Selling Chinese products in the US can be profitable due to low sourcing costs, but it also comes with unique accounting and compliance requirements. Understanding them is critical to avoid penalties and manage your finances effectively.
1. Accounting Considerations
a. Cost of Goods Sold (COGS)
When importing products from China:
- Include all costs: product cost, shipping, customs duties, import taxes, and insurance.
- Example: If you buy a gadget for $5, pay $1 shipping, $0.50 customs duty, and $0.10 insurance, COGS = $6.60 per unit.
- Proper COGS ensures accurate profit calculations.
b. Currency Conversion
- Many suppliers invoice in CNY. Track exchange rates at the time of payment.
- Record foreign transaction fees separately as business expenses.
c. Inventory Management
- Track imported inventory separately.
- Use FIFO (First-In, First-Out) for US accounting compliance.
d. Marketplace Fees
- If selling on Amazon, Shopify, or TikTok:
- Record gross sales, platform fees, and payment processing fees.
- Treat platform fees as operating expenses.
2. Sales Tax Compliance
a. Marketplace Facilitator Rules
- Platforms like Amazon, Shopify, and TikTok Shop collect sales tax automatically in most states.
- Sellers must still maintain accurate records.
b. Economic Nexus
- If your sales in a state exceed $100,000 or 200 transactions, you must register and file sales tax for that state.
- Noncompliance can result in fines.
3. Import and Customs Compliance
a. Import Duties and Tariffs
- Check the Harmonized System (HS) code for your product to calculate duties.
- Some products face additional tariffs, especially electronics or textiles from China.
b. FDA, FCC, or CPSC Regulations
- Certain categories like food, supplements, electronics, or children’s toys require compliance with US safety standards.
- Non-compliant products can be detained or rejected at customs.
4. Accounting for Shipping and Logistics
- Record international shipping and customs clearance fees as part of COGS.
- Track returns and refunds: international shipping can affect refund amounts.
- Consider warehousing fees if using US fulfillment centers (FBA, ShipBob, etc.).
5. Income Tax Compliance
- Revenue from Chinese-sourced products is US taxable income, regardless of supplier location.
- Deduct allowable business expenses like:
- Product cost + shipping
- Platform fees
- Advertising and marketing
- Professional services
- Business structure affects taxation (LLC, S-Corp, Sole Proprietorship).
6. Record-Keeping Best Practices
Maintain records for at least 3–7 years:
- Supplier invoices and receipts
- Import documentation (customs, shipping, duties)
- Marketplace sales reports
- Bank and payment processor statements
- Tax filings
7. Common Pitfalls to Avoid
- Ignoring customs duties – leads to underestimating costs.
- Failing to track sales tax nexus – can trigger fines.
- Mixing personal and business finances – complicates taxes.
- Not including shipping and import fees in COGS – inflates profits.
- Selling regulated products without compliance – risk of seizures.
Conclusion
Selling Chinese products in the US is profitable, but it requires accurate accounting and strict compliance with US regulations. Properly tracking COGS, sales, taxes, and imports, while maintaining clear records, ensures your e-commerce business stays compliant and profitable.