Ecommerce Taxes Explained: What Online Sellers Need to File with Confidence
Selling products online sounds simple—until tax season rolls around. Whether you’re on Shopify, Etsy, Amazon, or your own site, ecommerce taxes can quickly become overwhelming. Between income reporting, inventory tracking, and ever-changing sales tax rules, it’s easy to feel out of your depth.
The good news? With a little planning—and the right tax partner—you can stay compliant and keep more of your profits. Here’s what online sellers need to know to file with confidence.
1. Understand What Counts as Taxable Income
If you’re selling goods online, you’re running a business in the eyes of the IRS. That means every sale counts as income, whether you made $500 last year or $500,000.
You’ll likely need to file a Schedule C as a sole proprietor or report income through your business entity (LLC, S Corp, etc.).
Make sure you’re also reporting:
- Shipping fees collected from customers
- Affiliate or influencer income
- Returns and refunds (to adjust gross sales)
Need help organizing your ecommerce income? Our bookkeeping and accounting services can keep everything clean and audit-ready.
2. Know the Sales Tax Rules for Your State (and Others)
Online sales tax gets tricky fast. Thanks to the 2018 South Dakota v. Wayfair decision, states can now require you to collect sales tax even without a physical presence, depending on how much you sell there.
That means:
- You may need to register for a sales tax permit in multiple states
- Each state has different thresholds, rules, and deadlines
- Platforms like Shopify or Amazon may collect on your behalf—but not always
We help ecommerce clients assess sales tax nexus and set up compliant systems across the U.S. Learn more on our ecommerce tax planning page.
3. Keep Detailed Records of Inventory and Expenses
Inventory tracking isn’t just for operational efficiency—it affects your cost of goods sold (COGS), which directly impacts your tax bill.
You’ll need to track:
- Beginning and ending inventory
- Purchases, shipping costs, and returns
- Inventory used for promotions or giveaways (still taxable!)
You’ll also want to record deductible expenses, like:
- Advertising
- Merchant fees (PayPal, Stripe)
- Software subscriptions
- Home office expenses
If you’re unsure what qualifies, our small business tax experts can walk you through it.
4. Don’t Forget About Self-Employment Taxes
Most ecommerce sellers are self-employed, which means you’re responsible for paying self-employment tax on top of income tax. That adds an extra 15.3% to cover Social Security and Medicare.
To stay ahead, consider:
- Making quarterly estimated tax payments
- Setting aside 25–30% of profits for taxes
- Using accounting software to project liabilities
Many sellers wait until April to sort it all out—only to get hit with penalties. Hogan CPA Financial Services helps online business owners build proactive tax plans that avoid surprises.
5. Entity Structure Can Impact Your Tax Burden
As your ecommerce business grows, it might make sense to move from sole proprietorship to an LLC or S Corporation. The right structure can:
- Help reduce self-employment taxes
- Provide legal protection
- Allow you to pay yourself a reasonable salary and take distributions
Not sure if it’s time to upgrade your structure? Our business advisors will help you decide what makes the most financial sense based on your goals.
Final Thoughts: Ecommerce Success Starts with Smart Tax Planning
Online selling is more than just posting products and watching the orders roll in. Behind the scenes, smart ecom tax planning can save you thousands—and keep your business running smoothly when tax season hits.
At Hogan CPA, we help ecommerce sellers across Columbus and nationwide stay compliant, organized, and confident in their financial decisions.
Want peace of mind heading into tax season?
Contact us to schedule a personalized tax review tailored to your ecommerce business.