If you're an Amazon seller, reporting reimbursements correctly on your taxes is non-negotiable. These payments, whether for lost inventory, damaged goods, or customer returns, count as taxable income and must be accurately categorized to avoid IRS penalties or overpaying taxes. With the IRS lowering the 1099-K threshold to $600 in 2025, precise record-keeping is more important than ever.
Here’s a quick summary of what you need to do:
Know the types of reimbursements: Lost inventory, damaged goods, customer returns, overcharged fees (expense offset), and shipment discrepancies.
Organize your records: Download reports like the Reimbursement Report, settlement statements, and supporting evidence from Amazon Seller Central.
Use accounting tools: Create a separate income account for reimbursements to avoid mixing them with sales revenue.
Reconcile regularly: Match Amazon reports with your bank deposits monthly to catch errors early.
Report reimbursements properly: Include them as business income on federal and state tax returns, accounting for nexus rules in states where you store inventory.
Automation tools like Refunzo can simplify tracking, reconciliation, and documentation, saving time and reducing errors. Staying compliant is easier when you follow these steps consistently.
How to File Taxes as an Amazon Seller | Step-by-Step Guide
Know the Different Types of Amazon Reimbursements
Understanding the various types of Amazon reimbursements is essential for accurate tax reporting. Each type has its own tax implications, and misclassifying these can lead to IRS penalties.
Main Categories of Amazon Reimbursements
Amazon provides reimbursements across five main categories, each addressing specific operational issues that sellers face. One of the most common types is lost inventory, which happens when Amazon misplaces your FBA inventory in their warehouses. Starting March 10, 2025, Amazon will reimburse lost inventory based on manufacturing cost rather than retail price. This change may lower reimbursement amounts and affect your tax reporting.
Reimbursements for damaged goods cover items that are damaged while under Amazon's care - whether during transit to fulfillment centers or while stored in their warehouses. These reimbursements are considered taxable income and must be recorded separately from your regular sales revenue.
Customer returns create another reimbursement scenario. If a customer is refunded but doesn't return the item, Amazon reimburses you for its value. Similarly, if a returned item is damaged or unsellable, you may receive compensation for the lost value.
Overcharged fees are another common issue. Amazon may mistakenly charge higher FBA fees, storage fees, or handling fees. When these errors are corrected, the reimbursements typically serve to offset expenses rather than increase your income.
Inbound shipment discrepancies happen when Amazon doesn't properly account for the inventory you send to their fulfillment centers. In these cases, you’re reimbursed for the difference between what you shipped and what Amazon received.
Reimbursement Type | Description | Tax Treatment |
|---|---|---|
Lost Inventory | Items lost by Amazon after warehouse receipt | Taxable income |
Damaged Inventory | Products damaged in Amazon's care | Taxable income |
Customer Returns | Refunds without returns or damaged returns | Taxable income |
Overcharged Fees | Excess storage, handling, or shipping fees | Expense offset |
Shipment Discrepancies | Missing inventory from inbound shipments | Taxable income |
How to Find Reimbursements in Amazon Seller Central
To locate reimbursements in Amazon Seller Central, start with the Reimbursements Report, found under the Reports section in Fulfillment. This report provides details like transaction dates, amounts, and reason codes for most reimbursements.
However, not all reimbursements are listed here. For example, Inventory Adjustments reports include reimbursements related to lost or damaged inventory, while Returns Reports detail customer return-related reimbursements. Fee-related reimbursements are often found in Fee Reports or settlement statements. This organization helps you identify and categorize each reimbursement type for precise tax reporting.
Keep in mind that Amazon's Form 1099-K reports gross payments processed on the platform, which may include reimbursements. However, it doesn’t break these out separately. To avoid errors like double-counting or omitting income, you’ll need to reconcile your 1099-K totals with your internal records. Since reimbursements are typically paid without sales tax or VAT, proper categorization is crucial for compliance.
Automation tools like Refunzo can simplify this process by automatically reconciling your account, checking over 20 criteria, and generating detailed reimbursement reports. This ensures no reimbursements are overlooked and keeps your documentation organized for tax purposes.
"Refunzo have been a great partner for our company. They work seamlessly and are able to get us refunds from Amazon for lost or misallocated inventory at FBA warehouses." - Greens Plus
To stay ahead, establish a routine for downloading and reviewing these reports - ideally on a monthly basis. This proactive approach helps you maintain accurate records, identify discrepancies early, and ensure reimbursements are properly categorized and reported as taxable income when necessary.
Collect and Organize Required Documentation
Keeping accurate records is essential for tax reporting. Make sure to hold onto your documentation for at least three years - or up to seven years if you're dealing with extended audits.
Download Reports and Supporting Evidence
Start by downloading your Reimbursement Report from Amazon Seller Central. To do this, go to Reports > Fulfillment > Reimbursements, set the date range to cover the entire tax year, and request the report. This document itemizes all reimbursements, including those you requested and those Amazon processed automatically.
Your settlement statements are just as important. These show the exact payment details for each reimbursement, helping you match bank deposits to reported income. Be sure to download these statements each month throughout the year.
In addition to these reports, keep vendor invoices, shipping receipts, and any correspondence that verifies reimbursements. If you have photos of damaged or lost inventory, save those as well. Organize everything in a yearly digital folder, using clear file names like 2025_Amazon_Reimbursement_Report.pdf. To stay on top of things, create a master spreadsheet summarizing dates, amounts, and document links. This will serve as a quick reference and ensure nothing gets missed during tax preparation.
If managing all this feels overwhelming, automation tools can make your life a lot easier.
Use Tools and Services to Automate Documentation
Manually collecting and organizing documentation can be tedious and error-prone, especially for sellers handling large volumes of transactions. Tools like Refunzo can streamline this process by automating reconciliation, flagging discrepancies, and organizing supporting documents.
Once you link your Amazon account, Refunzo conducts thorough checks, identifying issues like lost, damaged, or overcharged items. It then generates detailed, audit-ready reports that estimate what Amazon owes you.
"Been using them for a while - efficient service, reasonable price and seem to constantly be finding money that Amazon owes me." - Danny
One of the biggest advantages of using automation tools is catching missing or incomplete claims that might slip through the cracks. Refunzo provides clean, organized reports that make tax compliance easier while helping you capture all eligible reimbursements.
The service offers lifetime free reconciliation for the initial inventory accuracy check and reimbursement identification. If you choose to let Refunzo handle the claims process, they charge 15% of the reimbursement amount, capped at $5,000. For many sellers, this fee ends up paying for itself through the additional reimbursements uncovered by the platform.
For sellers managing hundreds - or even thousands - of transactions each month, automation tools save significant time while boosting accuracy. They ensure consistent file naming, chronological organization, and audit-ready documentation, all of which make tax preparation smoother and more reliable. By eliminating manual errors and providing comprehensive coverage, tools like Refunzo help you stay compliant and maximize your reimbursements with minimal effort.
Record Reimbursements Correctly in Accounting Systems
When managing Amazon reimbursements, it's crucial to record them separately from your sales revenue. This ensures they are treated as expense recoveries rather than product sales, giving you a clearer picture of your business performance.
Create a Separate Income Account for Reimbursements
To keep things organized, set up a dedicated "Amazon Reimbursements" income account. This approach avoids inflating your sales figures and simplifies tax preparation.
For QuickBooks, create a new Income account labeled "Amazon Reimbursements." If you're using Xero, add a new Revenue account with the same name.
When recording a transaction, for example, a $150.00 deposit, log it in the "Amazon Reimbursements" account. Attach the relevant report, note the transaction date, and specify the reason for the reimbursement. This method keeps these entries distinct from your product sales while maintaining proper documentation.
This account should capture all types of Amazon reimbursements, such as payments for lost inventory, damaged goods, customer return discrepancies, fee overcharges, and warehouse processing errors. Always reference the corresponding Amazon reimbursement report and case number for each entry.
Once you’ve set up this separate account, ensure the correct tax settings are applied, and perform regular reconciliations to keep everything accurate.
Apply Correct Tax Rates and Reconcile Regularly
Amazon reimbursements are generally considered business income and are subject to federal and state income tax, but they are not subject to sales tax since no customer transaction took place. This distinction is critical when setting up tax configurations in your accounting software.
Assign the appropriate income tax rate to your "Amazon Reimbursements" account and avoid applying sales tax rates to these transactions. Incorrect tax settings can lead to compliance issues and inflate your tax liabilities.
Make it a habit to download monthly settlement and reimbursement reports. Cross-check these reports with your accounting entries to catch discrepancies early. Automation tools like Refunzo can simplify this process significantly. Refunzo identifies potential reimbursements, generates detailed reports, and integrates with your accounting system, reducing manual errors. With Amazon’s recent reduction of the claim window to just 90 days, staying on top of reconciliation is now more important than ever.
"We have been using Refunzo for about 4 years and we have been very pleased with their service. They are extremely easy to work with and charge less than most refunds services around while getting more back in refunds than our last service." - David Cummings
Avoid common mistakes like mixing reimbursements with sales income, failing to regularly download supporting reports, or skipping monthly reconciliations. These errors can complicate tax filings and even trigger audits. If you’re unsure about handling reimbursements properly, consulting a tax professional can help you stay on the right track.
Report Amazon Reimbursements on Federal and State Taxes
Make sure to report all Amazon reimbursements as part of your business income on both federal and state tax returns. Doing so helps you avoid compliance issues and ensures your filings are accurate.
Include Reimbursements in Federal Gross Income
Amazon reimbursements count as taxable business income and must be reported on your federal tax return. The specific form you’ll use depends on your business structure:
Sole proprietors: Report on Schedule C (Form 1040).
Partnerships: Use Form 1065.
S corporations: File Form 1120S.
C corporations: File Form 1120.
For example, if you received $2,500.00 in reimbursements over the year, you’ll need to include this amount in your total business income.
If your total sales exceed $20,000.00 and you’ve had more than 200 transactions in a calendar year, Amazon will issue a Form 1099-K. Keep in mind, this form doesn’t separate reimbursements from sales revenue, so it’s your responsibility to accurately categorize and report reimbursements as distinct from sales.
To stay organized, retain detailed records from Amazon Seller Central, such as reimbursement statements, transaction reports, and your Form 1099-K (if provided). These can be downloaded from the Tax Document Library in Seller Central and will serve as critical evidence if the IRS has any questions about your filings.
Once your federal reporting is in order, you’ll need to tackle state-specific tax rules to remain compliant across all relevant jurisdictions.
Handle State Tax Requirements
After addressing federal taxes, you’ll need to apply state-specific tax rules for your Amazon reimbursements. These rules vary widely, especially if your inventory is stored in multiple states through Amazon’s fulfillment network. Reimbursements may need to be reported as business income in every state where you have a tax nexus.
A sales tax nexus is typically established if you have a physical presence in a state - such as inventory stored in an Amazon fulfillment center - or if you meet specific sales thresholds. For example, if Amazon stores your products in fulfillment centers across five states, you likely have nexus in all five and may need to file state income tax returns in each one.
States are paying closer attention to marketplace sellers, especially those with inventory in multiple locations. This increased scrutiny has made state tax compliance more complex, and many sellers overlook these obligations. Be sure to check the income tax rules for every state where you have nexus, as thresholds and exemptions can differ significantly.
For instance, if your business is based in California, you might need to report the full reimbursement amount there, while states like Texas (which has no state income tax) or Florida may have entirely different requirements. To simplify this process, use state-specific Amazon reports to identify your nexus obligations. Tools like Refunzo’s automated reconciliation can help by generating detailed reports that break down reimbursements by location and time period, making multi-state compliance easier.
If you’re unsure about your state tax obligations, consult a tax professional who specializes in e-commerce and multi-state taxation. Given the complexity of reporting reimbursements across various states, expert guidance can help you avoid penalties and ensure everything is filed correctly.
Tax Level | What to Report | Where to Report | Key Considerations |
|---|---|---|---|
Federal | All reimbursements as business income | Schedule C (sole proprietor) or relevant form | Include in gross receipts, separate from customer refunds |
State | Reimbursements allocated by nexus rules | State income tax returns where nexus exists | Verify each state’s requirements and thresholds |
Documentation | Reimbursement reports and transaction records | Keep for audit support | Download from Seller Central Tax Document Library |
Stay Compliant and Use Automation for Future Tax Seasons
Keeping accurate records isn't just a good habit - it’s your best defense against last-minute tax headaches and potential IRS penalties. By establishing consistent processes and using automation, you can make tax season far less stressful and more efficient.
Set Up a Regular Review Schedule
Regularly reviewing your financial records is crucial. Whether you choose to do this monthly or quarterly, staying on top of your reimbursements and transactions can save you from costly mistakes down the line. Instead of scrambling in December to sort through a year’s worth of data, carve out time each month to reconcile your Amazon reimbursements with your accounting records.
For instance, you could set a recurring date, like the 15th of each month, to download and verify reimbursement reports from Amazon Seller Central. During this review, check that all reimbursements are correctly recorded in your accounting software and match the deposits in your bank account. If something doesn’t add up, flag it immediately for follow-up.
Sticking to a regular schedule not only ensures accuracy but also helps you spot trends in Amazon's reimbursement patterns. This insight can be invaluable for managing your cash flow. While quarterly reviews might work for sellers with lower volumes, monthly sessions of 30–60 minutes provide better precision and deeper insights. Pairing these reviews with automated tools can make the process even more seamless.
Use Refunzo for Automated Reconciliation
If you’re looking to simplify your workflow, Refunzo’s free FBA reconciliation service can be a game-changer. This tool connects directly to your Amazon Seller Central account and performs detailed checks across more than 20 categories.
Refunzo identifies potential reimbursements for issues like lost or damaged inventory, incorrect fees, payment discrepancies, and shipment stock count errors. By ensuring that every reimbursement is accounted for, it sets you up for smoother tax preparation in the future.
"I am very appreciative of this team. They have done a great job finding money which was owed to me by Amazon due to lost and damaged inventory. Their fees are reasonable especially considering the fact that they have literally recovered thousands of dollars on my behalf." - Rob C.
With Refunzo, you can either use their reports to file support cases with Amazon yourself or let them handle the claims for you. Their reimbursement claim service charges a 15% commission, capped at $5,000.
For sellers managing inventory in multiple states, Refunzo’s categorized reimbursement reports are especially useful. These reports break down reimbursements by location and time period, helping you allocate income correctly for state tax compliance. This is a critical feature for navigating varying state tax requirements.
Combining regular manual checks with automation ensures your records are accurate and ready for any tax season.
Review Frequency | Best For | Time Investment | Key Benefits |
|---|---|---|---|
Monthly | High-volume sellers, multi-state operations | 30–60 minutes | Improved cash flow visibility, early error detection |
Quarterly | Sellers with lower reimbursement volume | 1–2 hours | Lower admin workload, maintains accuracy |
Automated (Refunzo) | All sellers aiming for precision | 5–10 minutes setup | 20+ criteria checks, detailed reports, optional claim handling |
Conclusion
Accurately reporting Amazon reimbursements is essential for keeping your business compliant and maintaining clear financial records. We've covered the key steps to streamline this process: identifying different types of reimbursements, organizing all necessary documentation, recording income in appropriate accounts, and applying correct tax treatments for both federal and state regulations. Following these steps helps ensure your tax records meet IRS expectations.
To avoid misclassification and reduce audit risks, record reimbursements as "other revenue." Misreporting can lead to discrepancies, especially when your reported income doesn't match the amounts listed on Form 1099-K. Remember, Amazon issues this form to sellers with more than $20,000 in total sales and over 200 transactions in a year, so accuracy is crucial.
Proper categorization isn't just about compliance - it’s your first line of defense against audits. Save detailed reimbursement reports and use tools like Refunzo’s automated reconciliation to keep your records audit-ready. This level of organization is even more critical for businesses operating across multiple states, where tax requirements vary widely.
For multi-state sellers, accurate state reporting demands extra attention. Refunzo’s categorized reporting simplifies this process by breaking down reimbursements by location and time period, helping you stay aligned with each state’s tax rules.
Investing in reliable systems and conducting regular reviews - whether monthly or quarterly - can save time, reduce errors, and ensure compliance as tax laws change. Combining manual oversight with automated tools creates a safety net, ensuring no detail is overlooked. In the long run, having dependable processes and well-maintained documentation is key to sustaining your business’s success.
FAQs
How can I avoid double-counting Amazon reimbursements as income when filing taxes with Form 1099-K?
To make sure Amazon reimbursements aren’t mistakenly counted as income, take a close look at your Form 1099-K and compare it with your Amazon reports. The Form 1099-K shows your total gross sales, which include reimbursements. However, reimbursements are simply refunds for previous losses or issues and shouldn’t be treated as taxable income.
Keep thorough records of all reimbursements. Use Amazon’s transaction reports or similar tools to clearly separate reimbursements from actual sales revenue. This will allow you to adjust your gross income accurately when preparing your tax return. If you’re uncertain about how to handle this, it’s a good idea to consult a tax professional.
What should I do if I notice errors in my Amazon reimbursement reports during reconciliation?
If you notice mistakes in your Amazon reimbursement reports, the first step is to carefully review the details to confirm any discrepancies. Once you've verified them, Refunzo can help streamline the reconciliation process. Their free Amazon FBA reconciliation service scans across multiple criteria to identify potential reimbursements, making sure no opportunities are missed.
After pinpointing eligible refunds, you can either submit the claims on your own or let Refunzo take care of it for a capped commission fee. This approach not only saves you time but also ensures precision in handling your reimbursements.
How do I know if Amazon's fulfillment network creates a sales tax nexus in multiple states, and how does this affect reporting reimbursements?
Amazon's fulfillment network can trigger a sales tax nexus in several states if your inventory is stored in warehouses scattered across the U.S. This means you might owe taxes in states where Amazon keeps your products, even if you don’t have a physical presence there.
To figure out if you have a nexus, start by checking your inventory storage reports in Amazon Seller Central to pinpoint warehouse locations. After that, review the sales tax rules for each state to confirm your obligations. When filing taxes, make sure to include any sales tax collected or owed in those states, especially when reporting reimbursements. For peace of mind and accuracy, it’s always a good idea to consult with a tax professional familiar with state-specific regulations.
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