetime.
[00:03:02] Scott: We did touch base a little bit to have you tell me how much I had to send in and all that stuff but that wasn’t like one of our, like, “Hey, what’s been going on?” kind of phone calls or Skype calls, but yeah man, I know you’ve been busy and always in tax season, I’m always like I’m not going to bother him now because I know you are swamped.
So, after that we kind of touched base a little bit and I said, “We got to get you back on, we got to give some updates. I know that you are working with more FBA sellers now and private labelers,” so give me a little bit of like what’s been happening since tax season.
[00:03:38] Josh: Yeah, so we had a big tax season, we did almost 500 returns this year and a good chunk of those were Amazon sellers in general and ecommerce sellers so we are definitely getting to know the industry more and seeing what people are doing right, what people are doing wrong and trying to help people move forward with it.
[00:03:56] Scott: Yeah, and I think that’s what I do want to dive into, it’s really like, what people are doing right but also more importantly what are people doing wrong that they can fix. I mean that way there we can kind of prevent that from happening. So maybe you can just kind of dive in there, we’ll just kind of dive into what are some of the things that people need to be aware of, whether you are just starting or if you are already up and running and you are like, okay, now I got to start to take this thing a little bit more serious.
[00:04:23] Josh: Sure, yeah and these are things that we kind of talked about before on this podcast but we are just going to dive deeper and people still could be listening to this the first time, maybe you need to hear it three times before it sinks in. So, let’s look at them all.
So, the first thing is still bookkeeping. This is the number one most important part of your tax in accounting picture. There is nothing else can happen if you don’t have this bookkeeping in place. You can’t do the taxes properly, you can make sure you getting all the right deductions, you can’t file sales tax, nothing worked without this bookkeeping.
I used to be out say like, it’s okay, just use a spreadsheet if you have to, I’m kind of throwing that advice out, like you need to get accounting software if you are serious about this business and there’s free ones out there. I think you still use Wave, right?
[00:05:09] Josh: Well I did up until about probably, I’m going to say about five, six months now. Now I’m using fetcher, which Fetcher is based, it’s really built for the FBA seller. Greg Mercer good friend of mine also, they created Jungle Scout and Splitly and good friend of mine and it’s a phenomenal software. I got to be honest with you Josh, it’s made my work load easier.
With waive, it works really good but now that I’m really, again when you are in physical products, it's different then if it’s just a digital product or if it’s just a few physical products, but when you get more than that, I was basically going into my Amazon account, figuring out how many units sold and then I was figuring out what that cost was, and then I had to input that into the Wave app.
You do it, sit down for an hour or so and you can plug in those numbers but you still had to plug them in. Now what I’m doing is I’m just going in pulling the report that tells me exactly the unit sold, it gives the whole breakdown, how much it costs, pay-per-click. Everything, so all got to do now is spit that out and send it to you.
[00:06:13] Josh: Perfect, even better.
[00:06:16] Scott: Yeah, it’s really, really good, but I know there are some other ones. Are you still a fan of like Quickbooks or FreshBooks or which one do you see people are using right now? I know there was another one Xero, which ones are you seeing FBA sellers using?
[00:06:30] Josh: A good one for FBA is Zero, that works off a lot of tools that FBA sellers use. It works with the A2X. A2X and zero is still the number one combination we are seeing, high end Amazon sellers use, so that’s a good one. It is going to cost some money.
The Xero is going to be anywhere between 20-40 bucks a month, depending on what package you go with. A2X obviously has its own fees and I don’t know what they are off head. I’d guess less than $50 a month. So, there is all kinds of tools and there is a learning curve there certainly but once you learn this stuff, it’s going to make your life so much easier.
If you are someone that is still sitting here using a spreadsheet or not doing it at all, you are getting the tax, you are digging through all these receipts and you’re looking through your bank statements and you are trying to piece things together. If you get this accounting software it’s going to sync right up with those business bank accounts, with those business credit cards, with Amazon directly, wherever you using it's going to sync up with and it’s going to pull those transactions in, so you don’t have to sit there and do that at year-end or monthly, or however often you are doing it.
There will still be some work right, I’m sure you still have some work on your… You got to go in there and tell her what it’s for, so you go spend $50 at Walmart, you got to tell them it was paper for your printer, whatever it is but you are not manually writing out every single transaction. It’s still the point I’m telling people. Even if you are just getting started you have to use some type of accounting software. If there are free ones out there, you used Wave for a while and it was free. It did the job, it had more work but it did the job, it gave great reports it’s what we use for your taxes all those years.
[00:08:04] Scott: That’s it, again, Wave to me is very similar to Quickbooks except it’s a cloud based. I know Quickbooks has their cloud based now too it’s the same thing. It does sync up with bank accounts, all that stuff. I did find this though, a little side note here, is when I was playing around when trying to sync up my PayPal to Wave or even Quickbooks, I tried them all, it was not working.
Like it was a pain in the butt. I think I reached out to you and you go, yeah, that’s one downfall with PayPal payments is everything doesn’t sync up 100%. Rather than getting into all of that, that was a little bit of a challenge so those are some of the things that you may need to manual input and not rely on PayPal because my fear was it's going to miss something and now I’m screwed, now what do you do?
[00:08:49] Josh: What’s funny is you think PayPal would be the best of all because they’re an online bank but for whatever reason with all bookkeeping systems there’s been issues with PayPal so definitely be careful there but we’ll go through some tiers here. If you are just getting started you don’t have that cash flow yet, $20 a month, $30 it seems like a stretch because there is no money coming in go with Wave, find a free app.
Use accounting software still. Once you are starting to see some cash flow, once you’re starting to make a little money go a little bit higher end, go with Xero, whatever it is and find one you like, find one that you can work with and go with that. My final recommendation there, once you get the point where you are making good money in it and you don’t want to deal with it and you want to make sure it’s right, start looking it at outsourcing it.
There’s companies out there that can do it, it depends on how many transactions you have coming in and out but it can range from 150-400 bucks a month. If you are making serious money trust me it’s worth it so you go get your money back in time and making sure it’s accurate.
[00:09:50] Scott: Yeah, and I think even going back to like the $20 or $40 a month, I think Fetcher is like less than… It’s less than $25 a month for the basic and also the other thing that I like with Fetcher too, just to kind of throw it out there is, it will sync up to more than just one account. Right now I’m working with three different brands I’m partnered with, so because of that I’m able to kind of feed those into the same app and then I can just say, okay I can click on a button and say I just want to see things with brand one then I want to see things with brand two and it really goes off of the amount of SKUs that you are pumping into that account.
So that’s the cool thing with Fetcher and I think they have a 30 day free trial. I will just throw my little shameless plug in there, theamazingseller.com/Fetcher, they’ve got a free 30-day trial too, but I think even if you are just starting, like you said, it’s so important to at least get something in place and if you want to use Wave, that’s what I used for almost first two years but it was manually inputting that. But I agree with you, just to have a spreadsheet of the P&L is going to save so much time and it’s going to be cleaner. So totally agree.
[00:11:01] Josh: One last note on the bookkeeping and this is the number one principle when it comes to bookkeeping, everything else we talk about will be based on this principle. You have to have separate accounts for your business and personal. I ran into that so many times this year and it’s especially when people are in their first year, they don’t know whether they are going to really hit it hard or not. Almost starts getting bigger than they think and they are still running everything out of their personal accounts.
Or maybe they have a little bit of separate accounts but they are running some personal out to the business and vice versa, like this is so big. If you don’t listen to anything else in this podcast, go today, go tomorrow, as soon as you can open up a business account that is used strictly for your Amazon business. Open up a credit card that is used strictly for your Amazon business. Do not mix business and personal. You may have transaction here and there that’s mixed but very, very few should be being mixed with your business and your personal.
[00:11:51] Scott: That’s actually really good advice, and I think even just moving forward too, whether you start your business with an LLC or whichever sole proprietor, whichever it is, it doesn’t really matter. You should have that business checking account, so easy to do too by the way. I mean literally just get an EIN number, register for your checking account and then everything is clean and then from there you can start again being to me like above board, like you want to have everything in place and that’s definitely where it starts.
I have a brand right now, we haven’t even really fully like started to launch products in but we know that we are going to in the future, we’ve already created that. Checking account is sitting there. Like there is no money in it right now but it’s there so you guys you can do it, and usually they are free within your bank if you have some type of a balance even with another account so just look into that, get that done, I think that’s a huge piece of advice there.
[00:12:44] Josh: Even one step further in that, if for whatever reason you can’t get in your business name, you don’t have your entry setup you don’t have an EIN just go get a separate one in your personal name that is used strictly for business.
[00:12:55] Scott: Great, so there are no excuses, that’s what we are basically saying, right Josh? Just get another account that’s not tied to your personal stuff even if it’s just you as the sole proprietor.
[00:13:04] Josh: Yeah exactly. Minimum checking account and credit card also consider PayPal or whatever other tool you use, but minimum checking account and credit cards used solely for business.
[00:13:04] Scott: Now what about this though really quickly and I know you and I had this conversation about me personally was like, what if your business is so brand new you can’t get a credit card?
[00:13:22] Josh: Yeah, exactly, and that’s the same thing as I said with the checking account, just give it your personal name.
[00:13:25] Scott: Just use it for only purchasing with the other that way it shows that those purchases are coming in through that business even though it’s in your name, it's only used for that part of the business.
[00:13:34] Josh: Exactly, and a lot of times they will still let… Even if your business has no credit history yet, they will still let you get a business credit card as long as you personally are backing it, so try that too.
[00:13:43] Scott: You’re co-signing for your business in that sense.
[00:13:45] Josh: Right but worst-case scenario, just get a new credit card in your personal name that again is used strictly for business.
[00:13:49] Scott: Yap and that was the advice you gave me so perfect.
[00:13:53] Josh: So yeah that’s bookkeeping. If you haven’t it done it yet get those separate accounts and then go get some type of software that’s going to link up to those accounts.
[00:13:59] Scott: Let’s just really touch on that really quickly. So, what should be in that bookkeeping, like what should we be keeping track of?
[00:14:09] Josh: So obviously, the number one thing is your income. You want to know what is coming in from your business. Actually, it depends how deep you want to go here but Amazon it gets interesting here, because if you’re doing Amazon FBA, you are not necessarily getting 100% of your sales, right? Because Amazon is taking their portion but where it gets interesting with taxes is the IRS wants to know exactly what 100% of your sales were.
So, it’s not good enough to just say, okay what hit my bank account was $100,000, they want to know, you made $150,000 and Amazon took $50,000 of that. To that’s why bookkeeping is so important because you do have to monitor that stuff and that’s why you want to use software that works with Amazon because you have to know what these numbers are.
My best advice there is to get software that’s going to link with that, I know Xero does, I’m sure Fetcher does as well and that’s what A2X does, I believe as well it can work with different bookkeeping software but that’s a great point. The gross sales has to be recorded and then those Amazon fees gets recorded separately as expenses.
[00:15:15] Scott: Now how deep do you, and I know the answer myself but I’m asking you because I know that people probably would be asking this. How deep do you go with all of the breakdowns of the Amazon fees because there’s not just one fee, it’s like you have an FBA fee, you have an pick and pack fee have an advertising fee, you have all of those little ones you might even have like, they had a refund come in, there could be an additional feel for storage. Like how deep do you have to itemize that or is it good enough just to say Amazon, FBA fees is x?
[00:15:47] Josh: So, I’ve seen it done both ways and I will say I’ve never had the IRS question when you call it ‘all amazon FBA fees’. So I don’t have problem with that, a lot of people that once they really start getting going in this, they do track that separately for their own purposes.
So, they want to know what they are taking but as far as taxes, I have not seen a problem today with just calling everything Amazon FBA fees.
[00:16:11] Scott: It’s a fee, it’s just a deduction we were taking out of there and the only thing I do separate, I have all that stuff broken down in Fetcher anyway, it does it all for you but when I put it in a line item or whatever, if I was to say here is the breakdown, Amazon FBA fees, or Amazon fees would be that but my sponsored product ads would be something completely different because it’s an advertising fee. That’s just me, I like to see that on the lines and that’s when I give you when I submit my stuff.
[00:16:36] Josh: Yeah, advertising is the big one and the other thing I would say is refunds. If we can break those out separately that’s a big component.
[00:16:41] Scott: So, the other expense that always comes in here and this I know something you are probably going to talk about anyway is your product cost.
[00:16:48] Josh: Yeah, exactly that’s a hit.
[00:16:50] Scott: That’s a big one right, that’s a mistake. There’s a mistake there, right? Let’s talk about it.
[00:16:57] Josh: So, inventory, when it comes to Amazon sales and that throws people for a loop every time when they are just… I’ve actually had people doing this for five years they were doing their own taxes and never any idea they were doing it wrong. So, the first thing to understand is, you probably do but I’ve had people not understand this part is the inventory is a deduction, meaning what you paid for that product is a deduction.
If you go buy a $10 widget and you sell it for $20 you get tax on that $10 difference. So, the $10 purchase price is a deduction. However, unlike with most expenses, with inventory, it is not a deduction until you actually sell it. So, this throws people for a loop because if you go purchase $10,000 worth of advertising cost, the IRS doesn’t say, “Whoa, wait a minute, how much that advertising cost actually help you in 2017?”
Doesn’t matter. You paid $10,000 for advertising, it’s a $10,000 expense. If you go buy a $100,000 worth of inventory and by the end of the year you’ve only sold $50,000 of it, you only get to deduct $50,000 of that inventory. The other $50,000 carries over to the next year, assuming it’s sold next year.
So, this is a big one. It’s big because a lot of people think they are using tax strategy they get to December 25th they’ve had a good year and they say. Man, I need to reduce that tax below income, I did inventories anyways, I’m going to buy $100,000 worth of inventory and since it’s the end of the year, almost none of it gets sold by year end and they find out they don’t get a tax reduction for it and now they’ve use up all their cash, they don’t have the money to pay these taxes they weren’t expecting.
[00:18:28] Scott: That’s a big one right there, so I want to really highlight that and actually when I first started in the physical product world, that’s kind of what I thought. I’m like, oh cool, I’m going to go ahead and invest in my business and I’m going to buy some inventory.
Now I didn’t do it. I asked my accountant, at the time it wasn’t you at the time, it was like three years ago and I said, “January 1st is coming I’m going to buy some things for the business because I know that I can get a deduction,” and that’s fine, buy a new computer, whatever but the inventory does not work that way because it hasn’t been sold yet so again guys listen to what Josh is saying there.
You cannot buy inventory and then use that all as a deduction until the item has been sold. So, if you buy a $100,000 worth and you only sold $50,000 you are only deducting the $50,000, the other $50,000 will carry over and until you sell it, whether it’s this year, next year, the year after, it’s like inventory on the shelf. That’s basically how that works so that’s a big one. That’s a huge one for people to understand is that your inventory and using that as a deduction.
[00:19:33] Josh: Absolutely. So, for your books there is really three numbers you want to know to make sure you are getting this right. You need to know what the value of your inventory on hand was at the beginning of the year meaning if you had $50,000 unsold on December 31st, your beginning inventory is $50,000. You need to know how much you purchased in inventory during the year. So, if you went and bought another $50,000 worth of inventory, the purchase is $50,000 and then you need to know what’s on hand at the end of the year.
If you can get those three numbers, you bookkeeping and your CPA whatever route you are going you are going with that, they can figure out your actual cost of goods sold and what’s your actual deduction is.
[00:20:09] Scott: Again, simple way to think about that even too is like, and I know you kind of like you need to know your beginning number was to know what you sold, so it’s kind of like you have to know those numbers in order to kind of get those but if you are just starting, you are starting from nothing, it’s pretty simple.
Like you sold 3,000 units how much did those 3,000 units cost? That’s what you are deducting the next round or whatever. I’m doing quarterly taxes, does everyone have to do quarterly taxes? Let’s talk about that really quickly because a lot of people ask me, they go, “Why can’t I just do it once a year? Why are we doing quarterly taxes? When do we have to do quarterly taxes?” Maybe you can just touch on that really quick.
[00:20:47] Josh: So, what the IRS says is, if you are going to owe more than $1,000 at the end of the year, they expect you to pay that in quarterly estimates. People get intimidated by quarterly. Everyone want’s to call them quarterly filings and they think they are filing a tax return every quarter and that’s not what it is.
It’s super simple. All it is, is saying, I’m going to owe $10,000 at the end of the year so I’m going to pay $2,500 each quarter, whatever it is. You’re just writing a check sending it with a voucher or Scott recently learned you can do it online.
[00:21:18] Scott: Well I knew that, I just didn’t feel comfortable doing that and you were bursting my chops, you were like, “Oh okay, how old are you again?” and I’m like, “Yeah it’s starting to show,” because I still wanted to write in check, I don’t know there is something about writing a check, going to the post office, making sure that they put their little stamp on it that said it was postmarked and that whole thing. I’ve been doing it that way for years and then you are like, “We can do that online you know. All you gotta do is give me your info.
We’ll actually, you have it there like in no time.” I’m like, “All right let’s do it.” So hurray for Scott being able to go out there and do an online tax return now. Well not the tax return, the actual filing of the quarterly. I’ve always done the other ones electronically, but we just did our last one and it went through really well, it was great.
[00:22:03] Josh: Super easy when you do it that way, check’s fine you if you want to go to 1980, whatever, but no with the estimates the IRS does expect you to do it if you are going to owe $1,000 or more.
[00:22:15] Scott: Which most of you are.
[00:22:18] Josh: Right if your business is profitable you are going to owe more than $1,000 but the hard part is, there is several factors at play here because I’m sure a lot of people have other jobs or their spouse has a job so they have withholdings on that income.
It’s all one big picture. The thing you need to understand is your business isn’t going to owe taxes, it’s you personally who is going to owe the taxes and it's one lump sum picture. So, you take your job income, your spouse’s job income, your business income, all your various deductions, they all add up together and then you determine how much you are going to owe.
So that can get pretty confusing. So, there is an easy way to do estimates. What they say is you can base it on the prior year instead of what you are going to owe the next year. So, there is two ways to go about estimates. There’s two different goals. One is I just want to follow the IRS rules and avoid the penalty. If that’s you, it’s very simple, you going to base it off 100% of what you owed last year unless you made over $150,000 in which case it’s 110% of what you owe last year.
Okay so look at your tax return last year, you see the line that you owed $10,000. If that’s you and you made less than $150,000, all you have to do is pay $2,500 each quarter, you meet the IRS requirement. If you owe additional amount at the end of the year, you just pay it then, no penalties, if you overpaid you made less this year, they will send you a refund. That’s all it is, super simple, and whoever prepares your tax return can give you all four vouchers at that time, tell you exactly when to pay them, online check whatever. That’s the simple way to do it.
[00:23:45] Scott: It's actually what we did with my daughter the year before you helped us out there. You kind of looked at her because she was under $150,000 so you are like, let’s go ahead and just set this up and it worked out fine. So yeah, that’s actually a good tip though for anyone that’s listening that didn’t know that. Basically, what you are saying Josh is, as long as you look at the number the year before and you said go to 110%?
[00:24:13] Josh: If you are over $150,000.
[00:24:14] Scott: Oh, if you are over $150,000. Okay, so if you are under that just go 100% divide that by four, that will be your quarterly tax and as long as you do that you will not be penalized even if you hit a bigger number.
[00:24:24] Josh: Yeah, even if you owed to $100,000 as long as you pay that $10,000 in, there is no penalty.
[00:24:28] Scott: That’s actually a big tip, that’s good, I like that.
[00:24:29] Josh: It’s just like if you getting started, that’s the way to do it. Just make sure you are still setting aside money if you going to owe more so you’re not caught off guard to avoid penalty.
[00:24:40] Scott: Okay let me ask you this though really quickly because I do this myself personally. You know I’m pretty strict on this, I like to know each quarter, like where I’m at so that at the end of the year I’m not going to get hit with a huge like… During my quarters, I’m always kind of like going through with my rough numbers and then that’s where I will send it off to you my CPA and that will actually go, okay, Scott you are close but we are going to send in this because if I can get it really close then at the end of the year I don’t have to be surprised with, “Oh my gosh, I’ve got to owe this.”
So I’m always taking money from my net that I made and I’m basing it off the percentage that you tell me, “Oh, well you could be 30%.” Take 30% off your net that you think that you are going to have and then we will send that in and then that’s kind of always kind of like moving but I like that because then I know at the end of the year, what I’m left with is kind of what I’m left with, I’m not surprised with oh my gosh I owe $20,000.
I’m a big stickler about taking my numbers and then taking some money out, setting it to the side and then using that as my money when I call you and say, hey, where am I, you know this is what I got, did we get close?
[00:25:51] Josh: Yeah, exactly. That’s why there are two goals here, that the first goal for people who just want to avoid the penalty, keep it simple and go that route, just pay last years. The second goal is I want to come as close to paying what I’m going to owe as possible throughout the year so that I don’t have to worry about that at the end of the tax season, that’s what you described.
That’s for your every quarter and it’s where bookkeeping comes into play, every quarter you’re going to pull up those bookkeeping reports, you are going to look at your net income and hopefully working with the CPA. You can talk to him and say for quarter one, my net income was $50,000.
He will run through some scenarios with you, he will look at anything else you have going on and say, “Okay I want you to pay X amount in.” For quarter one and quarter two is a little bit of a guess because it’s a total picture so you don’t know what the second half of the year is going to look like, but you are still getting fairly close.
Quarter three and especially quarter four, we can narrow it in and say, “Okay this is exactly what you are going to owe, come April 15th, this is where your estimate should be,” and I think for the last few years you’ve done your taxes it’s basically been within $100 when we file your taxes.
[00:26:52] Scott: Yeah, we done good.
[00:26:53] Josh: That’s a great way to do it as well especially if they are like you and they don’t want that big tax bill, they want to know exactly what they are going to owe and the key there is you have to have the resources to do it. You have to have the bookkeeping in place you have to know what your income is and preferably you got to be working with someone that can tell you, okay, based on those numbers this is what you are going to owe.
[00:27:14] Scott: Yes, and how I learned of that, was probably going back, I’m going to say probably by eight or ten years ago when I had a really good year and I didn’t do what you said, I wasn’t working with you but I didn’t do what you said and I sat down with my accountant and then they are like, “Are you sitting down?” I’m like, “Yeah,” and they are like, “Okay,” because you owe 20 grand and I’m, “like holy crap.” I’m like how did we not know that? I had such a good year that one year that it just blew everything out of the water and I had no idea and then after that year I really started to be conscious of like every single quarter, knowing where my numbers were.
I learned my lesson. Luckily I had enough money in savings to actually do that but if I didn’t … It sucked though Josh, because I’m like here I’m picking them 20 grand ahead and then all over sudden now I’m even again and I’m like wow, that just busted my bubble there so here I was on this high, and then all of a sudden I was taken down a notch. So that kind of sucks, so don’t let that happen to you. Know where you are.
[00:28:12] Josh: Yeah, exactly. That’s why I always say be careful with the first method where you are just paying based off last year. That’s totally fine to do, just make sure you are setting additional money, ahead aside if you are making more to cover that. Let’s just give them a safe estimate here, you should be setting aside 25-30% of that net income throughout the year. So, if that covers more than your estimated payments that’s totally fine, just make sure you are setting it aside so it’s ready to go come April.
[00:28:38] Scott: Yeah, just set it aside, forget about it and that’s your tax money so yeah. Okay, cool what’s next?
[00:28:47] Josh: So, the next one is, and I know we’ve talked this several times about business entities. A lot of misunderstandings here, a lot of stuff being done incorrectly and costing people here. The first thing I want people to understand about business entities and this is a shocker to most people that are just getting started even in their second or third year they didn’t quite realize it but your business entity, your business is almost definitely what they call a pass through entity and what this means is your business does not pay taxes and this floors people their first year in business and they say, “What do you mean my business doesn’t pay taxes? I made $100,000, how can I not pay taxes?”
It’s what they call it pass through entity meaning it passes through to you the owner and you pay the taxes. Okay so if that business made $100,000 after all of your expenses, if the $100,000 passes through to you it's reported on your personal income tax return and you pay the taxes personally. So that’s the big thing to understand, your business does not pay the taxes.
The second thing to understand with that is, you are going to be taxed on that full profit regardless of whether you pay, “pay yourself or not”. I get a ton of people that say, “My business made $100,000, don’t worry they won’t owe anything I didn’t touch it, left it all in the bank.”
Great that you saved money but unfortunately you are still going to be taxed on all of that. So, you taxed on the profits. It doesn’t matter whether you pay yourself. It doesn’t matter, you make $100,000 you could take it all out, you could take none of it out, it goes anywhere in between, you are still going to be taxed on $100,000. So, two big things to keep in mind with all three entities we are going to talk about today, they are all pass through, the business doesn’t pay taxes and you’re taxed on all the profits regardless. Makes sense?
[00:30:28] Scott: Yeah, makes total sense.
[00:30:30] Josh: Okay, so the three entities I want to talk about that almost all the Amazon FBA sellers should be considering is a sole proprietor or if you have a partner in the business it will be a general partnership. What that means is you don’t officially register anything with your state, you don’t even necessarily have to form a business name or getting an EIN if it’s a sole proprietor, you can hit the ground running and it can be under your name, your social security number and you just go.
The great thing about it is there is no time involved you don’t have to spend the time to set it up, you don’t have to spend the money to set it up, just go, nothing needs done and if you are just getting started, this is a reasonable option. I will talk about why I think the LLC is better in a minute but there is a lot of people that do it this way and it’s totally fine. For tax purposes, it’s totally legit.
[00:31:18] Scott: I think the highlight for tax purposes it’s okay but I think you are going to talk about the LLC and why that’s different.
[00:31:24] Josh: So, with the sole proprietor or the general partnership, the thing to keep in mind is you and your business are one and the same. So, if someone sues the business they are technically suing you. That’s where people get scared of the sole proprietor. The next step up is the limited liability company or the LLC. What shocks most people is the LLC for tax purposes works exactly like a sole proprietor or a partnership. It’s taxed the exact same way. It will appear the exact same way on your tax return.
So, a lot of people say I’m going to form an LLC to get all the tax savings from it. No, it works the exact same way. Where the LLC comes into play is, it potentially offers you that legal protection. It acts as a wall between you and the business. So, for sole proprietor, you and your business are one and the same. As an LLC you have that wall. There is a business, there is a wall and then there is you.
So, in theory if someone sues the business, they hit that wall and they can’t get to you personally. I’m not an attorney, I know you are not attorney, so talk to an attorney. This is very general advice when it comes to the legal stuff, but that’s the general idea is that, that LLC acts as a wall between you and your business.
[00:32:33] Scott: My attorney when I mentioned that, again I’m not giving legal advice, Josh isn’t giving legal advice, just kind of letting you know what has been said to me and I’m sure you it’s like, it’s something additional to get to you but if you are the only owner that could still tie back to you. That’s why it is important to try to keep that stuff separate like you and say like a separate checking account, trying to keep that stuff separate is the business and the LLC would be that additional level of protection to a certain extent. That’s where limited liability would come in and kind of all that stuff but we are not going to talk about that. Okay so the LLC is really there as a way to separate in a sense you from the business by that being its own entity.
[00:33:20] Josh: Exactly, so you are going to pick a name for the business, you’re going to get an EIN number for the business it’s like a social security number for your business and it’s completely separate from you. What you mentioned is totally true. If you are going to go this route, it goes back to having separate finances. If you’ve got an LLC and you are still co-mingling your business and personal finances you might as well throw your LLC out because it’s worthless at that point so make sure you are doing that.
The next step up and where we can be seeing some tax differences is the S-corporation. All right so now I want to dive into something called self-employment tax which we didn’t mention with the other two. We talked about how that $100,000 of profit is going to be taxed whether you touch it or not. So, with your ordinary tax it’s just like if you had a W2 for $100,000 you pay all the ordinary taxes on it.
Where the income from business is different is, in addition to that ordinary tax you are going to get hit with what they call self-employment tax which is an additional 15.3% tax. So $100,000 it all passes through to you, it all gets hit with your ordinary taxes and then it goes around for round two and gets hit with self-employment taxes, another 15.3%, so doing quick math $15,000 additional out of the pocket.
All self-employment tax is medicare and social security tax. So, if you’ve had a job or you currently have a job, remember those pay stubs where you see the social security and Medicare tax coming out, you are paying about 7.6% in that, what you probably didn’t realize was your employer was matching another 7.6% on that, now that you are self-employed you are both the employee and the employer and you are both ends of that which comes up to 15.3%.
If you’ve been doing your own taxes and you say, well I’ve never paid that, you probably just didn’t realize it because it just gets added into one lump sum in the amount due. They don’t come out and say okay, you owe this for this tax and this for this tax, it’s just you owe this.
So, it’s a huge tax and it will crush you. What the S-corporation does is, an S-corporation is very similar to the LLC. It has that wall of protection between you and the business, it’s still a pass-through entity. That $100,000 still get to with ordinary taxes but it doesn’t come back around for round two and that’s self-employment tax. It has zero self-employment tax. Okay so $100,000 you do the math, you just saved $15,300 in taxes and that sounds great right, and that’s per year.
[00:35:39] Scott: Sounds amazing but…
[00:35:43] Josh: But the IRS does not like you to save $15,000 per year in taxes so what the IRS came back and said was, “Okay, fine, you can become an S-corporation that $100,000 won’t get here with 15.3% taxes, but we are going to require you to take a salary as an employee of your business and the reason we are going to do that is because on that salary you are going to get hit with social security and Medicare taxes which is guess what, 15.3%,” so that’s why they make it up. So where is the tax savings coming up? If they are making you take that salary, what’s the point? How do you even save taxes?
[00:36:14] Scott: Good question.
[00:36:15] Josh: So that comes from getting your salary to the right spot. What the IRS says is that you have to take a reasonable salary and like typical IRS they don’t give very clear guidelines on what that is but there are a few standards we use. Number one the best way to do it if it’s possible is to look at it and say why would I have to pay someone to replace me in the business? Okay, and I know Amazon FBA if you’re running an Amazon FBA business there is not exactly, you can’t go to monster.com and look at job postings for running in the Amazon FBA businesses to see what they are paying.
[00:36:47] Scott: Exactly yeah, right.
[00:36:48] Josh: It got, it’s going to come with some guess work here, you’re going to look at it and say, “Okay, this is what I do daily, this is how many hours I work. If I had to hire someone to take this over from me what would I pay them?” Do your best guess there. If you’re still struggling or you want some extra things to look at, we go on a percentage of net income and the standard we use is somewhere between 25% and 40% of net income. The higher the income is the lower that percentage can be. So we look at $100,000 we might put that somewhere around $35,000, $36,000, 35% or so in salary.
Okay, so let’s say you’ve made the $100,000 we decide in your case the reasonable salary is $40,000. Where the tax savings come is that difference between your net income and your salary, so $100,000 profit, $40,000 salary, $60,000 difference between the two that is not getting hit with the 15.3% tax.
[00:37:43] Scott: Yeah, that’s a big one right there. I know we just kind of threw a lot of different scenarios there. I’m going to try to explain kind of my interpretation of it, so just imagine you just made $100,000 in your business okay, and you have a payroll set that you’re going to get paid $40,000. That money is going to be basically deposited into your account as an employee. You’re going to get taxed normal on that $40,000 as you would because that’s your income.
The other $60,000 now is not going to get hit with that tax now because it’s the business and the business is separate, so because of that that’s where that savings comes in so technically instead of paying, if I was a sole proprietor I’d pay it all on the entire $100,000, but if I’m an S-cop I’m only going to pay for what the salary was to me, the other in the business is only going to get taxed on the business. Is that correct?
[00:38:38] Josh: Yeah, so basically yes, so it’s still taxed to you personally, but it’s taxed, it’s only taxed with the ordinary taxes, it’s not getting hit with the self-employment tax.
[00:38:47] Scott: Exactly.
[00:38:48] Josh: Don’t think of it as tax free, you’re not getting tax free on the $60,000.
[00:38:51] Scott: No, no, no, yeah.
[00:38:52] Josh: You’re still paying the ordinary but you’re saving 15% roughly on $60,000.
[00:38:57] Scott: Got you, yeah and that, it makes total sense we’re just… But now the question would be this, yeah, but the government kind of knows that stuff. I mean like so, is this legit? But the thing is doing you really believe that $40,000 is enough to pay someone that… That’s where really what it comes down to.
Now if you’re saying to yourself, “Oh! Cool guess what Josh, I’m going to only pay someone $10,000 and $90,000 isn’t going to get hit.” Now we’re going the other way, now we are trying to kind of manipulate this thing in kind of trying to build the tax shelter of some kind. We’re talking about doing it legit you know like what would it cost you and from there the IRS is going to say listen that’s reasonable, that’s what it would be, that’s normal.
[00:39:46] Josh: Exactly.
[00:39:46] Scott: You mentioned if you make more than that you can maybe reduce that and I think with what you mean is if you brought in a $1 million in net income that doesn’t mean that you have to take 40% of that because that’s what it would cost to pay someone that that there, that number would probably decrease a little bit because if you’re in a $1 million business that doesn’t mean that that person is going to make $400,000 necessarily.
[00:40:10] Josh: Exactly.
[00:40:10] Scott: Maybe walk us through that really quickly just the mindset on that.
[00:40:14] Josh: Yeah, exactly that’s exactly right, so the key is to think about what you would have to pay someone else and that’s why I don’t like to go strictly off the percentage scale.
[00:40:23] Scott: Yeah.
[00:40:24] Josh: A million-dollar business is probably not going to… Put it this way you can scale your business so that you’re doing less work and making more money, right? If the goal is what you would have to pay someone to replace you just because you made a $1 million instead of $100,000 doesn’t mean that the pay replaces you went up the equal amount, right?
You can be doing the same amount of work or slightly more work, so the cost to replace you isn’t going to go up near as much. That‘s where you make $1 million, a 25% could be perfectly reasonable. It could even be less than that. I mean I’ve legitimately had a business that all they did was create a podcast, right.
They recorded podcasts, they interviewed people one day a week, they paid someone else to edit it all that stuff. Literally their work week was basically one day a week a little bit here and there. He made $3 million one year with that and I think we did his reasonable salary at somewhere like $125,000 because he could easily replace his work for $125,000.
[00:41:22] Scott: Yeah, no that makes sense, so let me ask you this though really quickly a little side thing here, so like if I hire a virtual assistant to help me in my business I might not pay them like normally like you know you would pay someone if it was a direct employee. They are not technically an employee so are they just a line item, are they just an expense in my business?
[00:41:43] Josh: Yeah, exactly so you can either call it contractors, you could call it virtual assistants but they don’t, you don’t have to pay any taxes with them like you don’t have to withhold taxes like you would an employee. You literally just pay them, possibly issue them a 1099 at the end of the year and then record it on your tax return as contractor fees or virtual assistant fees.
[00:42:04] Scott: Okay, cool because I get that question a lot. So yeah, okay, so that makes total sense because they are like a general contractor in a sense to where they’re their own business, you’re just hiring them for the service that they’re going to do. If they’re going to do transcripts for your podcast, that’s what they would do, that’s what you pay them for done end of story. You don’t have to worry about all the employment tax and all that stuff.
[00:42:23] Josh: Exactly.
[00:42:25] Scott: That’s why I do like personally working with virtual assistants and general contractors because it just gets rid of all of those other headaches of having employees which you know, we may get to the point of employees at some point. I guess what’s the tough part of having those employees? How does that complicate things and in taxes?
[00:42:45] Josh: Yeah, so a safe estimate is if you have a contractor and you’re going to make them an employee, plan to increase the cost of what you already pay them by 10% to 12%.
[00:42:56] Scott: Okay.
[00:42:57] Josh: You’re going to have to start withholding, first of all you’re going to be responsible for half of their social security and Medicare tax which is 7.6%. You’re going to be responsible for unemployment tax and you’re going to have to take out workers camp on them.
[00:43:07] Scott: Okay.
[00:43:08] Josh: Plus you’re going to have to hire a payroll company to do all the withholdings and all that.
[00:43:13] Scott: Okay.
[00:43:14] Josh: Safe estimate is I’d even expand it to 10% to 15% depending on what you’re paying them.
[00:43:18] Scott: Okay.
[00:43:20] Josh: If you’re paying them $10,000 a year, you can add another $1,000 to that. That’s not bad but once you get to those higher levels you’re paying people then it gets tricky. Then there is time because you’ve got to get all of these set up, you’re going to be getting constant notifications from the state saying, “We need this from you, this payroll tax report was filed incorrectly, you have to contact your payroll company.” It will be a little bit of a headache, now having said that if you have an employee that is an employee and not a contractor, don’t try to get away with calling them a contractor.
That’s a major issue, so make sure and I guess we’ll talk about the difference here. It comes down to control almost entirely down to control. If it’s the situation where you’re saying, “Okay, you work where you want, you work when you want and you work how you want, use your own equipment all that. All I need you to do is get this podcast transcribed by next Friday.” That’s probably a contractor, right?
You have no control over anything except telling them what task to do. If on the other hand you’re saying, “All right, I need you to work from 9am to 5pm, this is how we do it, this is the equipment we use.” Now you’re in a situation where you’re controlling their day to day work and there is a good chance they’re an employee.
[00:44:31] Scott: Yeah, that’s a good point.
[00:44:33] Josh: Just being virtual doesn’t necessarily mean they’re not employed, that’s kind of been what states have been going after lately saying, “People assume just because they are virtual they’re not employees.” It still comes down to that control even if they are working from their home office.
If you’re still saying, “Look, I need you from 9am to 5pm and this is how we do it.” There is a good chance it’s an employee, and one other big standard there they look at is are you allowing them to do the same work for other people, because if the contractors typically can whereas employees can’t. If you’re saying like, “Look, you transcribe podcasts for me but I don’t want you doing this for anybody else because that’s my competition.” Now you’re possibly looking at an employee arrangement.
[00:45:09] Scott: Yeah, that’s, those are good points yeah, I mean again everyone that I have is literary on their own time and it’s basically I just need the job done. We just need this done and I just need it done by the end of the week and it’s usually one or two different tasks. It could be a graphic designer, it could be whatever it is, so yeah, just keep that in mind. Also I just want to highlight it’s kind of like what you’ve been saying all along here, it’s just do it above board.
Don’t try to do something to not have to pay taxes you know necessarily. I mean obviously you want to take everything that’s coming to you but you don’t necessarily want to do this just to make it look like you’re trying to get around the system like just be above board.
If you’re having a virtual assistant then fine but if you’re having an employee but you then you want to call it… That doesn’t make sense. You could potentially get in trouble for that. We don’t want you to get in trouble, that’s the main thing.
[00:45:58] Josh: Yeah, exactly. Do it by the book, I mean there is a difference between getting creative and breaking the law.
[00:46:04] Scott: Yeah, no. Totally, I mean even with the S-corp it’s like you could do exactly what we’re talking about here but you can do it wrong, you know what I mean? You could totally do it wrong and like I said where you’re not going to be able to show any money like, “Oh! I’m just going to show no money made this year.” No, you can’t.
[00:46:21] Josh: Yeah, and people do that, yeah.
[00:46:22] Scott: Yeah, and that’s where you can get in trouble. Again guys we’re not legal advisors or attorneys or anything like that. But just having this conversation because I think it’s important for you to hear the ins and outs of what people are doing right and what people are doing wrong, and that would be a wrong one. Okay, what else do we want to discuss here before we wrap up here Josh?
[00:46:40] Josh: Should we hit sales tax really quick?
[00:46:42] Scott: Yeah, oh boy, yeah we should devote another hour for that. Now let’s just go ahead and yeah, definitely talk about sales tax. I know when you first even got into working with private labelers and ecom businesses and stuff, it was a little bit of like a whole another thing that you were kind of dealing with and you’re like, “Wow! This is kind of complicated in the sense.” But maybe since you’ve been now doing it and actually learning more about it as you’re working with sellers you can kind of give us a little bit of an update on that.
[00:47:11] Josh: Yeah, so basically sales tax is taxes that the states charge, normally it’s a physical product. Some states have digital, we don’t have to worry about that right now, but it is physical products and the states say, “Okay, every time you sell that, we need you to collect X% from the customer and then pay back to us.”
Okay, so it’s not a tax that you’re paying, it’s the tax you’re collecting in addition to the sales price from the customer and you’re paying to the state. For most businesses this is pretty clear cut because they say, “You only have to collect it in states you have a physical presence.”
Meaning where your business is located, where employees are located that type of thing. Most people that’s one state it’s where you are, right? If you have a store in New York, any time you have sales for someone in New York you collect and pay, that’s sales tax.
[00:47:58] Scott: Yes.
[00:47:58] Josh: If you’re store in New York sells something online to someone in California, you do not have to collect sales tax for California or for New York okay. It’s pretty cut and dry there it’s where you’re located and it’s only on sales to other people located in that state. Does that make sense?
[00:48:13] Scott: Yeah, totally.
[00:48:14] Josh: Okay, so where FBA gets fun is at Amazon stores your inventory in and I think I read recently it’s up to 22 different states now, is that correct?
[00:48:23] Scott: Yeah, they’re expanding all the time.
[00:48:24] Josh: Yeah.
[00:48:24] Scott: Yeah.
[00:48:25] Josh: Okay, so 22 different states that Amazon can store your inventory in when you’re in Amazon FBA. The states consider storing inventory in their state a physical presence, so now you potentially open yourself up to a physical presence in 22 different states plus your state if it’s not one of them. Okay, so the question is do you need to be collecting and paying sales tax in all 22 states that you potentially have inventory?
[00:48:51] Scott: That’s a big question.
[00:48:52] Josh: It’s a question that a lot of CPAs, a lot of attorneys, a lot of sales tax professionals are debating right now and so far there is, I have not seen a clear cut answer. I mean I know you talk with Taxjar a lot but I don’t think they have come out with a definitive yes or no at this point, right?
[00:49:10] Scott: No, I don’t think anybody is willing to say, I don’t think anybody is willing.
[00:49:13] Josh: Yeah, exactly.
[00:49:15] Scott: Actually it’s funny we were on a call the other day with the few ecomm guys and we were doing a little round table and this question came up, someone in the audience had asked the question and everyone including myself was like, you kind of have to do what you feel is right, right? I mean the number one thing that I would say is if you are not filing in your own state that would be where you’d start. Like your own state is a must.
The second part of that is and this is again listening the Taxjar and interviewing those guys and knowing a little bit more. It’s kind of like in the beginning you have to see where you’re sending inventory. You don’t even know where that is, right. Using Taxjar that allows you to see where your inventory is being shipped from and all that stuff.
Then it might be okay we’re going to start with the states that I’m selling or that I’m selling from or that they’re shipping from and then you can work yourself to where you can eventually be in most or all of the states that you have inventory. That was the advice that was kind of given to me and that’s kind of what I’ve been doing. But again I think you just have to understand that there is not really a yes or a no or this is exactly what you have to do.
I mean I just think it could be so much simpler if all, if the government would step in and say, “Listen there is going to be one hub and basically everyone is going to, if the state wants you to send in money, then you’re going to be basically connected in that hub.
Then everyone basically connected to the same hub.” The problem is when you go to California it’s completely different than if you go to I don’t know South Carolina or whatever, right. It’s just totally different and confusing and painful and then that’s why people don’t do it.
[00:50:58] Josh: Yeah, exactly.
[00:50:59] Scott: You know what I mean, so okay, go ahead I just ranted there a little bit.
[00:51:02] Josh: No, that’s my, the exact advice we’re telling clients right now, like if number one if you’re not doing your home state already that’s a must.
[00:51:09] Scott: It’s number one, yeah.
[00:51:10] Josh: You have to be collecting and paying for your home state. Number two is to start to look at where inventory is stored and what your sales are like in those states. Once you’ve started to see that you have inventory in the state that’s getting significant sales then you want to start looking at registering in that state. The two big ones we’re seeing with people right now is Texas and California, right. They say, “Okay, I have a ton of sales in California maybe I need to look at registering and paying in California. I need to a ton of sales in Texas. Now I need to start looking in at doing that in Texas.”
If you’re sitting there at home saying, “Oh my God! I’m going to have to sit there and figure out who is paying in Texas, who is in California,” that part is actually very simple when you use something like Taxjar, because they’re going link right up with your Amazon account, they’re going to tell you exactly where your inventory is, and exactly how many sales you had to those states.
[00:51:58] Scott: Yeah.
[00:51:58] Josh: That part is simple.
[00:51:59] Scott: Yeah, it is simple and the thing is is you may register in your own state and you might not be selling product through your own state. I know for me I’m in South Carolina and a lot of my sales don’t come like I don’t sell a lot to people that are in South Carolina but I might sell a lot in Texas.
[00:52:16] Josh: Yeah, exactly.
[00:52:15] Scott: I’m definitely going to still in my own state you have to do that, but then from there the next one might be Texas and then the next one might be Pennsylvania like you can just keep going on and on and on with what’s right, what’s wrong. But I would say definitely check out Taxjar.
Definitely check out Taxjar, because then at least you’ll have an idea of where the inventory is coming from. I think their advice too even when I had them on the show it was like in the beginning don’t stress about that just get moving and then once you start to have some sales, especially if it’s not just like you know you have like 15 sales. We’re talking like a few 100 or 1,000 sales, then you’re going to really start to be able to dial that in.
[00:52:59] Josh: Yeah, exactly and that’s a good point. I would say don’t think you’re going to start selling in the Amazon and go rush out and register in 22 different states. I actually had a client last tax season that did that and it actually created a bigger mess because we went to set up entities with them and it’s like oh in this state I registered as this and in this state I registered as this. Register at new home so you get that set up then slowly let’s work our way out here and go to these other states.
[00:53:25] Scott: Yeah, cool, all right, yeah. Again I mean sales tax is just one of those I think that no one really wants to give advice just because no one really knows and no one wants to be on the hook. But I think it could be a lot easier if the government would step in and just all the states would kind of have the same guidelines on them like, “Hey, if you want ecomm sellers to basically file sales tax, you need to conform to this or you need to register your stay here and then you’ll be in the hub.” It just seems like so simple.
[00:53:56] Josh: If we’re waiting on the government to be reasonable to get something done, then we’re going to be waiting on a while.
[00:54:00] Scott: All right, so let’s wrap this up I know you and I had talked for a while because of the sales tax thing and the bookkeeping and all that stuff has been really just an issue for sellers that just don’t want to deal with it. I had said to you, I said, “Man, if you could come up with something I think that people would really be interested in that because it takes all of that work off of their plate.”
Then just having someone like you or you know or your services being able to really take care of that and I think right now you’re kind of in a little beta right now, where you’re setting up. You actually have a team in place that’s willing and able to kind of go through this. Maybe you can talk about what you have available now and I know it’s going to be for only like 10 people at this point because we’re still going to kind of see how everything goes going through this. But maybe you can talk about that a little bit Josh.
[00:54:54] Josh: Yeah, exactly so I know you’ve been pushing me for a while like, “Man, you’ve got to come up with something that does this for people, they need it so bad.” The key was we had to build the team that could it and I think we’re finally there. What it’s going to do is going to be a complete full service package for Amazon sellers. We’re going to cover their bookkeeping, so you never have to touch it. We’re going to cover all of your taxes meaning we’ll file your end of year taxes.
We will, if you need to do estimated payments, we’ll help you take care of those, everything income tax related we’re going to do it for you. We’re going to make sure you’re in the proper entity. If you’re not we’ll get that set up for you. If you need to do a salary as part of an S-corp we’re going to take care of that for you. The big thing is we’re going to handle your sales tax for you.
[00:55:33] Scott: That one is a big one.
[00:55:35] Josh: We’ll figure out where you need to be registered if you’re not already registered, we’ll register for you and we’re going to make sure that those are being paid monthly, quarterly whatever they need to be done.
It’s true; you basically do not have to worry about your bookkeeping and taxes all year long other than answering a few questions from us here and there. It’s a complete full service package as you said we’re going to start this with just 10 clients to make sure that we like it, that they like it. I know they’re going to like it, it’s going to be an awesome package, we just want to make sure it’s a smooth process for these first 10 people we’re going to open up strictly Amazing Seller listeners to start with since you’re the one that pushed me forward. I think that’s only fair, right?
[00:56:12] Scott: Yeah, cool.
[00:56:14] Josh: Yeah.
[00:56:15] Scott: Yeah, I’m excited.
[00:56:16] Josh: Yeah, I think it’s going to be really good, I mean why not focus on what you do best, focus on what you do to make money, hand off the rest to someone else.
[00:56:23] Scott: Yeah, I want to just say like you know a lot of people had reached out to me and said, “Is there a full service? Is there you know a sales tax thing? Is there a bookkeeping thing.” Really there is not. Like not that I know of anyway. That’s why I’ve been kind of like Josh was saying like in the background just being like if you can make this happen I think that there would be a huge demand for it and I think that would be helping a lot of people. Again, he wants to make sure that it’s going to be seamless. There’s going to be some bumps here and there and he wants to iron them out before he opens it up to more than just ten. Again, if you guys are interested just head over to CPAonfire.com and you’ll have a little form there I’m sure that they can email you.
If they email you Josh what do you want them to just put in in the title? Maybe just Full Service.
[00:57:11] Josh: Yeah, let’s put Full Service. Put in the title, put in the subject. Say you heard us on The Amazing Seller, call it Full Service. They can email me directly even better at email@example.com. Put Full Service in the subject.
[00:57:22] Scott: Okay cool, and if you’re listening to this after the fact and you’re like, “Oh no, there’s no spots available,” by then there maybe or you’ll be on the waitlist. Just go ahead and go there and then just submit it to Josh and then what Josh will do at that point after the 10 spots are filled probably just end up creating a little waitlist. Then from there he can let everyone know when a spot opens up from there. I definitely would take advantage of if you’re at that point where you’re like, “You know what, I just don’t want to touch any of that stuff.” Definitely go check that out and just email Josh and he can even give you some feedback and say I don’t think you’re there yet. Maybe you want to wait a little bit until you get to this point because he wants it to be a win/win for everyone.
Josh any last little bits of advice or tips before we jump off here today?
[00:58:12] Josh: I’d say the thing to take away today if you don’t already have the separate accounts go do that today. That’s non-negotiable, have to get that done. Also as soon as possible go sign up for that accounting software, whichever one you want to go with and then just start looking at the other stuff. Am I in the proper entity? How am I handling sales tax? It all needs to be done… If you’ve been doing it wrong don’t stress about it, get it started today. It can always be done right starting today.
[00:58:40] Scott: All right man. Josh as always it’s fun talking and going through this stuff. I’m sure we’ll have you back on, do another little update and I know that you have your ear to the ground as far as like all of this tax stuff and all that stuff that we don’t like to even deal with. I’m sure I’ll be reaching back out to you and picking your brain. We’ll definitely get you back on. I just want to say thank you. I appreciate it. I know TAS appreciates it and I’m sure we’ll be in touch soon brother.
[00:59:05] Josh: It’s always good to be on. Thanks for having me.
[00:59:07] Scott: You got it man. Okay, so there you have it. Another great conversation. A lot of insight there and I know it was a lot to take in. That’s why you’re going to probably going to want to bookmark this one. You’ll probably want to download the show notes and they can be found again at theamazingseller.com/384. I’ll tell you, Josh is just so knowledgeable about all of this and he’s learning all the time about how Tax is applied to this type of business, the ecommerce space. It’s interesting because I’ve reached out to a lot of different accountants or even just people in this business in general and there’s not really anybody that you can go to that knows all the ins and outs of this business.
Josh as you heard is learning more and more as he works with sellers. That’s why I love to have him come on, every now and then have him come give us an update. I hope that you took some big takeaways from this episode. I know one of the biggest takeaways and that’s what Josh really said was keeping track of your expenses. I’ve talked about using the free tool, Wave apps if that’s that you want to start with go for it. I did but now that Fetcher is here, I would say that’s where I would start. Not to mention you can do it for 30 days for free and then after that it’s really, really affordable compared to any of the other software tools out there.
That’s probably where I would start. Again guys my link to that, my affiliate link is by the way is theamazingseller.com/fetcher and you guys know that I’m affiliated with Greg as far as that particular product but I believe in it, I know him, I know his team and I know it’s a great product. Also they offer this cool little 30 day trial. Just go check it out if you’re at all interested especially if you are already getting sales. You’re going to want to see those numbers and then you can just hand it off to your accountant and make your life a lot easier.
That’s pretty much going to wrap up this episode. I know it’s not that sexy of an episode when it comes to taxes or sales tax or any of that stuff. We hate it. I know I do but it’s something we have to deal with but we can get ourselves set up. We can make life a ton easier and that’s why I like to do these every now and then to really allow us to all learn together and make it easier in the process as far as running our own business. That is officially going to wrap this episode up. I want to remind you guys, as always I’m here for you, I believe in you and I am rooting for you but you have to, you have to… Come on, say it with me, say it loud, say it proud, “Take action.” Have an awesome, amazing day and I’ll see you right back here on the next episode.
LINKS MENTIONED IN THIS EPISODE
- www.CPAonfire.com Mention “Full Service”
- Josh’s email: jose[at]cpaonfire.com Mention “Full Service” in the subject line.
- Jungle Scout
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