Introduction
Registering your brand with Amazon Brand Registry unlocks powerful benefits: A+ content, brand protection, advanced analytics, and sponsored brand ads. But with great features come great tax and compliance responsibilities.
In 2025, many brand-registered sellers are still making costly errors from mismatched accounting to sales tax neglect and inventory overreporting.
This guide covers the top mistakes Amazon brand sellers make and how to avoid them while remaining compliant with the IRS.
IRS Tax Code References
- IRC §162 – Deductible expenses (branding, advertising, software)
- IRC §263A – Inventory capitalization rules
- IRC §6001 – Recordkeeping requirements
- IRC §6050W – Reporting of payment transactions via Form 1099-K
Relevant IRS Forms
- Schedule C (Form 1040) – Report business income and expenses
- Form 1099-K – Amazon reports total gross payments
- Form 1120/1120S – Corporate income reporting for LLCs/C-Corps
- Form 4562 – To depreciate brand development costs (software, design tools)
Example: Brand Seller Failing to Track Ads and Inventory
Example: Talia sells eco-friendly kitchenware under her brand “EarthNest.”
In 2024:
- Sales: $210,000
- Spent $18,000 on Sponsored Brand Ads
- Forgot to capitalize packaging and shipping under IRC §263A
- Treated sales tax collected as income (which inflated her revenue)
- Filed taxes using net payout reports instead of 1099-K totals
Tax Fix:
- Adjusted reporting to match Form 1099-K
- Deducted ad costs and branding subscriptions under IRC §162
- Filed amended return and updated COGS formula
Top Mistakes Made by Brand-Registered Amazon Sellers (2025)
- Relying on Net Payouts Instead of 1099-K
Amazon reports gross sales, not net deposits. You must reconcile your books to match 1099-K figures. - Not Capitalizing Brand-Related Inventory Costs
Branded packaging, inserts, and product prep costs are part of inventory capitalization under IRC §263A. - Skipping Sales Tax Compliance in Nexus States
Amazon collects sales tax, but storing inventory in multiple states triggers nexus. You may need to register and file returns. - Misclassifying Ad Spend or Design Tools
Tools like Canva Pro, Adobe Illustrator, Jungle Scout, and A+ content services are deductible but only if tracked and categorized correctly. - Poor Recordkeeping for Trademark and Legal Fees
Filing fees, attorney retainers, and trademark renewals are deductible under IRC §162, but must be documented properly. - Overstating Brand Development Costs as Immediate Expense
Some long-term software, design assets, and logo development may need to be capitalized or depreciated over time. - Ignoring Quarterly Estimated Tax Payments
If your brand is profitable, you must file estimated payments using Form 1040-ES to avoid IRS penalties. - Underreporting Affiliate Revenue
If you’re also earning through Amazon Influencer or affiliate links, that income is reportable and tracked by Amazon. - Not Matching Inventory Method Across Tax Years
Changing from FIFO to LIFO or Specific ID method without IRS approval can trigger audit risks. - Forgetting to Track International Sales
If your brand ships globally via FBA Export or EFN, you may need to address international tax treaties and report foreign income.
Conclusion
Brand-registered Amazon sellers often focus on marketing, but tax strategy and compliance are equally critical to scaling.
In 2025, the IRS is paying more attention to eCommerce businesses, especially those with growing brand footprints.
Avoiding these mistakes can save you thousands and make your brand more resilient and profitable.
Call to Action
Already registered your brand with Amazon but unsure about your tax setup? Confused about COGS, ads, or 1099-K reconciliation?
Book a call with Anshul Goyal, CPA, EA, FCA
Anshul helps brand-registered Amazon sellers:
- Reconcile Amazon payouts with tax forms
- Deduct branding, legal, and ad expenses
- Correctly report COGS under IRS rules
- Stay compliant with inventory and tax laws
- Plan tax-saving strategies as your brand scales
Get compliant and grow confidently:
https://calendly.com/anshulcpa/
About Our CPA
Anshul Goyal, CPA, EA, FCA
Anshul brings 15+ years of U.S. and international tax experience. He specializes in helping online sellers, foreign founders, and U.S. residents with IRS and multi-state compliance. Known for his deep knowledge in Shopify and Amazon seller tax strategy, Anshul has helped hundreds of entrepreneurs minimize taxes and scale legally.
Disclaimer
This blog is for informational purposes only and does not constitute legal or tax advice. Please consult a qualified tax professional regarding your individual tax situation.
Top 5 High-Searched FAQs for 2025
1. What’s the biggest tax mistake brand sellers make on Amazon?
Reconciling based on payouts, not 1099-K gross figures.
2. Are branding and legal expenses deductible?
Yes, under IRC §162, if properly documented.
3. How do I report Amazon brand sales for tax purposes?
Use Schedule C or Form 1120 based on your entity, and match sales to Form 1099-K.
4. What counts as inventory under IRC §263A?
Product cost, branded packaging, prep, and related shipping.
5. Do I need to file sales tax returns if Amazon collects it?
Yes, in states where your stored inventory or separate sales create nexus.