Amazon Seller Tax Compliance Guide

Selling on Amazon means your inventory sits in a dozen states, your payouts arrive net of fees, and your January 1099-K looks nothing like the cash that actually hit your bank account. That gap — between what Amazon reports, what you deposited, and what you actually earned — is where most seller tax problems start. Here's how to stay compliant for 2026 without drowning in spreadsheets.

What tax forms will Amazon send me for 2026?

Amazon issues Form 1099-K reporting your gross payment volume. Under the One Big Beautiful Bill Act (July 2025), the federal threshold for 2026 is back to the original standard: more than $20,000 in gross payments and more than 200 transactions. Most established sellers clear both bars easily; newer sellers under the threshold may get no form at all (unless a state with a lower threshold requires one) — but every dollar of profit is still taxable.

The critical detail: the 1099-K reports unadjusted gross sales. It includes refunded orders, and it's measured before Amazon deducted referral fees, FBA fulfillment fees, storage fees, and advertising. If you copy the 1099-K number onto your return as "income" and stop there, you'll overstate revenue. If you report only your net deposits, your return won't match IRS records and you invite a mismatch notice. The right approach: report the gross, then deduct refunds, fees, and costs line by line.

Why doesn't my 1099-K match my bank deposits?

Because Amazon settles with you on a net basis. A quick reconciliation example (2026 figures, rounded):

• 1099-K gross payments: $310,000
• Refunds and returns: –$18,000
• Referral + FBA + storage fees: –$62,000
• Amazon advertising: –$21,000
• Net deposited to your bank: ≈ $209,000

On Schedule C (or your 1120-S), you'd show roughly $310,000 of gross receipts, $18,000 of returns and allowances, and the fees and ad spend as expenses — then subtract your cost of goods sold on top of that. Pull Amazon's date-range and settlement reports monthly and tie them to your books; doing this in January for the whole prior year is miserable, and doing it monthly takes minutes.

How do I handle inventory and COGS correctly?

Inventory is the number-one bookkeeping error we see in seller books: you deduct inventory when it sells, not when you buy it. A $60,000 container purchased in November isn't a $60,000 deduction in that year — only the units actually sold count toward that year's cost of goods sold.

The good news for most sellers: if your average annual gross receipts over the prior three years are under the small-business threshold ($32 million for 2026), you qualify as a small business taxpayer. That lets you use the cash method overall, skip the complex UNICAP capitalization rules, and account for inventory using a simplified method that follows your own books. Simpler — but it still doesn't turn unsold inventory into a current deduction.

Also deductible when they happen: inventory that's destroyed, disposed of via removal orders, or written down after being damaged. Keep Amazon's disposal reports as support.

Does FBA inventory create tax exposure in other states?

Two different questions hide here, and they have different answers:

Sales tax: largely solved. Every state with a sales tax now has a marketplace facilitator law, so Amazon collects and remits sales tax on your Amazon orders. You generally don't file sales tax returns for those sales — though if you sell on your own Shopify site too, economic nexus rules (commonly ~$100,000 of in-state sales) make those channels your responsibility.

State income/franchise tax: murkier. FBA stock sitting in a state's warehouse is physical presence, and a few states have historically taken the position that this creates income tax filing obligations for out-of-state sellers. Enforcement varies widely, and several states have backed off or offered amnesty programs. This is a judgment call worth making deliberately with an advisor rather than by default — the answer depends on your volume, margins, and risk tolerance.

Here's a one-page view of who handles what:

Which deductions and 2026 changes matter most for sellers?

Beyond COGS and Amazon fees, the meaningful ones:

• Equipment and warehouse gear: 100% bonus depreciation is now permanent for qualifying property acquired after January 19, 2025 — label printers, pallet racking, forklifts, vehicles (limits apply) can often be fully written off in year one. Section 179 offers up to $2,560,000 of expensing for 2026 as an alternative.
• The QBI deduction is permanent: up to 20% off pass-through profit, with 2026 phase-out thresholds starting at $201,750 single / $403,500 joint.
• Software and services: repricers, review tools, prep-center fees, freight forwarding, product photography.
• Tariffs and duties: import duties are part of your inventory cost — and if you overpaid tariffs on inventory imports, 2026 has opened real refund opportunities. See our tariff refunds guide and the tariff refund service page for whether your entries qualify.
• Contractor payments: the 1099-NEC threshold rose to $2,000 for payments made in 2026 — fewer forms to file, same deductions.

When should an Amazon seller switch to an S-corp?

Once you're consistently profitable, self-employment tax becomes the pain point: 15.3% on top of income tax, applied to essentially all sole-proprietor profit (the Social Security piece up to $184,500 for 2026). An S-corp lets you pay yourself a reasonable salary and take remaining profit as distributions that avoid self-employment tax. The trade-offs are payroll costs, a separate return, and reasonable-compensation scrutiny — so there's a real crossover point, usually somewhere in the $50,000–$80,000+ consistent-profit range depending on your numbers. Run yours through our S-corp calculator to see the estimated savings side by side.

If you've read this far and realized your books, your 1099-K, and your bank account are telling three different stories — that's the most common starting point we see, and it's fixable. Problems come here to get solved. A clean chart of accounts and a monthly settlement reconciliation turn tax season into a formality.

FAQ

I sold less than $20,000 on Amazon. Do I still owe taxes?

Yes. The $20,000/200 rule (restored for 2026) only controls whether Amazon must send a 1099-K. Your profit is taxable from the first sale, reported from your own records.

Amazon collects my sales tax — can I ignore state registrations entirely?

For Amazon-channel sales, marketplace laws have you covered in every sales-tax state. But your own-website sales, legacy registrations you never closed, and potential income-tax nexus from FBA inventory each need a deliberate look. Dormant registrations that still expect $0 returns are a classic source of surprise notices.

Should I use cash or accrual accounting?

Under the $32 million (2026) gross receipts test, most sellers can use the cash method with simplified inventory treatment. Many growing brands still keep accrual-basis books internally for accurate margins, then let their tax preparer handle the method on the return.

How do I deduct inventory I destroyed or had Amazon dispose of?

Disposed, destroyed, or donated inventory is generally deductible in the year it leaves your control, at your cost basis. Keep removal-order and disposal reports — they're your substantiation.

Do I need separate bookkeeping software?

At meaningful volume, yes. Settlement-level tools that post Amazon payouts into QuickBooks or Xero correctly (gross sales, fees, refunds as separate lines) pay for themselves the first time you avoid double-counting revenue. See our pricing page if you'd rather have it done for you.

Reviewed by the WAYG tax team · Updated July 2026