Amazon FBA Tax Guide: What to Know & Track

Sending your first shipment to an Amazon FBA warehouse feels like a magic trick. You pack some boxes, slap on some labels, ship them to a fulfillment center, and Amazon handles the rest — storage, packing, shipping, even customer service. It's so frictionless that it doesn't feel like running a real business.

Then tax season arrives, and you realize you've been running a real business this entire time. An inventory-based, multi-state, logistics-heavy business that the IRS expects you to track with the same rigor as any other retail operation. Amazon made selling easy. They did absolutely nothing to make the tax side easy.

I sold through FBA for about a year and a half. The selling part was manageable — source products, ship to Amazon, watch the sales come in. The accounting part was where I started sweating. How do I track cost of goods sold when I'm buying inventory in batches at different prices? Do I have sales tax nexus in 40+ states because Amazon scattered my inventory across their warehouse network? What about the $39.99 monthly fee, the referral fees, the storage fees, the long-term storage fees — where does all of it go on my return?

If you're asking the same questions, this guide has the answers.

The Complexity Gap

FBA is fundamentally different from other side hustles when it comes to taxes, and the reason is inventory. If you drive for Uber or freelance on Fiverr, your tax situation is straightforward: you earn income, you have some expenses, you report the difference. But FBA involves buying products, storing them, and selling them — which means you're dealing with cost of goods sold (COGS), inventory accounting, and potentially complex multi-state sales tax rules.

Most FBA tax guides gloss over this. They'll tell you to "track your expenses," and that's fine as far as it goes. But FBA expenses aren't like other business expenses. A box of phone cases you bought for $800 isn't an expense until you sell those phone cases. It's inventory. And the way inventory gets accounted for on your tax return is different from how regular business expenses work.

The other complication is scale. An Etsy seller making $5,000 a year can keep things simple. An FBA seller doing $50,000 in gross revenue, buying inventory from three different suppliers at varying prices, with products stored in Amazon warehouses across the country — that's a different level of complexity. The IRS doesn't care that you started this as a side project. If you're moving inventory, they expect inventory accounting.

Sales Tax Nexus: Why FBA Makes It Complicated

Here's the concept that makes FBA sellers nervous: nexus. In tax terms, nexus means you have a sufficient presence in a state to be subject to that state's sales tax laws. Traditionally, this meant having a physical location — an office, a warehouse, employees.

With FBA, Amazon stores your inventory in their fulfillment centers. Those centers are spread across more than 40 states. And in the eyes of many states, your inventory sitting in an Amazon warehouse in Pennsylvania means you have nexus in Pennsylvania — even though you've never set foot there.

Before marketplace facilitator laws (which I'll get to in a moment), this was a genuine nightmare. FBA sellers technically needed to register for sales tax permits and file returns in every state where Amazon stored their inventory. Some sellers had nexus in 20, 30, even 40+ states. The compliance cost alone could eat a small seller alive.

Marketplace Facilitator Laws: The Good News

The landscape shifted dramatically with the adoption of marketplace facilitator laws across nearly every state with a sales tax. Under these laws, the marketplace (Amazon) is responsible for collecting and remitting sales tax on behalf of its third-party sellers. You, the seller, no longer need to calculate, collect, or file sales tax for transactions processed through Amazon.

This is a massive simplification. For most FBA sellers, the sales tax question is now: "Amazon handles it." The tax gets added at checkout, Amazon collects it from the buyer, and Amazon sends it to the appropriate state. It never touches your bank account, and it's not part of your income.

The caveat is that marketplace facilitator laws only cover sales made through marketplaces. If you also sell through your own Shopify store, wholesale to local retailers, or sell at trade shows, those channels don't have a marketplace facilitator handling sales tax for you. For those sales, you'd need to determine where you have nexus and whether you need to collect and remit sales tax yourself.

For FBA-only sellers, though, this is largely a solved problem. Focus your energy on the income tax side — that's where the real complexity (and the real savings) live.

Income Tax on Your FBA Profit

Your Amazon FBA income gets reported on Schedule C, same as any other self-employment income. The basic formula is: gross sales minus cost of goods sold minus business expenses equals your net profit, which gets taxed at your regular income tax rate plus self-employment tax.

Amazon will send you a 1099-K if your gross sales exceed $20,000 AND 200 transactions (the federal 2026 threshold OBBBA restored). Like the Etsy 1099-K, this number includes everything — the sale price, shipping charges, and any amounts that Amazon later refunded to customers. It will be higher than your actual revenue, and you'll need to reconcile it with your actual numbers from Seller Central.

Let me run through a simplified example. Say your Seller Central reports show $40,000 in gross sales for the year. After refunds and Amazon's various fees, your actual revenue is $32,000. Your cost of goods sold (what you paid for the products you sold) is $18,000. Other expenses — shipping to Amazon, packaging materials, software subscriptions, home office — total $3,200. Your net profit is $10,800.

On that $10,800, you owe income tax at your marginal rate (let's say 22%, so $2,376) plus self-employment tax (about $1,526). Total federal tax: roughly $3,902. Without properly tracking COGS and deductions, you'd be looking at tax on the full $32,000 — a bill of around $11,500. The difference is $7,600. That's not a rounding error. That's the difference between a profitable business and a money-losing hobby.

COGS: The Most Important Number You're Probably Ignoring

Cost of goods sold is usually the single largest line item on an FBA seller's Schedule C, and it's the one that requires the most discipline to track correctly.

COGS is not the same as "expenses." It's specifically the direct cost of the products you sold during the year. The formula:

Beginning inventory + Purchases during the year - Ending inventory = Cost of Goods Sold

Say you started January with $5,000 in inventory (products at Amazon's warehouses plus anything in your garage). During the year, you purchased $22,000 in new inventory. At year-end, you have $6,500 in unsold inventory. Your COGS is $5,000 + $22,000 - $6,500 = $20,500.

This matters because only the inventory that was actually sold gets deducted. If you spent $8,000 in December stocking up for Q1, that $8,000 doesn't become a deduction until those products sell. New FBA sellers sometimes dump all their inventory purchases into "expenses" and deduct the full amount in the purchase year. That's technically incorrect, and on an audit, the IRS would adjust it.

What goes into COGS beyond the wholesale price of the product? Inbound shipping to Amazon's warehouses, customs duties if you import products, and any prep costs (labeling, poly-bagging, bundling) that are directly tied to getting the product ready for sale. These costs get added to your inventory cost, not listed as separate operating expenses.

Amazon Fees and Other Deductions

Amazon charges a bewildering array of fees, and all of them are deductible business expenses. The main ones you'll encounter:

Referral fees are Amazon's commission on each sale — usually 15% of the sale price, though the rate varies by category. On $40,000 in gross sales, you might pay $6,000 in referral fees. FBA fulfillment fees cover picking, packing, and shipping each order — anywhere from $3.22 for a small standard-size item to $10+ for larger products. Monthly storage fees hit you based on cubic footage of your inventory in Amazon's warehouses, and they spike dramatically in Q4 (October through December). Long-term storage fees kick in for inventory that's been sitting for over 365 days — Amazon's way of telling you to move it or lose it.

Then there's the Professional seller plan at $39.99/month, advertising costs if you run Sponsored Products campaigns, removal or disposal fees if you pull inventory back. Each of these is a legitimate business expense on Schedule C.

Amazon provides detailed reports in Seller Central — the "Monthly Storage Fees" report, the "Fee Preview" report, and the all-important "Date Range" custom report that summarizes everything over a period you specify. Download these reports. They're your primary source for tax prep, and reconstructing them from memory or bank statements is a miserable experience I wouldn't wish on anyone.

Shipping and Prep Costs

Shipping costs in FBA come in two flavors, and they're treated differently for tax purposes.

Inbound shipping — the cost of sending your inventory to Amazon's fulfillment centers — is part of your COGS. It gets added to the cost of the inventory itself, not listed as a separate business expense. If you paid $300 to ship 500 units to Amazon, each unit's cost basis increases by $0.60.

Outbound shipping — the cost of getting orders to customers — is handled by Amazon as part of the FBA fulfillment fee. You've already deducted that as a business expense. There's no separate shipping deduction for outbound orders.

Prep costs are where people get confused. If you hire a prep center to inspect, label, and package your products before shipping to Amazon, that's a COGS component — it's a direct cost of getting the product ready for sale. If you do the prep yourself at home, the materials you use (poly bags, labels, bubble wrap, boxes) are still COGS-adjacent costs. The time you spend doing it is not deductible (you can't pay yourself a wage as a sole proprietor), but the supplies are.

Home Office for FBA Prep Space

Many FBA sellers prep and ship products from home — a garage, a spare bedroom, part of the basement. If that space is used regularly and exclusively for your business, it qualifies for the home office deduction.

For FBA sellers, the "exclusively" requirement is usually easier to meet than for other businesses, because you have a physical operation — shelving, a prep table, packing supplies, inventory staged for shipment. That's clearly not a space anyone's using for personal relaxation.

The regular method tends to work better for FBA sellers than the simplified method. If your prep space is a 200-square-foot section of the garage in a 1,600-square-foot house, your business-use percentage is 12.5%. On $20,000 in annual housing costs (mortgage interest, property taxes, utilities, insurance, maintenance), that's a $2,500 deduction. The simplified method caps at $1,500. The extra $1,000 deduction more than justifies the additional record-keeping.

Don't forget to include storage space. Shelving in the garage where you store inventory before shipping counts as part of your business-use area. The prep table, the label printer station, and the inventory staging area all contribute to your total business square footage.

When to Get an LLC

You do not need an LLC to sell on Amazon. You can operate as a sole proprietor, report everything on Schedule C, and be fully compliant with the IRS. Most small FBA sellers start this way.

An LLC becomes worth considering when one or more of these apply to you:

Liability protection. If you sell products that could potentially injure someone (supplements, electronics, children's products, food), an LLC creates a legal barrier between your business assets and your personal assets. A sole proprietor is personally liable for everything. An LLC, properly maintained, limits your exposure. This alone is reason enough for many sellers.

Revenue threshold. Once you're consistently doing $40,000-50,000+ in annual revenue, the tax and administrative benefits of an LLC (and potentially electing S-corp status) start to outweigh the costs. An S-corp election can save you money on self-employment tax if your profits are substantial enough — but that's a conversation for a CPA, not a blog post.

Multiple owners. If you're running the FBA business with a partner, an LLC with an operating agreement is significantly cleaner than trying to split a sole proprietorship.

I formed my own LLC in Texas — $300 filing fee, took about 20 minutes online. Felt a bit like playing business dress-up at first. But when I started carrying more inventory and selling products where I had some liability concern, the peace of mind was worth it. There's a full walkthrough in our side hustle LLC guide.

Record Keeping That Won't Make You Miserable

The biggest tax mistake FBA sellers make isn't failing to file — it's failing to keep records throughout the year and then scrambling in April. The information you need is all available, but pulling it together retroactively is 10 times harder than tracking it as you go.

Monthly habit: On the first of each month, download the previous month's reports from Seller Central. At minimum: the Date Range report (revenue and fees), the Monthly Storage Fees report, and the Payments report. Save them in a folder. This takes about 15 minutes a month and saves you hours at tax time.

Inventory tracking: Every time you purchase inventory for resale, record the supplier, date, quantity, unit cost, and total cost. A spreadsheet works fine. If you use accounting software like QuickBooks, enter each purchase as an inventory asset, not an expense. When I switched from a basic spreadsheet to QuickBooks Self-Employed for tracking, setup took about 2 hours but it saved me easily 10 hours at tax time — and more importantly, it got the COGS calculation right.

Separate bank account. I say this in every guide I write because it matters in every guide. If your FBA revenue, inventory purchases, and Amazon fees are all flowing through the same account you use for groceries and rent, untangling it at year-end is a nightmare. Open a dedicated business account. Route all Amazon payouts there. Pay for all inventory and business expenses from there. Clean separation makes clean taxes.

If your FBA business does $30,000+ in revenue, seriously consider hiring a CPA — specifically one who understands e-commerce and inventory accounting. The cost (deductible, by the way) is almost always justified by the deductions they'll catch and the COGS accuracy they'll enforce. I'm not a CPA, and the more I've learned about FBA taxes, the more I appreciate the ones who are.

Bruce Samuels

Personal Finance Writer

Bruce Samuels is a personal finance writer and former Amazon FBA seller based in DeSoto, Texas. He ran an FBA operation for over a year alongside DoorDash and freelance writing before transitioning to full-time content creation. He writes about side hustle finances from firsthand experience.

Related reading: The Complete Side Hustle Tax Guide | Side Hustle LLC Guide | How to Track Income & Expenses