Question 1

Multistate Sales Tax Nexus and Compliance

Accepted Answer

Since the Supreme Court's 2018 South Dakota v. Wayfair decision, states can require you to collect sales tax even if you have no physical presence there. Most states have set their economic nexus thresholds at $100,000 in sales or 200 transactions per year u2014 but the rules vary state by state. If you store inventory in an Amazon FBA warehouse in, say, California or New Jersey, you may also have physical nexus in those states. Many sellers discover they owe back taxes in states they never realized they had obligations in.

Question 2

Inventory Valuation and Cost of Goods Sold

Accepted Answer

Getting your cost of goods sold (COGS) right is one of the most consequential accounting tasks for any product-based business. You need to track landed costs u2014 the product price, shipping from suppliers, customs duties if you import, and prep or labeling fees u2014 not just the price you paid your manufacturer. Choosing the wrong inventory method (FIFO vs. weighted average) or failing to account for damaged and returned goods can distort your profit margins and your tax liability significantly.

Question 3

Reconciling Marketplace Payouts to Actual Revenue

Accepted Answer

Amazon, Shopify, Walmart Marketplace, and Etsy all calculate payouts differently. Amazon's Settlement Reports, for example, bundle sales, refunds, FBA fees, advertising charges, and storage fees into a single net deposit. If you simply record those deposits as revenue, your books will be wrong. Proper accounting requires disaggregating each component so your gross revenue, fees, and net income are all reported accurately to the IRS.

Question 4

Marketplace Facilitator Rules and Double Taxation Risk

Accepted Answer

Texas and more than 45 other states have marketplace facilitator laws that require Amazon and similar platforms to collect and remit sales tax on your behalf. That sounds helpful, but it creates confusion: sellers sometimes collect tax on their own Shopify store while Amazon also collects on marketplace orders, leading to potential double collection. And if you sell through channels where no facilitator collects u2014 your own website, wholesale, or a smaller marketplace u2014 you are still responsible for collecting and remitting tax yourself.

Question 5

Tracking Platform Fees, Advertising, and Returns

Accepted Answer

Between Amazon FBA fees, referral fees, storage fees, PPC advertising spend, return shipping costs, and promotional credits, a typical Amazon seller has dozens of expense categories that need to be tracked separately. Lumping these together means you lose visibility into your real margins per product, and you risk underreporting deductible expenses on your tax return.

Question 6

S-Corp Election to Reduce Self-Employment Tax

Accepted Answer

If your e-commerce business nets more than roughly $50,000 to $60,000 per year in profit, electing S-Corp status can significantly reduce your self-employment tax burden. Instead of paying the 15.3% self-employment tax on your entire net income, you pay yourself a reasonable salary (subject to payroll taxes) and take the remaining profit as a distribution, which is not subject to the 15.3% SE tax. For a seller netting $120,000, this election can save $8,000 to $12,000 annually. We help Dallas-area sellers determine whether an S-Corp election makes sense and handle the LLC formation and IRS Form 2553 filing.

Question 7

Section 199A Qualified Business Income Deduction

Accepted Answer

As a pass-through business owner, you may be eligible for the Section 199A deduction, which allows you to deduct up to 20% of your qualified business income. For a sole proprietor or S-Corp owner with $100,000 in qualified business income, that is a potential $20,000 deduction u2014 directly reducing your taxable income. The rules have income phase-out thresholds (for 2026, these begin at $191,950 for single filers and $383,900 for married filing jointly), and proper entity structuring and income planning can help you stay within the full deduction range.

Question 8

Home Office and Dedicated Workspace Deductions

Accepted Answer

Many e-commerce sellers run their business from a home office, prep area, or garage used for storing and shipping inventory. If you use a dedicated space exclusively and regularly for your business, you can deduct the proportional share of rent or mortgage interest, utilities, insurance, and repairs. The simplified method allows $5 per square foot up to 300 square feet ($1,500 maximum), but the actual expense method often yields a larger deduction u2014 especially if a significant portion of your home is used for inventory storage.

Question 9

Full Deduction of Inventory-Related Costs

Accepted Answer

Beyond the purchase price of your products, you can include shipping from suppliers, import duties, customs brokerage fees, product inspection costs, packaging materials, and prep center fees in your COGS. Many sellers miss these line items because they think of COGS as just the cost on the supplier invoice. Capturing every legitimate landed cost reduces your taxable gross profit dollar for dollar.

Question 10

Depreciation of Equipment and Software

Accepted Answer

Cameras, lighting, computers, label printers, shelving, and even software subscriptions used for your business are deductible. Under Section 179, you can expense qualifying equipment purchases in the year they are placed in service u2014 up to $1,250,000 for 2026 u2014 rather than depreciating them over multiple years. For most e-commerce sellers, this means an immediate deduction for any equipment you buy.

Question 11

Retirement Plan Contributions for Tax Deferral

Accepted Answer

Opening a Solo 401(k) or SEP-IRA allows you to defer a substantial portion of your income. A Solo 401(k) allows employee deferrals of up to $23,500 in 2026 (plus $7,500 catch-up if you are 50 or older), plus employer profit-sharing contributions of up to 25% of compensation. This is one of the most powerful tax reduction strategies available to self-employed sellers, and we help our clients set up the right plan for their situation.

Question 12

Do I need to collect sales tax in states where Amazon stores my FBA inventory?

Accepted Answer

In most cases, Amazon is the marketplace facilitator and collects and remits sales tax on your behalf for orders placed through their platform. However, storing inventory in an Amazon warehouse creates physical nexus in that state, which may require you to register and file returns u2014 especially for sales made through your own website or other non-facilitator channels. We review your FBA inventory placement reports and advise on exactly where you need to register.

Question 13

When should an Amazon seller switch from a sole proprietorship to an S-Corp?

Accepted Answer

The general benchmark is when your net business profit consistently exceeds $50,000 to $60,000 per year. At that level, the self-employment tax savings from paying yourself a reasonable salary and taking the rest as distributions typically outweigh the added costs of payroll processing and a more complex tax return. We run the numbers for each client to make sure the election actually saves money in their specific situation.

Question 14

How do I handle returns and refunds in my accounting?

Accepted Answer

Returns should reduce your gross revenue in the period they occur, and any restocking or return shipping fees should be tracked as separate expenses. If the returned product goes back into sellable inventory, your COGS does not change. If it is unsellable, you write off the cost of that inventory. We set up your bookkeeping system to categorize returns correctly so your profit margins are accurate.

Question 15

What records should I keep for my e-commerce business?

Accepted Answer

At a minimum, you need marketplace settlement reports, payment processor statements (Stripe, PayPal, etc.), supplier invoices, shipping receipts, advertising spend reports, and bank and credit card statements. If you import products, keep your customs entry documents and duty receipts. The IRS requires you to keep business records for at least three years from the filing date, but we recommend keeping them for at least seven years.

Question 16

Does Texas charge sales tax on items I sell online?

Accepted Answer

Texas has a 6.25% state sales tax rate, plus up to 2% in local taxes, for a maximum combined rate of 8.25%. If you sell taxable goods to Texas customers through your own website (not through a marketplace facilitator), you are responsible for collecting and remitting Texas sales tax. Sales through Amazon and other registered marketplace facilitators are collected by the platform, but you still need to ensure your own direct sales channels are compliant.

E-Commerce and Amazon Seller CPA in Dallas, Texas

Accounting Challenges Unique to E-Commerce and Amazon Sellers