Tax Strategies to 5-7 Figures to Bottomline

Tony Brink.m4a [ 00:00:00 ]My name is Tony Brink. I'm an expert here at the BDSS Market Masters in Austin, Texas, 2024. Today, I'm going to be talking about a tax strategy to add roughly five to seven figures to your bottom line every year with about an hour or two of your time. I'm definitely not going to talk for an hour, but it's about an hour or two of research and plugging in some people just to make some small modifications to your existing Amazon business to add a healthy number to your bottom line every year, essentially automated. And so, you know, there's the saying goes, one man's trash is another man's treasure. Well, I'm here to tell you that your trash is actually your treasure, quite literally. [ 00:00:40 ] And I'm going to go through how your returns actually are typically trash and very wasteful, and they could actually be somewhat profitable depending on your business and your numbers. And so off the cuff, whatever industry, or whatever category that you're in, you probably deal with X percentage of returns on Amazon. And I'm guessing that the bulk of you let Amazon throw them away, or you have them disposed of. Maybe the return rate is negligible, so it's maybe 1% or 2%, and you're letting these items be thrown away, and you just don't really mind because you have so much upside. But you are literally throwing money in the trash. And there's a way to actually convert some of that lost inventory into cash. And that's what I'm going to be talking about today. [ 00:01:26 ] So let's get started. So for example, and these are going to be very conservative numbers. They're also not going to be entirely accurate to your category because I'm just using these numbers for the sake of argument and doing some napkin math here. So let's just say you're selling 100,000 units a year of whatever your product is, and you have a return rate of about 5%. I'm also just mentioning, too, that Amazon does mark some things unsellable, even though they are sellable. And so that kind of gets lumped into these items that get removed from Amazon. So let's just call it 5%. So if you have 5,000 units every year that you're likely throwing away in the trash, if you break down the costs per unit, you'll see where your losses are at. [ 00:02:13 ] So let's just say it's $5 COGS. You have your inbound and placement fees. You have the commissions if you did sell the units versus Amazon just marking them as unsellable. And then the removal. And let's just say it winds up being $75,000, which translates to a $75,000 loss every year that you're just throwing away, which is sadly common practice, and it's wildly wasteful. So most people just throw everything away or tell Amazon to do so, or some people might actually have it sent back to their warehouse. They stockpile it. They try to refurbish it and resell it, and they send it back through this merry-go-round again, which actually then increases the losses on those units when they go back through a second time, which is just increasing your losses. [ 00:02:56 ] And also wasting time. So either scenario is inefficient and likely losing you money, and there's a different way. So the other option is if you donated all of those units to a charity. So whether you’re in the food or supplement game and you can donate to a food shelf, if it’s clothing, there’s different organizations that will likely take your stuff. It’s just finding out who they are and then sending it back to the warehouse. And then the other option is if you’re sending up a system where you can donate to them. So one option is just telling them, hey, we’re going to have X amount of units, roughly, coming to you every month from our business, and here’s what they are. [ 00:03:37 ] And let's just tally it up every month, quarter, or year of how much we've sent to you, so we can figure out how much to put on the tax receipt. Because they're going to ask you, what is this worth, so we can give you a tax receipt for your filings. So with the 5,000 units at $30 a unit retail, again, just throwing numbers out there, everyone's products and brands are different, but that gives you a $150,000 tax deduction every year that you would have otherwise thrown away. And just to be clear, a tax deduction is different than a credit. A tax credit wipes out dollar for dollar your tax liability. So let's just say you owed $30,000 in taxes. Well, a $30,000 tax credit would zero that out. [ 00:04:20 ] What the 150 does is it actually just lowers your taxable income. And so that's the difference between a $150,000 and a $30,000 tax credit. So that way, whatever you have on top, based on your taxation and bracket, is how you reduce your taxable income, therefore your tax liability, and that goes straight to your bottom line. And all you did was just put in the address of a charity for your automatic removals, and it's just on autopilot, right? And then you just make sure that they send you the tax receipts at the end of the year. So just playing with some numbers for fun here. Let's just say you're in the clothing space or something with vintage clothing, and you're in the clothing space or something with very high returns, and you're not refurbing them and reselling them, and you're just disposing of them. [ 00:05:01 ] So let's just say you've got a 20% return rate, right? And it's going to cost you more because you have higher COGS, because if you're selling clothing or something of a higher ticket item, maybe it's actually $30 a unit that you're throwing away, right? So multiply that with the 20,000 unit returns, and it's about a $600,000 loss every year, right? That you're literally turning that trash to treasure. Let's donate those 20,000 units. We'll tell them that it's, you know, that the retail is $60. I'm again throwing numbers out there. Maybe you sell your t-shirts for $100, right? But if it's $60 retail for each of these 20,000 units that you're donating, then you get a $1.2 million tax deduction every year that you can use towards your filings. [ 00:05:49 ] And additional benefit, maybe you don't need that big of a deduction for that year. Well, you get to forward for five years. And so you can stack these as you potentially do not need them right away. And as time goes on, perhaps your business grows or you see an explosion of sales where you have a higher tax exposure, where you can use these previously obtained deductions towards those filings. So no matter what, you know, space you're in as far as category goes, this general napkin math model to figure out how much you're probably losing or giving away or throwing away, right? And translate that to, okay, let's just see, let's go into our reports on Seller Central and figure out how many units we removed and threw away last year over the last 12 months or the last 30 days to see how much, you know, you could see in the future. [ 00:06:42 ] And just multiply that by the retail value of what is going in the garbage, right? And figure out what your tax deductions are that you're missing out on. Because at the end of the year, you have your other tax strategy, you're dumping things like this. But at the very end, having additional deductions of this size simply for setting up an address in your removal settings is going to be very beneficial for your business. And again, those additional, you know, profits, right? The lesser tax liability then just goes straight to your bottom line. So that's really how your trash is actually your treasure. And a lot of people are sleeping on this strategy, not to mention the fact that it's reducing the amount of waste that your business is creating, because we have a lot of people who are sleeping on this strategy, and they have so many businesses on Amazon, and most people are just throwing these things away. [ 00:07:30 ] Another pro tip, if you are in a category that has expiration dates on your products, you've also probably run into the issue where you might get complaints from customers because Amazon didn't follow FIFO first in first out, and they got expired units and they're complaining. Or Amazon gave you a warning and said, you know, these are expiring in a few months, you have to remove them. So let's just say you sell supplements. And you have run into the issue where you're getting down to six months of expiration in their shelf life. If you're not spending the time to go retest the supplement to make sure that it's worthy for another year, the next best option is to donate all that inventory, especially straight from your 3PL, because then it doesn't go through the merry-go-round to total up a higher loss. [ 00:08:19 ] If you have this produced inventory of this, you know, consumable product, straight from production, where it's been sitting and, you know, going to expire in six months, donate that direct to the donation. And you're actually going to lower your losses because it's not going through the Amazon merry-go-round. And you also get the large tax deduction, which you do have to wait, you know, until tax season for that to actually materialize. But given some of the numbers, you'll probably do more than break even on those units. And that way you can actually get your capital back and you can pay, you know, a fresh, fresh order. So for those who have expiration dates on their products, you know that Amazon can be very touchy. [ 00:09:03 ] You probably shouldn't wait until three minutes or three months of expiration to actually get rid of the inventory. Start to plan that ahead of time, because if you have it in your 3PL, skip the fees at Amazon, go straight to the charity, and you'll have a, you know, the sizable tax deduction with lesser losses along the way, which is far more beneficial than Amazon messing with your listing. And then you lose the inventory. Uh, because you didn't have a plan. So, and then, uh, so one important note is when you are setting up these deductions and tax receipts with your respective charity, obviously make sure that you are telling them exactly what you're selling it for. You don't want to try to inflate this and get caught in an audit and destroy your business over this. [ 00:09:45 ] So play honest, play fair, be grateful for this incredible opportunity to not only reduce waste, but help your business out, help a charity, and just be honest with your numbers. As well. And then as you're going through the numbers, you can pull out your removal, uh, quantities from the seller central, just to make sure that your numbers are matching it, but theirs, and that way you guys are in the same, uh, same page with how many, how much inventory you've sent to them. Um, again, my name is Tony Brink. We're at BDSS market masters in Austin had an incredible event this weekend. Hope you enjoyed my trash and how we can turn into the treasure and see you [ 00:10:41 ] tonight. We'll chat to you guys later. . . [ 00:10:55 ] . . that your numbers are matching up with theirs and that way you guys are on the same same page with how many how much inventory you've sent to them again my name is tony brink we're at bdss market masters in austin had an incredible event this weekend hope you enjoyed my trash and how we can turn it into treasure and see you soon.