Amazon Taxes: What Every Seller Needs to Prepare For

Amazon sellers are responsible for paying federal income tax, managing sales tax compliance across multiple states, and tracking deductible business expenses, regardless of whether they use FBA, FBM, or SFP. Understanding these obligations is essential to avoid penalties, stay compliant, and protect your profits.

Key Takeaways:

• Amazon sellers must report all income to the IRS, including marketplace payouts and reimbursements.
• You may have to collect and remit state sales tax based on inventory locations and economic nexus.
• Amazon issues Form 1099-K if your total payments exceed $600/year, per IRS rules.
• Common deductible expenses include Amazon fees, shipping, inventory, tools, and software.
• Tax obligations vary by state, business structure, and fulfillment method (FBA, FBM, or SFP).
• Marketplace facilitator laws mean Amazon handles sales tax in most, but not all states.
  

In 2023, over 70% of Amazon sellers used Fulfillment by Amazon (FBA), automatically triggering multi-state tax nexus due to inventory storage. This means sellers must track and potentially register for sales tax in 10+ states, even if they operate from just one location. (Source: JungleScout 2023 State of the Amazon Seller Report)

Most Amazon sellers don’t realize that selling on Amazon opens up a web of tax obligations, from federal income tax to multi-state sales tax,   and a single mistake can cost you thousands.

Missing a state registration deadline, misreporting income, or failing to deduct legitimate expenses can lead to IRS penalties, account audits, or overpaying taxes. Many sellers assume Amazon handles it all. It doesn’t.

Why Trust This Guide?

We’re StarterX, a full-service Amazon agency with deep expertise to sell on Amazon. We’ve built and managed dozens of profitable stores for clients across the U.S. and abroad. We understand Amazon seller taxes from both the operational and financial side, because we’ve done it ourselves. This guide combines real-world experience with expert-level accuracy, so you get trusted, practical answers.

What Tax Responsibilities Do Amazon Sellers Have?

Amazon sellers are responsible for paying income tax, managing sales tax obligations, and tracking deductible expenses. These responsibilities apply whether you sell through FBA, FBM, or Seller Fulfilled Prime. The IRS treats all business income from Amazon as taxable, and each U.S. state may have different rules depending on your location and where you do business.

Federal Income Tax Obligations

If you sell products on Amazon, the IRS considers you a business owner. This means you must report your Amazon income when filing your federal taxes.

• Sole proprietors usually file a Schedule C with their Form 1040.
• Partnerships use Form 1065.
• Corporations file Form 1120 or 1120S, depending on structure.

Starting in 2024, Amazon is required to send Form 1099-K to sellers who earn $600 or more in gross payments annually. Even if you do not receive a 1099-K, you still must report your income.

Important: Gross receipts from Amazon include all revenue received, not just profit. You can reduce your taxable income by claiming qualified business deductions.

State Income Tax Requirements

Your tax obligations do not end at the federal level. Most U.S. states also require income tax filings if your business is based in that state or if you have established a nexus through business activity.

• If your business is registered in California, New York, Illinois, or other income tax states, you must file both state and federal returns.
• If you operate from Florida or Texas, you may avoid personal income tax, but you might owe franchise taxes or other business fees.

Always check with your state’s department of revenue to confirm your tax filing duties.

Sales Tax Responsibilities

Sales tax is often the most confusing part of selling on Amazon. As a seller, your obligation depends on where you do business, where your customers are located, and whether Amazon collects tax for you.

Nexus and Sales Tax Collection

A sales tax nexus is created when your business has a physical presence or economic activity in a state. This can include:

• Having inventory stored in an Amazon fulfillment center
• Reaching a certain threshold of sales or transactions in a state
• Operating from a home office or warehouse

For example, if you use Fulfillment by Amazon, your inventory may be stored in multiple states. This creates nexus in those locations, and you may be required to register for a sales tax permit and file returns, even if Amazon is collecting sales tax on your behalf.

Marketplace Facilitator Rules

Today, most U.S. states follow marketplace facilitator laws. Under these rules:

• Amazon automatically collects and remits sales tax on your behalf in the majority of states.
• However, you may still need to register with the state’s tax agency, file returns, or report zero tax due.

Some states, like Missouri, may have different requirements, especially for hybrid models or large-volume sellers.

What Triggers Sales Tax Nexus for Amazon Sellers?

Sales tax nexus is created when your business has a legal connection to a state, which requires you to collect and remit sales tax in that state. As an Amazon seller, this connection can be based on where your inventory is stored, where you operate, or how much you sell to customers in specific states.

Understanding what triggers nexus is key to staying compliant with state tax laws, especially if you use Fulfillment by Amazon (FBA) or ship directly through FBM (Fulfilled by Merchant).

Physical Nexus: What Counts as Presence in a State?

A physical nexus means your business has a direct, physical footprint in a state. This includes:

• A home office or warehouse
• Employees, contractors, or sales reps
• Temporary business locations like trade show booths
• A business mailing address or rented space

If you operate your Amazon store from a specific state or have any of the above connections, that state likely considers you to have nexus. You must collect and remit sales tax to that state’s tax authority, even if Amazon handles customer payments.

Inventory Nexus: How FBA Triggers Multi-State Obligations

When you use FBA, Amazon stores your products in multiple fulfillment centers around the country. Even if you never visit those states, your inventory is physically located there.

This creates an inventory-based nexus, which can trigger tax obligations in several states at once.

For example:

• Amazon may store your products in Texas, California, and Florida without notifying you directly.
• Each of those states may then require you to register for a sales tax permit or file tax returns.

You can find your inventory locations using the Inventory Event Detail Report and Fulfillment Center report in your Amazon Seller Central account.

Economic Nexus: When Sales Volume Creates a Tax Obligation

Economic nexus is based on the total number of sales or transactions you make in a state, even if you have no physical presence there.

Each state has its own threshold, but common rules include:

• $100,000 in annual revenue, or
• 200 or more separate transactions shipped to that state

Once you cross that threshold, the state considers your business to have nexus. You are then required to collect and remit sales tax on orders shipped to customers in that state.

This applies to both FBA and FBM sellers, since it is based on sales volume and not fulfillment method.

Affiliate Nexus and Click-Through Nexus

In some states, having affiliate marketers or referral partners located in the state can create an affiliate nexus. This applies if someone in that state promotes your products through links, ads, or referrals and earns commissions.

While less common than physical or economic nexus, click-through nexus laws still exist in certain states and may affect high-volume sellers using influencer marketing.

Do Amazon Sellers Need a Sales Tax Permit in Each State?

You may need a sales tax permit in any state where your business has nexus and Amazon is not fully handling the tax for you. While Amazon collects and remits sales tax in most states under marketplace facilitator laws, that does not always mean you are off the hook for registration and filing.

When Are Sales Tax Permits Required?

If you have sales tax nexus in a state, the state considers you responsible for sales tax compliance. You may need to apply for a sales tax license even if Amazon collects the tax for you.

Sales tax permit requirements depend on:

• Your business model (FBA, FBM, hybrid)
• Whether Amazon has inventory stored in that state
• Whether you have an economic or physical nexus
• State-specific rules on marketplace facilitators

Some states expect sellers to register and file informational returns, even when no tax is due.

Where Amazon Collects Sales Tax for You

Under marketplace facilitator laws, Amazon collects and remits sales tax on your behalf for sales made through its platform. As of 2025, nearly all U.S. states follow this rule.

Amazon’s tax collection covers:

• Customer sales made through the Amazon marketplace
• States where Amazon is the responsible party for collecting tax

However, marketplace laws do not apply to:

• Offline sales or third-party website orders
• FBM or multi-channel sales not processed through Amazon
• Certain states with limited or delayed marketplace laws

Always check Amazon’s Marketplace Tax Collection page and the state’s revenue department to confirm whether Amazon is fully remitting the tax in a specific state.

What About Zero-Dollar Sales Tax Returns?

Even if Amazon handles collection, some states still require you to file zero-dollar returns. This means you report your tax activity, even if the amount due is zero.

States that commonly require this include:

• Connecticut
• Massachusetts
• Tennessee
• North Carolina

If you skip these filings, the state may flag your business as non-compliant, which could lead to warnings, penalties, or cancellation of your permit.

How to Register for a Sales Tax Permit

If you determine you need a permit in a specific state, follow these steps:

1. Visit the state’s department of revenue website
2. Submit a sales tax registration application
3. Receive your sales tax ID number
4. File sales tax returns based on the required frequency (monthly, quarterly, or annually)

Many states allow you to register online, and some even charge a fee for the permit.

What Income and Expenses Do Amazon Sellers Need to Track?

Amazon sellers must track all business income, expenses, and inventory-related costs to stay compliant with tax laws and reduce taxable income. Whether you’re a small operation or a large-volume seller, keeping clean financial records is essential for accurate tax reporting and business growth.

What Counts as Taxable Income for Amazon Sellers?

All income generated through your Amazon store is considered taxable business income. This includes:

• Sales revenue from Amazon orders
• Reimbursements from Amazon for damaged goods or returns
• Affiliate commissions, if you promote products through Amazon Associates
• Refunds or chargebacks (must be recorded, even if offset later)

Your gross receipts include all money earned before deducting any fees, returns, or expenses. The IRS expects sellers to report the full gross amount, not just the profit.

If you receive a Form 1099-K from Amazon, it reflects your total gross payments for the year. As of 2024, Amazon is required to issue this form if your gross payments exceed $600 annually.

Common Deductible Business Expenses for Amazon Sellers

Deductible expenses reduce your taxable income and must be both ordinary and necessary, according to IRS standards.

Here are common deductible categories for Amazon sellers:

• Amazon Selling Fees: Referral fees, FBA fees, storage charges
• Shipping Costs: Inbound shipping to Amazon, shipping to customers (FBM)
• Software and Tools: Inventory software, repricers, research tools (e.g., Helium 10, Jungle Scout)
• Advertising Spend: Amazon Sponsored Products, off-platform ads like Google or Meta
• Product Photography and Branding: Professional services used for listing optimization
• Home Office Deduction: If a portion of your home is used exclusively for business
• Professional Services: Accountants, consultants, lawyers
• Office Supplies: Printers, label rolls, packaging materials

All expenses must be properly documented with invoices, receipts, or bank statements. If you are ever audited, the IRS will ask for proof of these deductions.

What Is Cost of Goods Sold (COGS) and Why Does It Matter?

COGS represents the direct cost to acquire or produce the products you sell. This includes:

• Wholesale purchase price of inventory
• Customs duties and import taxes
• Shipping and freight costs to bring the inventory to storage
• Packaging or manufacturing costs (if private label)
  

Tracking COGS is important because it directly affects your gross profit. The IRS requires accurate tracking of inventory costs throughout the year. You will need to know:

• Beginning inventory value
• Inventory purchased during the year
• Ending inventory value

This helps you calculate your net profit, which is the basis for your tax liability.

Inventory and Expense Tracking Best Practices

To stay compliant and organized:

• Use bookkeeping software like QuickBooks, Xero, or GoDaddy Bookkeeping
• Sync Amazon transactions with tools like A2X for clean accounting
• Categorize all expenses correctly (separate COGS from general expenses)
• Store digital copies of receipts and invoices
• Reconcile Amazon statements with bank deposits

When Do Amazon Sellers Need to Pay Estimated Taxes?

Amazon sellers must pay estimated taxes if they expect to owe $1,000 or more in federal income tax for the year. The IRS requires business owners, including Amazon sellers, to make quarterly tax payments because taxes are not automatically withheld from marketplace income.

Why Estimated Tax Payments Matter

Unlike traditional employees, Amazon sellers do not have income taxes withheld from their payouts. This means you are responsible for:

• Paying your federal income tax
• Covering your self-employment tax (Social Security and Medicare)
• Making quarterly estimated payments to the IRS

If you wait until the end of the year to pay, you risk IRS underpayment penalties and interest charges.

Who Needs to Pay Estimated Taxes?

You must pay estimated taxes if:

• You expect to owe $1,000 or more in taxes after subtracting withholding and credits
• You are a sole proprietor, LLC owner, S-Corp shareholder, or partnership member earning self-employment income
• You had little or no tax withheld during the year

This includes most Amazon sellers who do not operate through a traditional employer or payroll system.

IRS Estimated Tax Payment Schedule

The IRS sets four deadlines during the year. Each payment covers income earned in the prior period.

Quarter	Income Period	Payment Due Date
Q1	January 1 – March 31	April 15
Q2	April 1 – May 31	June 15
Q3	June 1 – August 31	September 15
Q4	September 1 – December 31	January 15 (next year)

If the due date falls on a weekend or holiday, it moves to the next business day.

How to Estimate Your Quarterly Tax Payment

Use this basic formula:

1. Estimate your annual net profit
2. Multiply by your tax rate (typically between 20% and 30%, depending on income and structure)
3. Divide the total tax by four to get your quarterly payment

You can use IRS Form 1040-ES to calculate and submit estimated payments. For accurate results, base your estimate on your actual Amazon income and business expenses.

How to Make Estimated Tax Payments

You can make payments online through the IRS Direct Pay portal or by mailing a check with a payment voucher. Many sellers also use tax software or accountants to automate this process.

Make sure to:

• Keep records of each payment made
• Match payments to your business tax ID or Social Security number
• Adjust future payments if your income changes significantly during the year

Avoiding Penalties for Underpayment

To avoid penalties, meet one of these IRS safe harbor rules:

• Pay at least 90% of your current year’s total tax liability
• Or pay 100% of your previous year’s tax (110% if income exceeds $150,000)

Meeting these thresholds protects you from underpayment fees, even if your income increases later in the year.

What Tools Help Amazon Sellers Manage Taxes?

Amazon sellers can use tax software and bookkeeping tools to simplify tax tracking, stay compliant with IRS rules, and reduce manual work. These tools automate reporting, track expenses, and connect directly with your Amazon Seller Central account.

Using the right tools is essential for sellers who want to scale, avoid errors, and stay organized during tax season.

Sales Tax Automation Tools

Sales tax laws vary by state, and automation can help you manage multi-state filing more easily. These tools handle calculations, track nexus, and generate reports ready for filing.

Top Sales Tax Tools for Amazon Sellers

• TaxJar: Automates sales tax calculation and reporting. Integrates with Amazon and ecommerce platforms. Tracks nexus by state and provides return-ready reports.
• Avalara: Handles complex tax compliance, including VAT and GST. Ideal for international sellers. Offers real-time rate calculation and automated filings.
• Sovos: Designed for larger sellers and marketplaces. Covers U.S. and global tax rules with audit protection features.

These tools are especially useful if you sell in states where Amazon does not file taxes on your behalf or if you also sell through other marketplaces.

Accounting and Bookkeeping Tools

Tracking your income, expenses, and inventory is crucial for tax compliance. These accounting tools connect with Amazon to keep your books accurate.

Recommended Tools

• QuickBooks Online: Widely used for e-commerce accounting. Tracks expenses, invoices, and profit and loss. Integrates with Amazon using connector apps.
• Xero: Cloud-based accounting software that supports small to medium-sized Amazon businesses. Offers bank feed integrations and inventory tracking.
• A2X: Specifically built for Amazon sellers. Syncs Amazon settlements to QuickBooks or Xero. Breaks down payouts into sales, fees, refunds, and COGS automatically.

These tools reduce manual entry and help ensure that your tax reports match your financial activity.

Bookkeeping and Full-Service Options

If you prefer not to handle accounting yourself, you can outsource bookkeeping to e-commerce-focused services. These providers manage your books, prepare financial reports, and even file taxes for you.

Options to Consider

• Bench Accounting: Offers human bookkeepers plus software. Organizes Amazon transactions and prepares tax-ready financials.
• EcomBalance: Specializes in e-commerce bookkeeping. Built for Amazon, Shopify, and Walmart sellers. Focuses on accurate cash flow tracking and monthly reporting.
• CapForge: Provides bookkeeping and tax preparation with plans tailored for Amazon sellers.

These services save time and reduce the risk of IRS errors, especially if your sales volume is high or you sell across multiple channels.

Key Features to Look for in Tax Tools

When choosing a tax or accounting tool, look for features such as:

• Integration with Amazon Seller Central
• Automatic categorization of sales and fees
• Nexus tracking and sales tax mapping
• Multi-currency and international support
• Real-time reporting dashboards

What Are the Most Common Tax Mistakes Amazon Sellers Make?

Many Amazon sellers make avoidable tax mistakes that can lead to penalties, audits, or lost deductions. These issues often result from poor recordkeeping, misunderstanding tax laws, or assuming that Amazon handles everything. Knowing what to avoid helps you stay compliant and protect your profits.

1. Not Reporting All Business Income

One of the most common mistakes is failing to report the full amount of revenue received from Amazon. The IRS requires sellers to report all gross sales, including:

• Amazon payouts
• Reimbursements for damaged or lost inventory
• Sales made through other marketplaces or personal websites

Relying only on your bank deposits without reconciling with your 1099-K or settlement reports can result in underreporting. This may trigger an IRS audit or penalty for tax underpayment.

2. Ignoring Sales Tax Nexus in Multiple States

Sellers who use Fulfillment by Amazon (FBA) often forget that their inventory is stored in multiple states. This creates a nexus, which means you may be required to:

• Register for a sales tax permit
• File sales tax returns
• Collect sales tax in additional states

Even if Amazon collects tax in most states under marketplace facilitator laws, some states still require you to file informational or zero-dollar returns.

3. Missing Estimated Tax Payments

If you expect to owe more than $1,000 in federal income tax, the IRS requires you to pay quarterly estimated taxes. Many sellers miss these deadlines because they are used to W-2 income or assume they can pay once a year.

Missed or late payments can result in:

• IRS underpayment penalties
• Interest charges on unpaid taxes
• Cash flow issues at year-end

4. Mixing Personal and Business Expenses

Using the same credit card or bank account for both personal and business expenses creates confusion. It also increases the risk of:

• Disallowed deductions during an audit
• Misclassification of expenses
  Inaccurate financial records

To avoid this, always use a separate business bank account and credit card for Amazon-related expenses.

5. Not Tracking Amazon Seller Fees and Deductions

Amazon charges multiple fees, including:

• Referral fees
• FBA storage and fulfillment fees
• Subscription charges

These fees are deductible business expenses, but many sellers fail to track them properly. Using tools like A2X or syncing with accounting software like QuickBooks ensures that all fees are captured and categorized correctly.

6. Failing to Keep Proper Records

The IRS expects you to keep detailed records of all business activity, including:

• Sales reports
• Inventory purchases
• Expense receipts
• Tax filings
• Bank statements

Without documentation, you may lose deductions or face penalties during an audit. Digital copies are acceptable as long as they are organized and accessible.

7. Choosing the Wrong Business Structure

Some sellers start as sole proprietors and stick with it too long. Others set up an LLC but forget to elect S-Corp status when it becomes tax-efficient. Many new sellers also overlook professional Amazon LLC formation services, which can help set up the right structure from the beginning.

Each structure affects:

• How your income is taxed
• What forms must you file
• Your self-employment tax liability

Not reviewing your structure as you grow can result in paying more tax than necessary.

Final Thoughts

Amazon sellers face a wide range of tax responsibilities, from federal income tax and quarterly estimated payments to state-level sales tax compliance and international VAT rules. Whether you’re just starting out or scaling fast, understanding how taxes affect your business is not optional. It protects your profits, keeps you legally compliant, and gives you control over your financial future.

Tax mistakes are common, but they’re avoidable with the right systems in place. Using proper tools, tracking your income and expenses, and choosing the right business structure are all critical steps to staying ahead. The more organized you are, the fewer surprises you’ll face when it’s time to file.

Ready to Take Control of Your Amazon Taxes?

At StarterX, we’ve built, scaled, and managed multiple Amazon stores ourselves. We know what sellers need because we’ve been in your shoes. Our team understands the real-world challenges of ecommerce taxes and how to solve them with proven strategies and tools.

If you want expert guidance tailored to your Amazon business, we can help. Whether you need support with accounting, sales tax registration, entity setup, or compliance tools, StarterX is your trusted ecommerce partner.

👉 Book a Free Consultation Call Now

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Frequently Asked Questions About Amazon Seller Taxes

Do Amazon sellers have to pay taxes?

Yes. Amazon sellers are required to report all income to the IRS and pay federal income tax. Depending on your business structure and where you operate, you may also need to pay state income tax, sales tax, and self-employment tax.

Does Amazon send a 1099-K to sellers?

Yes. As of 2024, Amazon issues a Form 1099-K if your total gross payments exceed $600 per year. This form reports your total Amazon sales before expenses. Even if you do not receive one, you must still report your full income.

Does Amazon collect and pay sales tax for sellers?

Amazon collects and remits sales tax in most U.S. states under marketplace facilitator laws. However, some states still require sellers to register for a sales tax permit and file zero-dollar returns, even if Amazon is handling collection.

Do I need to register for sales tax in every state where I have nexus?

Yes. If you have sales tax nexus in a state due to inventory, economic activity, or physical presence, you may need to register and file returns in that state. Always check each state’s Department of Revenue rules.

What expenses can Amazon sellers deduct?

Common deductible expenses include:

• Amazon seller fees
• Advertising and promotions
• Inventory and shipping costs
• Business software and tools
• Professional services (accounting, legal)
• Home office expenses (if qualified)

Do Amazon sellers pay self-employment tax?

Yes. If you operate as a sole proprietor, LLC, or partnership, you are considered self-employed and must pay self-employment tax, which covers Social Security and Medicare. This is in addition to income tax.

When are estimated tax payments due?

Estimated tax payments are due quarterly:

• April 15
• June 15
• September 15
• January 15 (of the following year)

If you expect to owe more than $1,000 in federal tax for the year, you are required to make these payments.

Do I need an LLC to sell on Amazon?

No, but forming an LLC can provide liability protection and may offer tax advantages. Many Amazon sellers start as sole proprietors and switch to an LLC or S Corporation as their income grows.

How do I track Amazon sales for taxes?

Use Amazon’s transaction reports, settlement summaries, and 1099-K forms. Many sellers use accounting tools like A2X, QuickBooks, or Xero to automate income tracking and categorize expenses.

Can I get audited as an Amazon seller?

Yes. The IRS or state tax agencies may audit your business if your reported income doesn’t match your 1099-K, if deductions are unusually high, or if you fail to file required returns. Good recordkeeping is essential to prepare for any audit.