Taxes for Amazon FBA Sellers

Income Tax for Amazon Sellers

Your Amazon FBA income is taxable as business income regardless of whether you operate as a sole proprietor, LLC, S-Corp, or C-Corp. The IRS treats your net profit (total revenue minus all business expenses) as taxable income. For sole proprietors and single-member LLCs, Amazon income flows through to your personal tax return on Schedule C. For S-Corps, income flows through to your personal return on Schedule K-1. For C-Corps, the business files its own tax return and you are taxed on salary and distributions.

Self-employment tax applies to sole proprietors and LLC members. In addition to regular income tax, you owe 15.3% self-employment tax on net earnings (12.4% for Social Security up to the annual wage base, plus 2.9% for Medicare on all earnings). This is the equivalent of the employer and employee portions of FICA taxes that W-2 employees split with their employer. Self-employment tax is a significant cost that many new sellers overlook. On $50,000 of net Amazon profit, self-employment tax alone is $7,065 before any income tax. Forming an S-Corp can reduce self-employment tax exposure once your net profit exceeds $40,000 to $50,000, though the additional accounting complexity and costs must be weighed against the savings.

Quarterly Estimated Tax Payments

If you expect to owe $1,000 or more in federal taxes for the year, the IRS requires quarterly estimated tax payments. The due dates are April 15, June 15, September 15, and January 15 of the following year. Estimate your quarterly payment by projecting your annual net profit, calculating your income tax and self-employment tax, and dividing by four. Most Amazon sellers set aside 25% to 30% of net profit for taxes, which covers both income tax and self-employment tax for most tax brackets.

State income tax adds another layer. If your state has an income tax, you likely owe estimated payments to your state as well. Some states where Amazon stores FBA inventory may also assert income tax jurisdiction over your business, even if you have no other connection to that state. This is an evolving area of tax law that varies by state. Consult a CPA familiar with ecommerce businesses to understand your specific state income tax obligations. Our accounting guide covers finding the right accounting professional for your situation.

Sales Tax and Marketplace Facilitator Laws

The good news for Amazon sellers is that sales tax collection is largely handled by Amazon. As of 2026, all 45 states with sales tax plus Washington DC have marketplace facilitator laws that require Amazon to collect and remit sales tax on behalf of third-party sellers. This means Amazon automatically calculates, collects, and pays sales tax on your orders. You do not need to register for sales tax permits in every state, calculate tax rates, or remit payments for Amazon sales.

However, some states still require marketplace sellers to file informational returns or register for sales tax permits even though Amazon handles collection. Requirements vary by state and change frequently. If you sell on channels other than Amazon, such as your own Shopify store or Etsy, you are responsible for collecting and remitting sales tax for those sales in states where you have nexus. Physical presence nexus exists in every state where Amazon stores your FBA inventory, and economic nexus typically applies once you exceed $100,000 in sales or 200 transactions in a state during a calendar year.

FBA Inventory and State Nexus

When you send inventory to Amazon FBA, Amazon distributes it across multiple fulfillment centers nationwide. Your inventory might be stored in 10 to 20 different states, and Amazon can move inventory between warehouses at any time without notifying you. This creates physical presence nexus in every state where your inventory sits, which historically meant sales tax registration obligations in all those states. Marketplace facilitator laws have mostly eliminated the sales tax collection burden, but the nexus created by FBA inventory can still trigger state income tax filing requirements in some states.

You can check which states your FBA inventory is stored in through the Inventory Event Detail report in Seller Central. Some sellers use Amazon's Inventory Placement Service (which costs an additional fee per unit) to consolidate shipments to a single fulfillment center, though Amazon may still redistribute inventory to other warehouses afterward. For most sellers, the practical approach is to rely on Amazon's marketplace facilitator role for sales tax and consult a CPA about income tax obligations in inventory states.

Deductible Business Expenses

Amazon FBA sellers can deduct a wide range of business expenses to reduce taxable income. Common deductions include cost of goods sold (product purchases from suppliers), Amazon seller fees (referral fees, FBA fees, subscription), shipping costs to FBA warehouses, advertising and PPC spend, software subscriptions (Helium 10, Jungle Scout, Keepa, accounting software), product photography and graphic design, product samples and prototyping, business insurance premiums, home office deduction if you prep and manage your business from home, travel to trade shows and supplier meetings, professional services (CPA, trademark attorney), and internet and phone expenses attributable to business use.

Track every business expense meticulously from day one. Use accounting software connected to your Amazon seller account to automatically categorize revenue and fees. Keep receipts for all purchases, especially product sourcing costs, which form your cost of goods sold (the largest deduction for most FBA sellers). Organized records make tax filing straightforward and protect you in the event of an IRS audit. The difference between sloppy and organized bookkeeping can be thousands of dollars in missed deductions or penalties for inaccurate reporting.

When to Hire a CPA

A CPA who specializes in ecommerce businesses is worth the investment once your Amazon revenue exceeds $50,000 per year. At that level, the tax complexity of multi-state nexus, self-employment tax optimization, entity structure decisions (sole proprietor vs LLC vs S-Corp), and cost of goods sold calculations makes professional guidance valuable. A good ecommerce CPA costs $500 to $2,000 per year for tax preparation and typically saves you more than their fee in tax optimization. Our guide on hiring a CPA covers what to look for and what to expect.