5 Things You Need to Know About Taxes for Amazon Sellers

Amazon is one of the most trafficked e-commerce marketplaces on the Internet. Selling there can increase your bottom line, which can also increase your tax responsibilities.Using Amazon to sell goods or services means routing many of your platforms and transactions through Amazon itself, especially with Fulfillment by Amazon (FBA). This introduces complex variables into the accounting process, which can affect your taxes in ways you might not have anticipated.Use this article to learn: 

• How Amazon sellers are classified by the Internal Revenue Service (IRS)

• What type of taxes Amazon sellers need to pay

• When should Amazon sellers pay taxes

You’ll Need a 1099-K

If your Amazon e-commerce business received $5,000 or more in total payments in 2024, Amazon will issue you IRS Form 1099-K, Payment Card and Third Party Network Transactions. View gross sales information in your Amazon sales tax report.The payment threshold to file will continue to decline. If you receive $2,500 or more in 2025 and $600 or more in 2026, Amazon will issue 1099-K forms for those tax years.  

What is a 1099-K?

IRS Form 1099-K reports transactions made through third-party payment networks like Amazon.When you have a seller account on the platform, Amazon receives and processes customer payments through payment systems like PayPal, a debit card, or any other means. Once processed, Amazon distributes the proper share of that payment to you. Amazon functions in this way as a third-party payment network between you and your customer, and they report the money they’ve processed through the 1099-K.

Who Does Amazon Send the 1099-K to?

Amazon will generate and send IRS Form 1099-K directly to your business by the end of January. You can receive this form electronically or in the mail.If you don't receive your tax forms from Amazon by the end of January, you can download the paperwork and other pertinent documentation directly from your account.

What do I do if my 1099-K is Inaccurate?

The information on IRS Form 1099-K is used to prepare your business tax return. This information must be an accurate reflection of your sales performance on Amazon. Inaccurate tax payments and missed deadlines can lead to penalties and increased IRS scrutiny.If you notice an error on IRS Form 1099-K, log in to Amazon Seller Central in your Amazon account or contact Amazon support immediately and work with them on corrections and updates. View this hub as a central account for your Amazon selling operations.

File Schedule C as a Small Business

When preparing your annual income tax return, most Amazon sellers/FBA sellers must also file a Schedule C, Profit or Loss from Business, attached to Form 1040, the standard personal tax return. 

Even if selling goods on Amazon is only a side gig, the money you earn counts as income you receive as a small business owner, whether or not you have a registered business or license. Filling out Schedule C allows you to file that self-employment income easily.

If you have not made an entity election for your business, the IRS will treat it as a sole proprietorship if you're the sole owner and a partnership if two or more people own your business.  

Maximize Your Tax Deductions

Filing Schedule C allows you to report that income as a business and provides opportunities to reduce your taxable income. As an independent small business, you can keep track of all the money you spend to keep your Amazon business going, and then you can claim those expenses as self-employment tax deductions. 

Tax deductions work by subtracting business expenses directly from your taxable income. This will lower the taxes you owe and potentially even bring you down to a lower tax bracket. Here are just a few of the business expenses you can claim as deductions to offset your revenue:

• Amazon seller fees

• Packaging and shipping costs/shipping fees

• Advertising on Amazon

• Home office supplies 

• Mileage tracking subscriptions 

• Employee salaries

• Office rent and maintenance

• Healthcare premiums 

• Retirement savings contributions 

• Professional service fees 

Does Amazon Collect Sales Tax for Sellers?

Most states, including California and New York, have a Marketplace Facilitator or Marketplace Fairness law that ensures marketplaces like Amazon and eBay are responsible for collecting and remitting sales on behalf of sellers. Delaware, Alaska, and New Hampshire are some of the states that lack these laws. Check with local authorities to ensure your state has sales tax collection Marketplace Facilitator laws in place.

While it's Amazon's responsibility to collect sales tax on your behalf, you must inform the platform where and how to apply sales tax in different areas for different customers. Your specific sales tax requirements in each jurisdiction will depend on having a sales tax nexus in that state. This is determined differently for Amazon FBA sellers.

If sales on Amazon meet eligibility requirements, you will receive IRS Form 1099-K from the platform detailing Amazon marketplace tax collection.

An Accountant is Your Best Tool to Lower Your Tax Bill

As your online business grows, so too will your tax responsibilities. If you don't take every tax deduction your Amazon business is entitled to, among other necessary steps to manage your business taxes, you might be paying more money to the IRS and other authorities than you have to.

Fortunately, with 1-800Accountant's CPA services for Amazon business finances, you don’t have to figure out your economic nexus, sales tax rate, and the latest tax laws, tax information, and tax obligations yourself. When you work with 1-800Accountant, our tax professionals handle all Amazon seller tax requirements, including withholding the correct amount of tax for your Amazon products sales tax return and guidance on obtaining sales tax permits before you file taxes. Schedule a quick consultation–usually 30 minutes or less—to learn more.