Amazon deposits a lump sum into your bank account every couple of weeks, and that number is not your revenue. It's what's left after referral fees, FBA fulfillment, storage, ad spend, refunds, and reserves. The IRS wants the gross figure, and every deductible expense you can document reduces the profit you pay tax on.

As an Amazon FBA seller, you can deduct specific operating expenses, calculate Cost of Goods Sold for inventory, file Schedule C, and set up a bookkeeping rhythm that outlasts the March tax rush.

Why tracking business expenses matters for Amazon sellers

Amazon payouts land in your account net of fees. The gross sale is what's reportable as income, not the deposit. If you sold $10,000 in a two-week settlement period and Amazon took $3,800 in referral fees, FBA fees, and ad spend before wiring you $6,200, your income is $10,000 and your deductions include the $3,800, not the other way around.

As e-commerce continues to capture a larger share of U.S. retail sales, the IRS has sharpened how online sellers report income and expenses.

That matters because Form 1099-K from Amazon reports gross unadjusted payment volume. Every deductible expense you can prove reduces taxable profit. Mixing personal and business spending on one debit card makes those deductions hard to substantiate in an audit — the IRS wants to see business purchases running through a business account with matching receipts. A dedicated business checking account gives you a cleaner paper trail for Schedule C and makes receipts easier to match to transactions.

How do Amazon sellers report income and expenses to the IRS?

Most Amazon sellers are sole proprietors or single-member LLCs, and both file the same form.

Amazon sellers who operate as sole proprietors or single-member LLCs report business income and expenses on Schedule C of Form 1040. Report gross receipts on Line 1, report returns and allowances on Line 2, and calculate Cost of Goods Sold in Part III so it flows to Line 4. Amazon fees, advertising, software, and other operating costs get itemized in Part II.

As of tax year 2024, Amazon issues Form 1099-K when sellers meet the IRS reporting threshold, and the form reports gross payment volume before fees, refunds, or returns.

That means the number Amazon sends the IRS is your top-line sales figure, and you claim your Amazon fees separately as deductions.

Two other IRS rules matter before you claim a single expense:

• Self-employment tax.

Self-employment tax is 15.3%, made up of 12.4% Social Security tax and 2.9% Medicare tax, and applies when net earnings from self-employment are $400 or more. This is on top of federal income tax, and it's why "net profit" hits harder for self-employed sellers than for W-2 employees.

• Ordinary and necessary.

Ordinary means common in your line of business; necessary means helpful and appropriate. A UPC label printer clears the bar. A Peloton for your home office does not.

Inventory is the trap. You don't deduct product costs when you buy them. You deduct them through Cost of Goods Sold when the units sell.

What business expenses can Amazon sellers deduct?

Here's what a working FBA seller typically writes off, mapped to Schedule C categories.

Amazon-specific fees you can deduct

• Referral fees: Amazon's commission on each sale, which varies by category.
• FBA fulfillment fees: per-unit pick, pack, and ship charges.
• Monthly FBA storage fees: monthly storage charges plus long-term storage surcharges.
• Sponsored Products, Sponsored Brands, and Sponsored Display: ad spend on Amazon PPC.
• Return processing fees and removal order fees.
• Professional selling plan: Amazon's monthly seller subscription fee; verify the current amount in Seller Central before filing.

Other common operating expenses

• Software and subscriptions: inventory management (Helium 10, Jungle Scout), accounting software (QuickBooks, Xero), keyword research tools.
• Shipping supplies for prep done in-house: poly bags, bubble mailers, labels, tape.
• Professional services: CPA fees, bookkeeping, legal, LLC formation.
• Home office if used regularly and exclusively for the business.
• Mileage for sourcing trips, USPS runs, and UPS drop-offs.
• Cell phone and internet: business-use percentage only.
• Business insurance, including product liability coverage that Amazon may require once your sales reach Amazon's insurance threshold.

Cost of Goods Sold: why buying $20K of inventory in December doesn't mean a $20K deduction

This rule trips up many new sellers. If you spend $20,000 on inventory in December and it's all still sitting in an Amazon warehouse on December 31, you deduct $0 of it that year. You deduct product cost as it sells.

The formula from Schedule C Part III:

Cost of Goods Sold for an Amazon FBA seller equals beginning inventory plus purchases plus freight-in plus prep costs minus ending inventory, and inventory is deducted only in the year it is sold.

A concrete example. You start the year with $5,000 of inventory on hand. You buy $60,000 more throughout the year, pay $4,000 in freight to ship it to Amazon warehouses, and $1,500 to a prep center for labeling and polybagging. On December 31, Seller Central shows $12,000 of inventory still in FBA warehouses.

• Beginning inventory: $5,000
• Purchases: $60,000
• Freight-in: $4,000
• Prep costs: $1,500
• Ending inventory: ($12,000)
• COGS: $58,500

Only $58,500 hits your Schedule C, even though you wrote $65,500 in checks. The remaining $12,000 sits on your balance sheet and gets deducted next year when those units sell.

To count units on hand at year-end, use the Seller Central Inventory Ledger report (Reports → Fulfillment → Inventory Ledger, summary view, month-end date) and add any inventory sitting at a 3PL or prep center that hasn't shipped to Amazon yet.

How can Amazon sellers deduct home office, vehicle, and mixed-use expenses?

The home office and vehicle deductions are legitimate for Amazon sellers who run any part of the business from home. They also get scrutinized, so keep records.

Simplified home office method. The simplified home office deduction allows $5 per square foot of qualifying home office space, up to 300 square feet and capped at $1,500 per year.

A 200-square-foot spare bedroom used exclusively for FBA operations gets you a $1,000 deduction with no receipts required. The space has to be used regularly and exclusively for business; a kitchen table doesn't qualify.

Actual expense home office method. Track utilities, rent or mortgage interest, insurance, and depreciation, then apply the business-use percentage (office square footage ÷ total home square footage). More paperwork, potentially larger deduction if you have a big office or high rent.

Vehicle.

You pick standard mileage or actual expenses in year one and generally stick with it. Keep a contemporaneous log with the date, miles, and business purpose (for example, "drove to Goodwill outlet for retail arbitrage sourcing, 22 miles"). Apps like MileIQ or a Google Sheet both work; a mileage log created months later is harder to defend than a contemporaneous record.

Cell phone and internet. Deduct only the business-use percentage. If 40% of your phone use is FBA-related, deduct 40% of the bill. Document how you arrived at the percentage.

How are sales tax and income tax different for Amazon sellers?

New sellers routinely confuse these. They're different taxes, owed to different governments, calculated on different numbers.

Under state Marketplace Facilitator laws, Amazon collects and remits sales tax on behalf of sellers in states that require it, so those collections are not the seller's income and not a deductible expense. Many states now require marketplace facilitators such as Amazon to collect and remit sales tax on marketplace transactions, but sellers should confirm their obligations for off-Amazon channels and any state registration requirements.

Where sellers still have exposure:

• Off-Amazon sales channels: Shopify, wholesale, in-person events. You're responsible for collecting and remitting sales tax there.
• Some local jurisdictions with quirks around home-rule cities (Colorado, Louisiana, Alabama).
• Business licenses and state sales tax registration may still be required even when Amazon does the actual collecting.

Income tax is separate. You owe federal income tax and self-employment tax on your net profit, which is gross sales minus COGS minus operating expenses, regardless of where inventory was stored or where buyers lived.

What bookkeeping setup works for Amazon sellers?

The system that survives contact with peak Q4 is the boring one you can run in 30 minutes a month.

1. One business checking account. Route every Amazon payout there. Use the account for every business purchase, including inventory, ad spend, software, and shipping supplies.
2. Categorize monthly, not annually. In QuickBooks, Xero, or a spreadsheet, tag each transaction to a Schedule C line: COGS, advertising, office expense, software, and so on.
3. Reconcile Amazon reports to bank deposits. Payouts are net of fees, refunds, and reserves. Pull the Date Range Report (Reports → Payments → Date Range Reports) monthly and match gross sales, fees, and refunds line by line. A2X and Link My Books automate this if manual reconciliation gets painful.
4. Save receipts digitally.

Photograph paper receipts to a folder in Google Drive or Dropbox. Amazon Business orders, ad invoices, and software subscriptions are already digital, so download them monthly.

Quarterly estimated tax reminder

If you expect to owe $1,000 or more in federal tax for the year, the IRS wants quarterly estimated payments, roughly April 15, June 15, September 15, and January 15. A common rule of thumb is to set aside 25–30% of net profit for federal income tax plus self-employment tax combined. Sellers in high-tax states should add state estimates on top. Ask a tax professional what applies to your situation.

A one-page expense tracker template

Paste this into a spreadsheet and add rows as you go:

Date | Vendor | Amount | Category (Schedule C line) | Payment method | Business purpose | Receipt link
2025-03-04 | Amazon FBA | $412.68 | COGS - Freight-in | Novo debit | Inbound shipment FBA15X8YQ | drive.google.com/...
2025-03-05 | Helium 10 | $99.00 | Line 22 Supplies/Software | Novo debit | Keyword research subscription | email/invoice
2025-03-07 | Shell | $47.20 | Line 9 Car & truck (mileage log) | Novo debit | Sourcing trip 68 mi | photo of receipt

Paste this template into ChatGPT or Claude with a prompt like: "Turn this into a Google Sheets template for an Amazon FBA seller. Add a summary tab that totals expenses by Schedule C category, a mileage log tab with columns for date/start/end/miles/purpose, and a COGS worksheet that calculates beginning inventory + purchases + freight-in + prep − ending inventory. Give me the exact column formulas." You'll get back a working sheet you can copy into your Drive.

How do you open a business bank account for an Amazon business?

You want the business account open before your first FBA payout so every dollar of Amazon revenue lands in a clean paper trail.

Novo accounts can be opened online by US-based sole proprietors and LLCs. Sole proprietors apply with an SSN. LLCs apply with an EIN plus formation documents.

What to have ready:

• EIN confirmation letter (IRS Form CP 575, or the 147C replacement letter if you've lost the original)
• Articles of Organization or Certificate of Formation (LLCs)
• Government-issued photo ID
• Business address and description of what you sell

For a full document walkthrough, see Novo's business checking account requirements checklist.

A note on startup costs. If you formed the LLC this year, state filing fees, registered agent fees, and legal costs to set it up may qualify as startup expenses. Ask a tax professional how IRC §195 applies to your filing.

How Novo fits an Amazon seller's cash flow

Novo business checking has $0 monthly fees and no minimum balance, and Novo Reserves let Amazon sellers earmark portions of each FBA payout for COGS reorders, quarterly estimated tax, and sales tax owed on off-Amazon channels. When a $6,200 disbursement lands, you can assign 55% to a reorder Reserve, 30% to a tax Reserve, and 15% to operating cash — all within your Novo checking account balance.

Novo integrates with selected accounting and commerce tools. Amazon sellers should verify the current integration list at novo.co and use Seller Central reports plus accounting software (or an ecommerce bookkeeping tool such as A2X) to reconcile gross sales, fees, refunds, and payouts against Novo deposits. Invoicing is included in the Novo account, which matters if you also sell wholesale to retailers off Amazon.

One honest tradeoff: Novo does not accept cash deposits, making it best suited for online sellers such as Amazon FBA merchants whose revenue arrives via ACH payout. If you also run flea-market or cash-heavy channels, you'd need a second account or a workaround for those deposits. Sellers weighing account options can also compare the best bank for Amazon sellers for a feature-by-feature look.

Frequently asked questions

Do I have to file taxes if Amazon didn't send me a 1099-K?

The 1099-K threshold determines whether Amazon reports your sales to the IRS on that form. It does not determine whether you owe tax. Any net self-employment income of $400 or more triggers a filing requirement.

Can I deduct inventory I bought but haven't sold yet?

No. Unsold inventory sits on your balance sheet as ending inventory and gets deducted through Cost of Goods Sold in the year it sells.

Are Amazon PPC ads deductible?

Yes. Sponsored Products, Sponsored Brands, and Sponsored Display ad spend goes on Schedule C Line 8 (Advertising).

Is the sales tax Amazon collected part of my income?

No. Under Marketplace Facilitator laws, Amazon collects and remits sales tax to states directly. It's not your revenue and not your expense.

Should I form an LLC before I start selling on Amazon?

Not strictly required. You can sell as a sole proprietor using your SSN. An LLC adds liability separation and lets you open a business account under an EIN, which cleans up bookkeeping. Weigh state filing fees against the benefit.