Amazon Seller Bookkeeping: Monthly Close and When to Hire a CPA

Accounting for Amazon FBA sellers: what does a monthly close cover?

A monthly close ties every settlement, bank and card statement, supplier invoice and stock count for the month back to the books, then locks the month. Seven steps make up the close.

The case is no longer simple, and part of the close becomes a tax question, when:

• The close no longer finishes each month, or a spreadsheet no longer keeps up.
• Stock sits in more than one state, or sales tax is owed in more than one state.
• Sales run through a second marketplace, currency or seller account.
• Months were never reconciled, or earlier returns show no inventory while stock existed.
• The seller is a partnership or corporation, or the owner is foreign.
• A lender or a buyer asks for statements.

Gather before you start: 12 months of settlement files, bank and card statements, supplier invoices and the last two filed returns.

Which records prove an Amazon seller's income and costs?

Settlement files, bank and card statements, supplier invoices, ad bills, stock counts and filed returns are the core set. The IRS lets a business choose any system that clearly shows income and expenses, but the books must show gross income, deductions and credits, and supporting documents must back each entry.

Form 1099-K does not replace the books. Publication 334 says it may not include all receipts and may include items that are not receipts, such as sales tax, and income is reportable whether or not you receive one. To tie the form to the books, see Reconciling sales, payouts and Form 1099-K.

What does accounting software for an Amazon seller have to do?

Whatever you use has to do three jobs: keep records that trace to source documents, reconcile to the bank and the return, and track units and cost. No official source ranks brands, so test the setup against the list below. The IRS sets what any computerized system must produce: records that reconcile with the books and the return, with enough detail to identify the underlying source documents. The business must also keep a description of how the system works: what it does, the controls that keep processing accurate and stop unauthorized changes to records, and the chart of accounts.

Publication 583 also says to use the same accounting method to figure taxable income and to keep the books, and the regulation counts a reconciliation of any differences between the books and the return among the records, so books on another basis need one; see Accrual books and a cash-basis tax return. An Amazon seller's data adds practical needs. These are bookkeeping practice, not IRS rules:

• Import every settlement line, not the net deposit. Amazon's documentation says its Flat File V2 settlement report puts every amount in a single column, so the account mapping depends on the type and description columns.
• Hold each settlement in a clearing account until its deposit arrives.
• Track units and cost per item. A book inventory is charged with the actual cost of goods bought and credited when goods are sold, so the books can be compared with a count.
• Report gross sales by state and by channel.
• Lock closed months.

A connected bank feed does not do the reconciling: see Bank feeds are not reconciliation.

Is doing it myself with accounting software worth it?

Doing it yourself may work while the close ties out every month: one marketplace, settlements posted soon after they arrive, a year-end count, and sales tax in few states. It may stop working when months stop closing or an item in the first section's list applies. That is bookkeeping practice, not an IRS rule. A spreadsheet follows the same test: see Bookkeeping in a spreadsheet and Doing your own books or hiring a bookkeeper.

Does an Amazon seller need an inventory method, and does it force accrual accounting?

A seller whose average annual gross receipts are $32,000,000 or less over the three prior tax years can choose not to keep an inventory, if it is not a tax shelter and its method clearly reflects income. A larger seller must keep one and use accrual for purchases and sales. The IRS says that when buying and selling goods produces the income, an inventory is necessary and purchases and sales must use an accrual method; other items of income and expense can generally stay on the cash method, which the IRS calls a hybrid method (Publication 538). A C corporation or a partnership with a C corporation partner above the limit, and a tax shelter of any size, cannot: section 448 bars them from cash, and a combination that includes cash counts as cash (26 CFR 1.448-2), so they use accrual throughout.

The smaller-business exception is a small business taxpayer test (26 U.S.C. 471(c)). Entities treated as a single employer under the statute's aggregation rules add their gross receipts together, and returns and allowances reduce gross receipts (26 U.S.C. 448(c)). The figure above is the 2026 amount in the IRS bulletin; IRS publications may still show an earlier year's. The test is re-run each year on the three prior years, so a growing seller can lose the option.

A seller that keeps an inventory values it each year to find cost of goods sold. The two ways a small business taxpayer may treat inventory are in Inventory or supplies for small sellers. If the return follows the books for inventory, the IRS's consent is needed before the books change how they treat stock, such as starting to carry it (26 CFR 1.471-1(b)(8)), so a seller whose books now expense purchases should check before the close starts tracking units. Valuation, FBA fees and lost units are in Amazon FBA fees and inventory; the general method choice is in Cash or accrual for a small business.

How is sales tax Amazon handles different from tax I owe on other sales?

Where a state has a marketplace rule, the marketplace generally collects and remits the tax on sales it makes through its site. The seller stays responsible for sales the marketplace does not handle, such as sales through its own website. States differ. In California the marketplace facilitator is the retailer responsible for the tax on facilitated sales, and a seller whose retail sales are all facilitated is generally not required to register. Texas lets a seller skip collecting on marketplace sales if the provider has certified that it assumes the duty (until a certification arrives, the seller collects), yet a Texas seller still needs a permit and must file.

In the books, tax the marketplace collects and remits is neither sales nor your sales tax payable. If a settlement shows the tax added and then withheld, post both lines to a pass-through account (a holding account kept apart from sales), and the two should offset to zero. Tax you collect yourself is a liability until you remit it. Tax imposed on you as the seller is part of gross receipts.

Marketplace sales can still count toward a state's sales threshold. California includes them in its $500,000 test, so the close should record gross sales by destination state, not net deposits. Whether you must collect is in When you must collect sales tax; other thresholds are in Sales tax economic nexus thresholds by state.

Does stock in Amazon's fulfillment centers create state duties?

It can. California lists maintaining inventory in the state as physical presence. Its guide says an out-of-state seller with inventory in a California fulfillment center, commingled with other sellers' stock, that also makes retail sales for delivery in California through its own website is engaged in business there and must register and file returns. Another state may treat the same facts differently, and income and franchise tax rules are separate from sales tax rules.

So the close should record units by the state where they sit, sales by destination state and sales made outside the marketplace, and flag any state where stock and non-marketplace sales meet. See Sales tax nexus versus income tax nexus and Business income tax in other states.

Do I make quarterly estimated tax payments from Amazon profit?

You generally must when you expect to owe $1,000 or more for the year after withholding and credits, as a sole proprietor, partner or S corporation shareholder. A corporation generally must when it expects to owe $500 or more; for an S corporation, only the entity-level taxes listed in the Form 1120-S instructions count (IRS; Publication 583).

Build the estimate from profit after the costs the close records, not from deposits. Estimated tax covers self-employment tax as well as income tax. If income arrives unevenly, such as late in the year, annualizing may lower the penalty. The set-aside in the monthly close is a habit, not an IRS requirement. Safe harbors, due dates and the penalty are in Quarterly estimated tax payments.

How long do I keep Amazon, bank and purchase records?

Keep records that support an item on a return until the period of limitations for that return runs out (IRS). That is generally 3 years from filing, counting a return filed early as filed on the due date. It is 6 years when the income left off is more than 25% of the gross income shown, and indefinite when no return was filed or the return was fraudulent. A refund claim, employment tax records and records of property have their own periods, and other parties, such as lenders, may need records longer. The full list is in How long to keep business records.

What do my tax preparer and my lender need from the books?

A preparer needs gross receipts, returns, each expense and the cost of goods sold: opening inventory plus purchases, freight-in and other costs, less ending inventory (Publication 334). Gross receipts leave out sales tax imposed on the buyer that you collected for the state, so the books should show that tax apart.

A lender or a buyer sets its own list, and the IRS sources on this page do not cover it. Ask for the list before the close, not after. See Proving income to a lender and From the books to the business tax return. Where the figures land on the return is in Online seller income tax.

Do I need a CPA for my Amazon business, or is a bookkeeper enough?

A CPA may be needed when the question is a tax judgment, not a posting. A bookkeeper keeps the close running; the situations below change what the books must say or what a past return needs.

An LLC is not a tax category of its own. A domestic LLC with two or more members is a partnership unless it elects corporation status. The election is made on Form 8832 and can take effect up to 75 days before it is filed and up to 12 months after. With one member the LLC is disregarded as separate from its owner unless it elects corporation status, so an individual owner generally reports it on Schedule C for a trade or business. Spouses who jointly own and run an unincorporated business are generally partners, with exceptions for community property and qualified joint ventures. An LLC owned only by spouses as community property may be treated as disregarded or as a partnership; an LLC is not eligible for the qualified joint venture election.

Who may prepare and sign a return, and who may speak to the IRS, is in Bookkeeper, accountant or CPA. What a bookkeeper does and what drives the fee is in Ecommerce bookkeeper: cost and scope.

Example

These examples are illustrative; all amounts are in US dollars.

A spreadsheet at $400,000 a year

A seller grosses $400,000 a year, paid in one settlement about every two weeks. That is 26 settlements, 12 bank reconciliations and 1 stock count a year. One marketplace and a year-end count keep the close short, and a spreadsheet can carry it while each settlement is posted soon after it arrives. A second marketplace, a second state with stock, or a loan request makes the case no longer simple.

$60,000 of stock in three states

A seller keeps $60,000 of stock in fulfillment centers in three states, $20,000 in each, and also sells through its own website. In states with a marketplace rule, the marketplace generally handles the tax on marketplace sales. The monthly close records units by state and website sales by destination state, which shows whether any of the three states is also a destination for website sales. If California is one of the three and the website also makes retail sales for delivery there, CDTFA's guide says the seller is engaged in business there and must register and file returns; each other state needs its own check.

Purchases expensed, no inventory

A seller's tax preparer asks for ending inventory and a profit and loss statement. The books expensed every purchase and carried no stock. The seller had no stock at the start of Year 1.

Year 1 deducts $20,000 more than the goods sold cost, and Year 2 deducts $5,000 less, so $15,000 of stock sits outside the books. Above the small-business limit, the last row is the tax result and the returns were off by those amounts. A small business taxpayer whose books never carried stock may have been allowed to deduct purchases when paid. Whether to amend or change method is a question for a CPA before the next month closes.

Different for you?

• Your volume has outgrown the spreadsheet, a lender or buyer wants statements, or stock sits in several states: these decide which parts to hand off (the monthly close, inventory, sales tax) and which prior-year problems to fix first. See bookkeeping help.
• Your books are months behind: see Catching up on overdue books and bookkeeping help.
• Earlier returns show no inventory, or you expensed purchases: the first step is the prior returns, not next month. See Fixing inventory missing from past returns and bookkeeping help.
• You have a partnership or corporation, have not chosen an entity, or are about to change it: the entity decides the return and which books you need. See Should you elect S corporation status and bookkeeping help.
• A tax notice arrived: see An IRS notice to your business.
• You need the settlement entries or the FBA fee treatment: see Amazon settlement report in the books and Amazon FBA fees and inventory.
• You sell through a foreign-owned LLC: see Marketplace payouts in a foreign-owned LLC.
• You want to know what hiring costs: see Ecommerce bookkeeper: cost and scope.