What Do Amazon Sellers Need to Know for Tax Reporting?

If you are an e-commerce entrepreneur, understanding your tax obligations is crucial for ensuring a smooth and compliant financial year. This blog will help you navigate the essential information you need to know, from tracking income and expenses to understanding new regulations and potential deductions, ensuring you are well-equipped to meet your tax responsibilities each year. Contact a seasoned eCommerce Accountant at eBiz Accounting for comprehensive tax solutions.

What is an Amazon 1099-K Form?

For Amazon sellers, understanding the 1099-K form is crucial for accurate income reporting to the Internal Revenue Service (IRS), preventing tax-time surprises, and maintaining business compliance. This tax form details payment transactions that are processed by third-party platforms such as Amazon and PayPal, reflecting your total gross sales through Amazon payments rather than your net profit. Consequently, the reported amount will not account for fees, returns, or discounts.

The IRS mandates this form to ensure that all taxable income from online sales is declared, combating underreporting of digital sales and ensuring compliance for self-employed individuals. Effective with the 2025 update, a 1099-K will be issued to sellers whose gross sales exceed $600 within a calendar year. This threshold applies even to those operating a side hustle with only a few sales. Receiving a 1099-K form doesn’t automatically mean you owe taxes; you will only be taxed on your profits after all eligible business expenses have been deducted.

It should be noted that incorrect information on your 1099-K form can trigger an IRS notice. Sellers should double-check all of their business details in their Amazon Seller Central account before the year ends and consider engaging a qualified attorney to help them steer clear of costly mistakes when tax reporting.

What Happens if You Don’t Report Income from a 1099-K?

The IRS’s Automated Underreporter (AUR) system automatically cross-references the income declared on your tax return with data from 1099-K forms. Any discrepancies will trigger a flag on your account. If a mismatch is identified, the IRS will send a CP2000 Notice. This notice details the discrepancy, proposes an adjusted tax liability based on the omitted income, and requests payment for the additional tax, interest, and any other applicable penalties.

Failure to report all income substantially heightens the likelihood of an audit, even if a CP2000 Notice doesn’t automatically trigger one. An audit can be a comprehensive process, involving a thorough examination of your financial records.

By ensuring full compliance with IRS and state rules, Ebiz Accounting can help maximize your deductions and prevent overpaying, ultimately providing you with peace of mind every tax season. Connect with our firm today to arrange a consultation.