When the year comes to a close, Amazon sellers and eCommerce entrepreneurs must turn their attention to one of the most critical aspects of running a business—accounting and taxes. Whether you operate as a sole proprietor, LLC, or S-corp, understanding how state and federal tax laws affect your business is vital, especially if you’re selling across state lines.
At The Online Seller CPA, we specialize in helping Amazon sellers streamline accounting, stay compliant, and make smart tax decisions. Here’s what you need to know heading into tax season.
One of the most confusing areas for Amazon sellers is state sales tax compliance. Selling across multiple states creates nexus—a legal connection that requires you to collect and remit sales tax in certain states. Nexus can be triggered by:
Having inventory stored in an Amazon FBA warehouse (physical presence nexus)
Exceeding economic thresholds in a state (economic nexus, often $100,000 in sales or 200+ transactions)
Hiring employees or contractors in a state
Amazon does collect and remit sales tax in most states on your behalf, but you are still responsible for income tax reporting and understanding which states require seller-filed returns. States like California and New York are aggressive in pursuing online sellers. A nexus analysis should be done annually.
Many Amazon sellers operate without formal accounting systems, relying on spreadsheets or their bank app. This can lead to issues at year-end when reconciling revenue, returns, and expenses.
Open a separate business bank account and credit card
Use accounting software like QuickBooks Online or Xero, integrated with Amazon and other tools
Reconcile your accounts monthly to ensure accuracy
Track inventory properly, including COGS (cost of goods sold), which directly impacts your taxable income
If you’ve mixed personal and business funds, now is the time to clean it up. The IRS—and many state auditors—frown on co-mingled finances.
For tax year 2023 and beyond, the IRS has implemented a lower $600 threshold for 1099-K reporting. This means you will receive a 1099-K from Amazon if your gross payments exceed $600, regardless of the number of transactions.
This change significantly increases the likelihood of matching IRS data with your filed income. If you don’t report income shown on your 1099-K, it will trigger a CP2000 notice or an audit. Make sure your books match what Amazon reports.
Amazon sellers with multi-state sales often overlook state income taxes, assuming they only owe taxes in their home state. But if you have inventory in FBA warehouses or meet economic nexus thresholds, you may owe income taxes in other states—even if you’re based in Florida or Texas (which have no state income tax).
Consider doing a state-by-state income tax review with a CPA who understands eCommerce. States like New York, California, and Illinois aggressively audit eCommerce businesses. Filing voluntarily now is far better than facing back taxes and penalties later.
5. Plan Ahead: Entity Structure and Tax Strategy
Finally, end-of-year is the right time to evaluate whether your current entity is still working for you. A CPA can help you determine:
Whether to elect S-Corp status for tax savings
If you’re overpaying self-employment tax
Whether your expense deductions (home office, mileage, tools, etc.) are optimized
How to handle inventory write-downs or unsold stock
What your Q4 estimated tax payments should be
What you as an Amazon Seller need to remember is, Amazon selling is not a side hustle—it’s a real business with real tax obligations. With sales across state lines, evolving IRS rules, and increasing state scrutiny, you need a digital-first CPA who understands eCommerce accounting.
At The Online Seller CPA, we help Amazon businesses take control of their finances, stay compliant, and grow smarter.
Take control of your personal finances—without the stress.
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