Part 4: Income Tax for E-Commerce Sellers

Cost of Goods Sold: How to Calculate It Correctly and Why It Is Your Most Important Deduction

Cost of Goods Sold, universally abbreviated as COGS, represents the direct cost of the products you sold during the tax year. It is deducted from gross revenue to arrive at gross profit, which is then reduced further by operating expenses to arrive at net income.

COGS is the most important deduction for most product-based e-commerce sellers because it is typically the largest single cost of the business. Calculating it correctly has a direct impact on your reported profit and therefore your tax bill. Getting it wrong in either direction is costly: understating COGS overstates your profit and results in overpaying tax; overstating COGS understates your profit, misrepresents the health of your business, and can trigger IRS scrutiny.

The standard formula for COGS is:

Beginning Inventory + Purchases During the Year - Ending Inventory = Cost of Goods Sold

“Beginning inventory” is the cost value of inventory you held at the start of the tax year. “Purchases” includes all costs of acquiring inventory during the year: the price you paid for the products, inbound shipping from your supplier to your warehouse or to Amazon, import duties and customs fees on imported goods, and in some cases additional costs that must be capitalized into inventory under the UNICAP rules discussed below. “Ending inventory” is the cost value of inventory remaining on hand at the end of the tax year.

The logic of the formula: if you started the year with $20,000 worth of inventory, bought $150,000 worth during the year, and ended the year with $30,000 worth remaining, you sold $140,000 worth of inventory on a cost basis. That $140,000 is your COGS. It is deducted from your gross revenue to arrive at gross profit.

Several things make this calculation more complex in practice.

First, you need to actually count your ending inventory. A physical inventory count at year end is the foundation of an accurate COGS calculation. Sellers who do not conduct a year-end count are estimating their COGS rather than calculating it, and estimates that are not grounded in an actual count are vulnerable in an audit.

Second, when you sell units of a product that were purchased at different costs at different times, you need an inventory accounting method to determine which units were “sold” for COGS purposes. This is addressed in the next section.

Third, the costs included in COGS are broader than just the product purchase price. Import duties, inbound freight, and certain overhead costs that must be capitalized under UNICAP all potentially belong in COGS. Missing these costs understates COGS and overstates profit.

Fourth, returns and allowances affect COGS. When a customer returns a product that goes back into saleable inventory, the cost of that product returns to your inventory rather than remaining in COGS. Proper accounting for returns requires both a revenue adjustment and an inventory adjustment.

For FBA sellers, the challenge is that Amazon’s fulfilment fee structure bundles many costs together, and the settlement reports that Amazon generates do not neatly separate COGS from fees from other items. This is one reason why proper reconciliation of Amazon settlement data is essential for accurate income tax preparation, a topic we address in full in Part 6.

Inventory Accounting Methods: FIFO, LIFO, and Weighted Average

When you purchase inventory at different costs at different times and then sell units from that combined pool, you need an inventory accounting method to determine which units were sold. The method you choose affects your COGS calculation and therefore your reported profit.

First In, First Out (FIFO). Under FIFO, it is assumed that the first units you purchased are the first units sold. If you bought 100 units in January at $10 each and another 100 units in June at $12 each, and you sold 150 units during the year, FIFO says you sold the 100 January units at $10 each and 50 of the June units at $12 each. COGS equals (100 x $10) + (50 x $12) = $1,600. Your ending inventory consists of the remaining 50 June units at $12 each.

FIFO is the most commonly used method among e-commerce sellers and is the method assumed by most inventory management and accounting software by default. During periods of rising inventory costs, FIFO results in lower COGS (because older, cheaper units are assigned to sales first) and higher reported profit, which means higher tax in the current year. During periods of declining costs, FIFO results in higher COGS and lower profit.

Last In, First Out (LIFO). Under LIFO, it is assumed that the last units purchased are the first units sold. Using the same example, LIFO would assign the 50 June units (at $12) and then 100 January units (at $10) to the 150 units sold, but since only 150 total were sold, the math using the most recent purchases first gives COGS of (100 x $12) + (50 x $10) = $1,700. During periods of rising costs, LIFO produces higher COGS and lower reported profit, meaning lower current-year tax.

LIFO is permitted for federal income tax purposes in the United States, but it is not permitted under International Financial Reporting Standards (IFRS) used in many other countries. For US sellers who import from countries using IFRS accounting, there can be a disconnect between the supplier’s reporting and the US seller’s LIFO calculation. LIFO also requires a LIFO election to be filed with the IRS in the year it is first adopted, and once adopted, it must be used consistently. Switching from LIFO back to FIFO requires IRS approval and triggers a recapture of the cumulative LIFO reserve.

For most small and mid-sized e-commerce sellers, FIFO is the more practical choice. It is simpler, consistent with most software defaults, and does not require a special election.

Weighted Average Cost. Under the weighted average method, you calculate an average cost per unit across all inventory purchases during the period and apply that average to all units sold. It smooths out cost fluctuations and is often the simplest method for sellers with large volumes of similar items at varying purchase prices. It is used less commonly in practice for e-commerce than FIFO, but it is a valid method under both GAAP and tax rules.

Consistency requirement. Whichever inventory accounting method you choose, you must apply it consistently from year to year. Switching methods requires IRS approval and may trigger accounting adjustments. Choose your method deliberately and document it in your accounting policies.

The Section 263A UNICAP Rules: When You Must Capitalize More Costs Into Inventory

The Uniform Capitalization rules under Section 263A of the Internal Revenue Code require certain taxpayers to include in the cost of inventory not just the purchase price of the goods but also certain indirect costs associated with acquiring, producing, and storing that inventory. These capitalized costs become part of COGS when the inventory is sold, rather than being deducted immediately as expenses.

For e-commerce sellers, the most common costs that may be required to be capitalized under UNICAP include: warehousing and storage costs, certain handling and processing costs, purchasing department overhead, and some general and administrative costs that are allocable to inventory activities.

The UNICAP rules apply to taxpayers who are “resellers” of personal property with average annual gross receipts exceeding $29 million (the 2024 threshold, adjusted for inflation annually). Small business taxpayers below this threshold are exempt from the UNICAP rules under the small business taxpayer exemption introduced by the Tax Cuts and Jobs Act of 2017.

This means the vast majority of e-commerce sellers reading this guide are below the $29 million threshold and are not subject to UNICAP. If you are below this threshold, your COGS calculation does not require UNICAP adjustments, and your storage, warehousing, and overhead costs are deductible as ordinary business expenses rather than capitalized into inventory.

If your business is approaching or has exceeded this threshold, the UNICAP analysis becomes necessary and should be performed by a qualified tax professional. The calculation is complex and the impact on reported income can be significant.

Key Deductible Expenses for E-Commerce Sellers

Beyond COGS, e-commerce sellers have a wide range of operating expenses that are deductible from gross profit to arrive at taxable income. The general rule under Section 162 of the Internal Revenue Code is that ordinary and necessary business expenses are deductible. “Ordinary” means common and accepted in your industry. “Necessary” means helpful and appropriate for your business, not indispensable.

The following categories are the most significant for e-commerce sellers.

Platform fees. Amazon referral fees, FBA fulfillment fees, monthly Professional selling plan fees, Shopify subscription fees, Etsy listing fees and transaction fees, PayPal or Stripe processing fees, and any other fees charged by e-commerce platforms or payment processors are fully deductible as ordinary business expenses.

Shipping and fulfillment costs. Outbound shipping costs paid by your business to ship products to customers (if you fulfill directly rather than through FBA), packaging materials, boxes, tape, labels, and any other costs directly related to fulfilling orders are deductible. For FBA sellers, the FBA fulfillment fees cover most of these costs and are already captured as platform fees. For sellers handling their own fulfillment, direct shipping and packaging costs can be a significant deduction.

Advertising and marketing. Amazon Sponsored Products and Sponsored Brands advertising costs, Facebook and Instagram advertising, Google Ads, influencer marketing fees, photography and creative production costs for product listings and ads, and any other costs of promoting your products are fully deductible as marketing expenses.

Software and subscriptions. Accounting software subscriptions (QuickBooks, Xero), inventory management software, repricing tools, keyword research tools, sales tax automation platforms (TaxJar, Avalara), project management software used in the business, and any other software subscriptions used for business purposes are deductible. If a subscription is used for both personal and business purposes, only the business portion is deductible.

Professional fees. Accounting fees, bookkeeping fees, legal fees for business matters, consulting fees, and the cost of this kind of professional guidance are deductible as ordinary business expenses. This includes the cost of engaging Antravia Advisory or any other accounting or advisory firm for business-related services.

Home office deduction. If you use a portion of your home exclusively and regularly as your principal place of business, you can deduct a proportionate share of your home expenses. There are two methods: the simplified method, which allows a deduction of $5 per square foot of dedicated office space up to 300 square feet ($1,500 maximum), and the regular method, which allocates actual home expenses (mortgage interest or rent, utilities, insurance, depreciation) in proportion to the percentage of your home’s square footage used as office space. The exclusive use requirement is strict: a room used as both a home office and a guest bedroom does not qualify. For e-commerce sellers who genuinely operate their business from a dedicated home workspace, this deduction is available and worth claiming.

Business travel and vehicle use. Travel directly related to business purposes is deductible: trade shows, supplier visits, business meetings. Personal travel is not. If you use a personal vehicle for business purposes, you can deduct either actual vehicle expenses in proportion to business use or the standard mileage rate (67 cents per mile for 2024, adjusted annually by the IRS). Detailed records of business mileage are essential to support this deduction.

Bank fees and interest. Monthly business bank account fees, wire transfer fees, credit card processing fees not already captured as platform fees, and interest on business loans or lines of credit used for business purposes are deductible.

Insurance. Business insurance premiums, product liability insurance, business interruption insurance, and other insurance policies maintained for business purposes are deductible.

Employee and contractor costs. Salaries, wages, and payroll taxes for employees are deductible. Payments to independent contractors for whom you file Form 1099-NEC are deductible as contractor costs. The S-Corp owner’s salary, which is paid through payroll, is deductible at the entity level before profit is distributed.

Returns and allowances. Refunds given to customers reduce your gross revenue. The cost of products returned to inventory reduces COGS. Both adjustments reduce your taxable income and should be properly recorded in your accounting system.

Inventory storage fees. Amazon’s monthly and long-term inventory storage fees, fees for any third-party warehouse or 3PL (third-party logistics) service you use, and any other costs of storing business inventory before sale are deductible.

Depreciation on Equipment, Computers, and Business Assets: Section 179 and Bonus Depreciation

When you purchase a business asset with a useful life of more than one year, the general tax rule is that you cannot deduct the full cost in the year of purchase. Instead, you depreciate the asset over its useful life, deducting a portion of the cost each year. A computer with a five-year depreciable life is deducted over five years, not all at once in the year you buy it.

Two provisions in the tax code allow businesses to accelerate this deduction, sometimes to 100% in the year of purchase.

Section 179 expensing. Section 179 allows businesses to elect to deduct the full cost of qualifying property in the year it is placed in service, rather than depreciating it over its useful life. The Section 179 deduction limit for 2024 is $1,220,000, reduced dollar-for-dollar when total asset purchases exceed $3,050,000. Section 179 cannot create a loss: it is limited to the business’s taxable income before the deduction. Any amount that cannot be deducted in the current year due to the income limit is carried forward to future years.

Qualifying property for Section 179 includes machinery, equipment, computers, office furniture, software, and certain other business property. It does not include inventory (which flows through COGS) or real property.

Bonus depreciation. The Tax Cuts and Jobs Act of 2017 introduced 100% bonus depreciation for qualifying property placed in service after September 27, 2017 and before January 1, 2023. Unlike Section 179, bonus depreciation could create or increase a net operating loss, making it more flexible. However, bonus depreciation has been phasing down: it was 80% for property placed in service in 2023, 60% for 2024, 40% for 2025, and 20% for 2026, before expiring entirely in 2027 under current law. Legislation may extend or modify this schedule, so verify current rules at the time of your asset purchase.

For most e-commerce sellers, the assets being depreciated are relatively modest: computers, photography equipment, packaging machinery, shelving for a home office or warehouse. At this scale, Section 179 typically allows full expensing in the year of purchase without needing to invoke the bonus depreciation rules. For sellers making larger capital investments, the interplay between the two provisions requires more careful planning.

The Qualified Business Income Deduction: Up to 20% of Net Income

The Qualified Business Income (QBI) deduction, created by the Tax Cuts and Jobs Act of 2017 and codified in Section 199A of the Internal Revenue Code, allows eligible self-employed individuals and pass-through business owners to deduct up to 20% of their qualified business income from federal taxable income.

For a seller with $150,000 in net business income who qualifies for the full 20% deduction, this represents a $30,000 reduction in taxable income. At a marginal tax rate of 24%, that translates to $7,200 in federal tax savings. The QBI deduction is one of the most significant tax benefits available to small business owners and is worth understanding carefully.

The deduction is available to sole proprietors, single-member LLC owners, S-Corp shareholders, and partners in partnerships. It is not available to C-Corp shareholders on corporate earnings (C-Corps have their own separate 21% tax rate structure). The deduction is taken on the individual’s personal return and does not reduce self-employment tax.

The full 20% deduction applies at lower income levels without restriction. For 2024, the full deduction is available to single filers with taxable income below $191,950 and married filing jointly filers with taxable income below $383,900.

Above these thresholds, the deduction becomes subject to limitations based on the nature of the business and the amount of W-2 wages paid by the business and depreciable property held. For non-service businesses with sufficient W-2 wages or qualified property, the deduction may still be available above the threshold, but it is calculated under a more complex formula. For “specified service trade or business” owners above the threshold, the deduction phases out entirely. E-commerce product sellers are generally not classified as specified service businesses and are not subject to this phase-out.

An important interaction to understand: the S-Corp election, which was discussed in Part 2 as a strategy for reducing self-employment tax, also affects the QBI deduction. The salary component paid through an S-Corp is W-2 income and is not QBI. Only the distribution component is potentially QBI. For sellers in higher income brackets where the W-2 wage limitation on the QBI deduction applies, the S-Corp’s W-2 wages can actually help satisfy the limitation and preserve the QBI deduction. The two strategies interact and should be planned together, not independently.

The QBI deduction is currently scheduled to expire after 2025 under the Tax Cuts and Jobs Act’s sunset provisions unless extended by Congress. At the time of writing, legislative action on this and other TCJA provisions is ongoing. Verify the current status of the deduction before relying on it in your tax planning.

State Income Tax for E-Commerce Sellers: Nexus Is Different from Sales Tax Nexus

Every state that imposes an income tax also has rules about when out-of-state businesses are required to file a state income tax return and pay state income tax on income attributable to activities in that state. This is income tax nexus, and it is governed by rules that are related to but distinct from sales tax nexus.

The key concept in state income tax nexus for businesses is “substantial nexus” or “significant economic presence.” Historically, income tax nexus required physical presence, similar to the pre-Wayfair sales tax rule. Following Wayfair, some states have extended the economic nexus concept to income taxes as well, though this area of law is still developing and is more varied than the relatively settled post-Wayfair sales tax landscape.

For e-commerce sellers, the activities most likely to create income tax nexus in a state include:

Physical presence through FBA inventory. Many states take the position that the presence of your inventory in a fulfilment center in their state creates income tax nexus as well as sales tax nexus. This is a more aggressive position than some states take, and it is contested in some cases, but it is the position of a number of states with significant Amazon fulfilment center footprints.

Employees or contractors in the state. Having an employee who lives and works in a state creates income tax nexus in that state, typically from the first day the employee begins working there.

Economic nexus thresholds. Some states, including those that have adopted “bright-line” economic presence standards, assert income tax nexus when a seller exceeds a certain dollar threshold of sales into the state, a certain number of transactions, or a certain percentage of total business activity attributable to the state. These rules vary significantly by state.

Once income tax nexus exists in a state, you are required to file a state income tax return in that state and pay tax on the portion of your business income attributable to that state. The income attributable to the state is determined through an apportionment formula that varies by state but typically takes into account your sales, payroll, and property in the state relative to your total activity.

The practical consequence for a growing FBA seller with physical nexus in many states through inventory: you may have income tax filing obligations in a significant number of states, each requiring a separate state income tax return. These state returns are in addition to your federal return and any S-Corp or partnership return. Managing this filing complexity is one of the more compelling reasons to engage a professional accountant with multi-state e-commerce experience.

Some states, particularly smaller ones, have de minimis rules or minimum thresholds below which they do not assert income tax nexus or require a return. These rules vary and change, and no guide can substitute for a state-by-state analysis of your specific activity level.

Estimated Quarterly Tax Payments: How to Calculate Them, When to Pay, and the Penalty for Underpaying

The federal income tax system operates on a pay-as-you-go basis. If you are an employee, your employer withholds income tax from each paycheck and remits it to the IRS throughout the year. If you are self-employed or a business owner whose income is not subject to withholding, you are required to make estimated tax payments quarterly to cover your anticipated tax liability.

The four estimated tax payment due dates for federal purposes are:

First quarter payment: April 15
Second quarter payment: June 15
Third quarter payment: September 15
Fourth quarter payment: January 15 of the following year

Note that these are not evenly spaced. The second quarter covers only two months (April and May income), while the third quarter covers three months (June, July, and August income). This is a historical quirk of the system that catches many first-year self-employed taxpayers off guard.

Most states with income taxes also require estimated quarterly payments on a similar schedule, though the specific due dates vary slightly by state.

How much to pay. The IRS provides two safe harbor rules that protect you from the underpayment penalty even if your actual tax liability turns out to be higher than what you paid:

The first safe harbor: pay at least 100% of your prior year’s total tax liability in equal quarterly installments. If your total federal tax liability for the prior year was $20,000, paying $5,000 per quarter satisfies this safe harbor regardless of what your actual current-year liability turns out to be. For taxpayers with prior-year Adjusted Gross Income above $150,000, the safe harbor is 110% of the prior year’s tax liability rather than 100%.

The second safe harbor: pay at least 90% of your current year’s actual tax liability. This requires you to estimate your current-year income accurately enough that your payments cover at least 90% of what you will ultimately owe.

For sellers whose income fluctuates significantly from year to year, the prior-year safe harbor is often the simpler approach, since it does not require an accurate current-year forecast. The current-year 90% approach can be more advantageous if income is lower than the prior year, but it requires more careful estimation.

The underpayment penalty. If you do not satisfy one of the safe harbors and your payments fall short, the IRS charges an underpayment penalty calculated at a rate that is adjusted quarterly based on the federal short-term interest rate plus 3 percentage points. This is not a punitive penalty in the way a late-filing penalty is. It is more like interest on the amount you underpaid for the period of underpayment. For sellers who are cash-flow-conscious, it is sometimes rational to underpay estimated taxes and accept the penalty rather than tie up cash in advance payments, though this calculation depends on the specific interest rate environment.

Practical approach for e-commerce sellers. The most reliable approach is to set aside a fixed percentage of net profit each month in a dedicated tax savings account and make quarterly payments from that account. The percentage depends on your entity structure, income level, and state, but a common rule of thumb for a sole proprietor or disregarded entity LLC owner in a moderate-tax state is to set aside 25 to 30 percent of net profit. For sellers in high-tax states or at higher income levels, 30 to 35 percent is more appropriate. For S-Corp owners, the payroll tax withholding on your salary handles part of the obligation automatically, and estimated payments cover the remainder.

Working with your accountant to project your current-year tax liability mid-year and adjust your remaining estimated payments accordingly is the most precise approach and the one most likely to result in neither a large bill nor a large refund at filing time.

Year-End Tax Planning Moves for E-Commerce Sellers

Tax planning is not a year-end activity. The most effective tax strategies require decisions made throughout the year, with a structured review in the final quarter. That said, there are specific actions that can be taken in the final weeks of the tax year that meaningfully affect your tax bill, and understanding them in advance allows you to execute them deliberately rather than scrambling at December 31.

Timing large purchases. If you are planning a significant business purchase, including new equipment, computers, photography gear, or other depreciable assets, the timing of that purchase relative to your tax year matters. A purchase placed in service by December 31 can be expensed under Section 179 or bonus depreciation in the current year, reducing this year’s taxable income. The same purchase made in January reduces next year’s income instead. For sellers with a strong profit year who want to reduce current-year taxes, accelerating planned purchases into the current year is a straightforward strategy.

Managing inventory levels at year end. Because COGS is calculated as beginning inventory plus purchases minus ending inventory, the value of your ending inventory directly affects your reported profit. Lower ending inventory means higher COGS and lower taxable income. Higher ending inventory means lower COGS and higher taxable income. Some sellers time their year-end inventory purchases to increase the ending inventory value strategically, though this must be driven by genuine business needs rather than purely by tax considerations, and the effect reverses in the following year when the higher beginning inventory reduces purchases flowing to COGS.

Timing revenue and expenses. Cash-basis taxpayers, which most small e-commerce sellers are, report income when received and deduct expenses when paid. Within legal limits, you can time payments and receipts to shift income and deductions between tax years. Prepaying subscription software, advertising costs, or other recurring expenses before year end accelerates the deduction. Delaying invoicing or collection of amounts receivable at year end defers income recognition. These strategies are subject to specific rules and limitations and should be discussed with your accountant before being implemented.

Retirement contributions. Self-employed individuals and small business owners have access to tax-advantaged retirement plans that can significantly reduce taxable income. A Simplified Employee Pension (SEP-IRA) allows contributions of up to 25% of net self-employment income, up to a maximum of $69,000 for 2024. A Solo 401(k), available to self-employed individuals with no full-time employees other than a spouse, allows both an employee contribution (up to $23,000 for 2024, plus a $7,500 catch-up contribution for those age 50 and over) and an employer contribution (up to 25% of compensation), with a combined limit of $69,000. For an S-Corp owner, contributions are based on W-2 salary rather than overall business income, which affects the calculation differently.

Retirement contributions made before the tax filing deadline (including extensions) can be counted toward the prior tax year for SEP-IRA contributions, giving sellers additional flexibility to adjust their contribution after the year closes but before filing. Solo 401(k) plans must be established by December 31 of the year for which contributions are intended, even if the contributions themselves can be made later.

Health insurance deductions for self-employed sellers. Self-employed individuals can deduct 100% of health insurance premiums paid for themselves, their spouse, and their dependents from gross income on their personal return. This deduction is taken above the line, meaning it reduces Adjusted Gross Income regardless of whether the seller itemizes deductions. For S-Corp owners, the health insurance premium must be included in the owner-employee’s W-2 compensation and then deducted on the personal return.

Qualified Business Income deduction optimization. As discussed above, the QBI deduction can be significant. Year-end planning should include verifying that your structure and income levels are positioned to maximize this deduction, particularly if you are near the thresholds above which limitations begin to apply. For some sellers near the threshold, making a larger retirement contribution can reduce taxable income below the threshold and preserve the full QBI deduction, generating savings that are greater than the retirement contribution alone.

Reviewing your entity structure before year-end. If your profit level this year has crossed the threshold where an S-Corp election would be beneficial, and you have not yet made the election, the window to make the election effective for the current year has likely closed. But the year-end review is the right time to confirm that you will file Form 2553 in the first two months and fifteen days of the new year to make the election effective for the coming year. Year-end is also the right time to revisit the reasonableness of your S-Corp salary if you are already elected, both to ensure it remains defensible and to confirm it is set appropriately given your business performance.

The Income Tax Filing Timeline for E-Commerce Sellers

Understanding when your various tax returns are due prevents late filing penalties and gives you time to plan.

Schedule C (sole proprietor and disregarded entity LLC). Filed as part of your personal Form 1040, due April 15. An automatic six-month extension (to October 15) is available by filing Form 4868 by April 15. The extension extends the time to file, not the time to pay. If you owe tax, it is due by April 15 regardless of whether you file an extension.

Form 1120-S (S-Corp return). Due March 15 for calendar-year S-Corps. An automatic six-month extension (to September 15) is available by filing Form 7004. Schedule K-1s should be issued to shareholders promptly after the return is filed, since shareholders need them to complete their personal returns.

Form 1065 (Partnership and multi-member LLC return). Also due March 15 for calendar-year partnerships, with a six-month extension available. Schedule K-1s are issued to partners.

Form 1120 (C-Corp return). Due April 15 for calendar-year C-Corps, with a six-month extension to October 15.

State income tax returns. Due dates vary by state. Most states follow the federal filing deadlines for the corresponding entity type, but this is not universal. Each state where you have a filing obligation should be verified for its specific deadlines.

The interaction between entity and personal returns. For S-Corp owners and partners, the entity return (Form 1120-S or Form 1065) must be filed and Schedule K-1s issued before the individual can finalize their personal return. This is why S-Corp and partnership returns are due March 15, ahead of the personal return deadline of April 15. If the entity return is extended, the personal return cannot be finalized until the K-1 is received, which often means the personal return is also extended.

Getting the Income Tax Right: What This Requires in Practice

Income tax compliance for an e-commerce seller at any meaningful scale requires accurate books, proper COGS tracking, correct classification of deductible expenses, and a year-round approach to tax planning rather than a scramble at filing time.

The sellers who consistently overpay tax are those with inaccurate books that overstate income, missed deductions that were never recorded, and no planning conversation with their accountant until it is too late to act. The sellers who have problems with the IRS are those with books that understate income, inflated deductions that are not supported by records, or entity structures that have not kept pace with business growth.

The middle path, which is where the vast majority of successful e-commerce sellers operate, requires treating your accounting and tax function as an ongoing business process rather than an annual administrative chore. That means keeping current books, conducting quarterly reviews with your accountant, making estimated payments on schedule, and having a planning conversation before the fourth quarter closes every year.

Part 6 of this guide covers the bookkeeping and accounting infrastructure that makes all of this possible. If your books are not in good shape, everything else in this section is harder to execute correctly.

Part 5: Platform-Specific Tax Issues continues next.

Antravia Advisory provides income tax preparation, quarterly tax planning, and multi-state filing services for e-commerce sellers across all entity types. If you are unsure whether your current tax approach is optimized for your business, contact our team for a consultation.