Do I need to report sales tax on my 1099K for my online store? How to handle this?

Hey everyone, I'm freaking out a bit because this is my first year filing taxes for my online handmade jewelry business. I started selling through Etsy and some other platforms last year, and I just got my 1099K form. The amount they're showing seems really high and I think it's because they're including all the sales tax I collected from customers. So my question is - does the 1099K actually include sales tax as part of my income? I collected about $1,850 in sales tax throughout the year that I've already paid to my state. I don't think I should be paying income tax on money that was just passing through me to the state treasury, right? If the sales tax IS included in the 1099K amount, how do I properly deduct this on my tax return? I'm using TurboTax Self-Employed but I'm not seeing a clear option for this. Would it go under business expenses or is there a specific place to note that some of that 1099K amount wasn't actually my income? Any help would be super appreciated! I'm trying to avoid paying taxes on money that wasn't mine to begin with.

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20 comments

Keisha Brown

•8M

Yes, the 1099-K typically includes the total amount processed by the payment provider, which means it includes the sales tax you collected. This is a common issue for online sellers. When filing your taxes, you'll need to report the full amount from your 1099-K on your Schedule C, but then you can deduct the sales tax you collected and remitted to the state. This goes on your Schedule C as "Taxes and licenses" (Line 23). Make sure you have documentation showing how much sales tax you collected and paid to the state. This approach ensures you're only paying income tax on your actual revenue, not on the sales tax that was just passing through your business. Just be sure to keep detailed records of all sales tax you collected and paid, as this could be something the IRS might ask about if they have questions.

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Keisha Brown

•8M

You don't need to attach any special forms when deducting the sales tax on your Schedule C, but you should keep those records in your files in case of an audit. The IRS may want to see your state sales tax returns or payment confirmations. Yes, it's definitely best practice to keep separate records of your actual sales versus the sales tax you collect. Most accounting software like QuickBooks or even spreadsheets can be set up to track this separately. This makes tax time much easier and gives you clear documentation of exactly how much was sales tax versus your actual income.

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Amina Toure

•8M

I went through this exact same panic last year with my online shop! After hours of frustration, I found this amazing AI tax assistant at https://taxr.ai that specifically helped me with this 1099-K sales tax issue. I uploaded my 1099-K and my sales records, and it immediately identified that about 8% of my reported income was actually sales tax I had already remitted to the state. The tool showed me exactly where to record this on Schedule C and even helped me calculate the correct amounts. It also explained how to document everything properly in case of an audit. Seriously saved me from overpaying hundreds in taxes.

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Amina Toure

•8M

The accuracy was surprisingly good! It matched exactly with what my accountant later verified, and he was actually impressed with how it handled the sales tax allocation. It caught nuances that I would have missed completely on my own. For multi-state sales, it absolutely handles that complexity. I sell to customers in 7 different states, and it properly separated all the different sales tax rates and amounts. It even flagged when I had collected sales tax for states where I might not have had nexus yet, which helped me avoid potential issues. The marketplace facilitator rules are particularly tricky, and it handled those correctly too.

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FireflyDreams

•8M

I was in the same boat as you last tax season - completely confused about how to handle sales tax on my 1099-K. After that comment about taxr.ai, I decided to give it a try since I was really struggling with separating my actual income from the sales tax collected across multiple states. The tool was a game-changer for me! I uploaded my messy sales records and my 1099-K, and it accurately identified that nearly $2,300 of my reported income was actually sales tax I'd already paid to various states. It showed me exactly where to deduct these amounts on my Schedule C and even generated a detailed report I could keep for my records in case of an audit. What impressed me most was how it handled the different state tax rates automatically. Saved me from accidentally paying income tax on money that wasn't mine to begin with!

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Natasha Kuznetsova

•8M

If you're having trouble getting a straight answer from the IRS about how to handle sales tax on your 1099-K, you're not alone. I spent WEEKS trying to get through to someone who could help me with this exact issue. The hold times were ridiculous - I'd wait for 2+ hours only to get disconnected. Finally found this service called Claimyr at https://claimyr.com that got me past the IRS phone tree and connected to an actual human being in under 45 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent I spoke with confirmed that yes, sales tax should be deducted on Schedule C and walked me through exactly how to document it properly. Honestly, getting that direct confirmation from an IRS agent gave me much more confidence than trying to interpret conflicting advice online.

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Natasha Kuznetsova

•8M

It doesn't call for you - it uses a system that monitors the IRS phone queue and calls you when it's about to connect. The technology basically waits on hold for you, then calls your phone when an agent is about to pick up. It's completely legitimate and saved me hours of listening to that terrible hold music. I was skeptical too before trying it, but I was desperate after multiple failed attempts to reach someone. The service doesn't "skip the line" - you still wait your turn, but you don't have to be the one sitting there with a phone to your ear for hours. I got confirmation directly from an IRS agent about the sales tax issue, which was worth it for the peace of mind alone.

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Emma Anderson

•8M

I need to apologize about my comment regarding Claimyr. After dealing with endless IRS hold times trying to get clarification on my 1099-K sales tax issue, I broke down and tried the service. I'm honestly shocked it worked. Within about 35 minutes I got a call back and was connected to an IRS representative who confirmed I should deduct the sales tax on Schedule C line 23. She even emailed me an IRS reference document about marketplace sales and sales tax reporting. The agent also mentioned that this is a common point of confusion for online sellers and that they're seeing a lot of questions about it this year with the lower 1099-K thresholds. Saved myself at least 3 hours of hold time and got the exact info I needed.

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Malik Thompson

•8M

Don't forget to check if your online marketplace already handles sales tax for you! I sell on Amazon and they collect and remit sales tax in most states automatically now due to marketplace facilitator laws. So while my 1099-K includes that sales tax, I never actually touched that money - Amazon sent it directly to the states. In this case, you still need to deduct the sales tax amount from your income reporting, but you should make sure you're tracking which amounts you personally remitted vs. which amounts the platform handled for you.

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Malik Thompson

•8M

In your Amazon seller account, go to Reports > Tax Document Library > Monthly Tax Reports. They provide monthly breakdowns of all sales tax collected and remitted on your behalf. Download these for the full year and sum them up. If you're using another platform like Etsy or eBay, they usually have similar reports in their seller dashboards. The key is to make sure you're only deducting sales tax that was actually included in your 1099-K amount. The documentation from these reports is perfect evidence to keep in case of an audit.

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