Quick answer
Amazon FBA sellers pay tax on profit, not on sales. Profit is sales minus cost of goods sold (COGS), Amazon fees and other expenses. You report it on Schedule C and pay income tax plus 15.3% self-employment tax.
- Inventory isn’t deducted when you buy it. It becomes COGS when it sells. Unsold stock at year end waits.
- Amazon sends a 1099-K if you have over $20,000 in sales and over 200 transactions (some states lower).
- Sales tax: Amazon is a marketplace facilitator. It collects and remits sales tax on Amazon orders in every state with a sales tax. Storing inventory in a state can still create nexus with paperwork duties.
How FBA income is taxed
Think of it in three layers.
| Layer | What it is |
|---|---|
| Gross sales | What customers paid for your products, plus shipping credits |
| Gross profit | Gross sales minus returns and COGS |
| Net profit | Gross profit minus Amazon fees, ads and other expenses |
Net profit flows to your Form 1040. You get the standard deduction ($16,100 single in 2026) and usually the 20% QBI deduction against income tax. SE tax applies to 92.35% of net profit. See Self-Employment Tax Explained.
Inventory and cost of goods sold
COGS is the heart of FBA taxes. Part III of Schedule C uses this formula:
Beginning inventory + purchases and costs to get goods ready minus ending inventory = COGS
What goes into inventory cost:
- The price you paid the supplier.
- Inbound freight to you or to Amazon warehouses.
- Import duties and customs fees.
- Prep, labeling and packaging to make items sellable.
What doesn’t: Amazon referral fees, FBA fulfillment fees, storage fees, ads and software. Those are regular expenses deducted in the year you pay them.
Counting ending inventory
At December 31, count units still in Amazon warehouses, in transit and at home. Multiply by unit cost. Amazon’s inventory reports help. Write off stock that was destroyed, lost or disposed, and keep Amazon’s reports as proof.
A simpler method for small sellers
Businesses with average gross receipts of $32 million or less (2026 test) can skip formal inventory accounting. They can treat inventory as non-incidental materials and supplies, deducted when sold, or follow their books. For a small seller, the result is close to the COGS formula. Talk to a tax pro before choosing, and stay consistent.
Amazon’s 1099-K
Amazon issues the 1099-K for sales processed on the marketplace. For 2026 the federal threshold is more than $20,000 and more than 200 transactions. Some states require forms at lower amounts. See 1099-K Threshold 2026.
The form shows gross sales before fees, returns and refunds. Your deposits will be far lower. Report the gross and deduct fees separately, so your return matches what the IRS sees.
Sales tax: nexus and marketplace facilitators
Sales tax is a state tax charged to the buyer. You owe collection duties where you have nexus.
| Nexus type | How you get it |
|---|---|
| Physical | You live or have an office there, or your inventory sits in a warehouse there |
| Economic | Your sales into a state pass its threshold (often $100,000) |
FBA spreads inventory across many states, so sellers can have physical nexus in states they’ve never visited.
The good news: every state with a statewide sales tax now has a marketplace facilitator law. Amazon calculates, collects and remits sales tax on Amazon orders. For most beginners selling only on Amazon, that covers the tax itself.
What you may still need to do:
- Register in states where you have nexus, if that state requires marketplace sellers to register.
- Collect tax yourself on sales from your own website, Shopify or Walmart (unless that marketplace also collects).
- Watch for gross receipts or business taxes that aren’t sales tax. Some states have them.
Sales tax Amazon collects is not your income. Leave it out of revenue and expenses.
Worked example
Priya started an FBA brand selling kitchen gadgets. 2026 was her second year. She is single with no other job.
| Item | Amount |
|---|---|
| Beginning inventory (Jan 1) | $3,000 |
| Purchases, including $1,500 inbound freight | $22,000 |
| Ending inventory (Dec 31) | $6,000 |
| COGS | $19,000 |
| Schedule C | Amount |
|---|---|
| Gross sales (1099-K) | $60,000 |
| Returns and refunds | $2,000 |
| COGS | $19,000 |
| Gross profit | $39,000 |
| Referral fees | $8,700 |
| FBA fulfillment fees | $9,300 |
| Storage fees | $900 |
| Professional plan (about $40 a month) | $480 |
| Sponsored ads | $4,000 |
| Software | $600 |
| Total expenses | $23,980 |
| Net profit | $15,020 |
Priya’s self-employment tax is about $2,122. Her income tax is about $0 because the standard deduction and half of SE tax cover her remaining income.
The $6,000 of unsold stock isn’t deducted this year. It becomes COGS in 2027 when it sells.
Other deductions for FBA sellers
- Product samples and testing.
- Photography and listing design.
- Trademark and brand registry costs (some may need to be amortized).
- Home office used for the business. See Home Office Deduction.
- Car trips to buy stock or ship to Amazon: 72.5 cents a mile January to June 2026, 76 cents July to December.
- Computers and printers, using the $2,500 de minimis safe harbor or Section 179.
See Self-Employed Tax Deductions for the full list.
Frequently asked questions
Can I deduct all the inventory I bought this year?
Not usually. Only the cost of goods you sold is deducted. Unsold inventory carries into next year.
Do I have to collect sales tax on Amazon?
For Amazon orders, Amazon collects and remits it. You may still need to register in some states and handle sales tax on non-Amazon sales.
Does Amazon withhold income tax?
No. Pay quarterly estimated taxes if you expect to owe $1,000 or more. See Quarterly Estimated Taxes.
Should I form an LLC for FBA?
Many sellers do for liability reasons. For taxes, a single-member LLC is taxed like a sole proprietor. See Sole Proprietorship vs LLC for Freelancers.
This article is general information, not tax advice. Consult a CPA or Enrolled Agent for your situation.
Related guides
- Gig Worker Taxes: The Complete Guide for Uber, DoorDash and Instacart
- DoorDash Taxes: How Much Dashers Owe and What They Can Deduct
- Uber and Lyft Driver Tax Deductions
- Etsy Seller Taxes: 1099-K, Sales Tax and Deductions
About this guide
Written by the Freelancer Tax HQ editorial team, based on our professional experience, official US government sources (IRS, SSA and other agencies) and reputable informational articles listed in the sources below. Last reviewed on . Tax rules change often, and we update this guide when they do. Read our editorial policy or report an error.
Sources
IRS Publication 334, Tax Guide for Small Business; IRS Instructions for Schedule C; IRS Rev. Proc. 2025-32 (2026 inflation adjustments); IRS: Understanding your Form 1099-K; Amazon: Marketplace Tax Collection. Example figures are FreelancerTaxHQ illustrations.
Official resources linked in this guide: IRS: Tangible property regulations; IRS: Self-Employment Tax; IRS: About Form 1099-K; IRS: Tax preparer credentials; IRS: Estimated Taxes.