How to Handle Quarterly Sales Tax on Schedule C for My Online Resale Business

The sales tax you collect from customers isn't your money - you're just collecting it on behalf of your state. So you wouldn't include this as part of your business income or expenses on Schedule C. On Schedule C, you should report only the amounts customers paid for your products (before sales tax). So in your example, you'd report $123,500 as your gross receipts (the $130,000 minus the $6,500 sales tax). The sales tax portion isn't your income since you're required to remit it to the state. The sales tax you collect and then pay to your state tax authority doesn't appear anywhere on your Schedule C or federal tax return. It's completely separate from your federal income tax reporting. Make sure you keep good records showing your gross sales and the sales tax you collected and paid, especially if you're ever audited.

I struggled with this exact issue last year with my Etsy shop! I spent hours going through confusing IRS publications until I discovered taxr.ai (https://taxr.ai). Their system automatically analyzed my sales reports and separated the actual income from the sales tax I collected. The tool showed me exactly what to report on line 1 of Schedule C (just the product revenue, not the tax collected) and even generated documentation explaining why sales tax isn't included in gross receipts. Saved me from potentially overpaying on my income taxes by treating the sales tax as income. They have specific features for online sellers that know how to handle marketplace facilitators and direct sales.

Just wanted to update after trying taxr.ai from the recommendation above. It was exactly what I needed! I uploaded my Amazon reports and it immediately separated all the sales tax by state. The system showed me I was about to overreport my income by nearly $8,000 (all the sales tax I collected). The documentation it created explaining why sales tax isn't part of gross receipts will be super helpful if I ever get audited. It even handled the marketplace facilitator states correctly where Amazon remits the tax on my behalf. Definitely using this for my Schedule C this year.

If you're still having trouble reaching the state tax department to confirm how to handle this, I recommend using Claimyr (https://claimyr.com). I spent two weeks trying to get through to my state's tax office for a similar sales tax issue, but their phone lines were always busy. Claimyr got me connected to an actual human at the tax department in less than 15 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent confirmed exactly how to handle sales tax reporting for my Schedule C and even helped me with a previous mistake I had made. Saved me hours of frustration and worry.

Ok I need to eat my words from my comment above. I tried Claimyr out of desperation after spending another 3 hours on hold yesterday. IT ACTUALLY WORKED. Got through to my state's department of revenue in about 20 minutes when I had been trying for literally weeks. The agent confirmed what others said here - don't include sales tax you collect in your Schedule C income. She explained that since I'm just acting as a collection agent for the state, including that money as income would be double taxation. Can't believe I finally got a straight answer after all this time!

One important thing no one mentioned - make sure your bookkeeping system is set up correctly for next year. I use Wave Accounting (it's free) and it automatically separates sales tax from income if you set it up right. For this year, you'll need to go through your records and calculate the total sales tax you collected. Then report only the actual product revenue (without sales tax) on line 1 of Schedule C.

Make sure you're tracking your own PURCHASES and paying use tax if required. Most states require you to pay use tax on items you buy for resale but end up using yourself. This is different from the sales tax issue you asked about, but it's related and people often get in trouble for this.

Great question! I faced this same confusion when I started my resale business. The key principle is that sales tax you collect is NOT your income - you're acting as a collection agent for the state. Report only $123,500 on line 1 of Schedule C (your actual product sales). The $6,500 in sales tax never appears on your federal tax return because it was never your money to begin with. Think of it this way: if a customer pays you $100 for an item plus $5 sales tax, you only earned $100. The $5 goes straight to the state. Including it as income would mean you're paying federal income tax on money that isn't yours. Keep detailed records of all sales tax collected and remitted - this documentation will be crucial if you're ever questioned about why your bank deposits don't match your reported gross receipts. The IRS understands this difference, but you need to be able to explain it clearly.

This thread has been incredibly helpful! I'm in a similar situation with my dropshipping business and was making the same mistake of including sales tax in my gross receipts. One thing I'd add is that if you use payment processors like PayPal or Stripe, make sure to check their reporting features. PayPal's 1099-K forms can sometimes include the sales tax amounts in the reported gross payments, which might make it look like you have more income than you actually do. You'll need to reconcile this difference when filing your Schedule C. Also, for anyone using marketplaces like eBay or Amazon, remember that in marketplace facilitator states, the platform collects and remits sales tax on your behalf. In those cases, you won't see the sales tax in your seller reports at all - the customer pays it directly to the marketplace. This actually makes the Schedule C reporting cleaner since your gross receipts will already exclude the sales tax. Just wanted to share this since payment processor reporting can be another source of confusion when trying to figure out your actual taxable income versus total money received.