Bookkeeping for online sellers

What a payout contains

Here is a typical two-week payout from a marketplace: $1,812.40. It arrives in your bank as one line. Behind it, the marketplace report shows something like this:

Sales tax the marketplace collected and sent to the state usually appears on the report too, but it never reaches you and is not your income.

If you record only $1,812.40 as income, three things go wrong. Your income is lower than the gross shown on the Form 1099-K. Your fees and shipping never show up as expenses, so you cannot see your margin. And if a buyer disputes a charge, you have nothing to tie the refund to. Record each part instead: gross sales as income, refunds as a reduction of income, fees on commissions and fees (line 10), shipping labels on supplies (line 22) or other expenses (line 27b), and promoted listings on advertising (line 8).

The Schedule C instructions put returns and allowances on line 2, right under gross receipts. Keep refunds separate from sales in your books so your preparer can fill both lines.

The 1099-K is gross

The 1099-K a marketplace or payment processor sends you reports gross payments: the total buyers paid, before fees, refunds and labels. It does not tell you your income. It tells the IRS where to start looking.

The threshold for when a 1099-K is sent has changed several times. Whether or not you get a form, all of your sales are income, and you report them the same way. If you sell on more than one marketplace, or take payments by your own card processor too, you may get several forms. Add them together, compare with your books, and write down the reason for any difference, such as sales tax or a refund in a later month.

If you sell personal things at a loss, such as your own used clothes or furniture, those sales are generally not business income. Keep them in a separate account or a separate marketplace profile, so they do not mix with the shop.

Your biggest cost is stock

For most sellers, the products you sell are the biggest expense, and they work differently from everything else. Stock you buy or make goes into cost of goods sold, in Part III of Schedule C, and only the cost of what you sold during the year is deducted that year. Stock still on the shelf on December 31 is not yet an expense.

The basic formula from Publication 334:

• Stock at the start of the year
• plus purchases and materials during the year
• minus stock at the end of the year
• equals cost of goods sold.

Small businesses have some simpler options for how to treat inventory, and your preparer can tell you which one fits. Whichever method you use, you need two things: the receipts for everything you bought to sell, and a count of what is left at year-end with its cost.

Righto does not track inventory quantities. Record each stock purchase to a cost of goods account, and keep the year-end count in a simple spreadsheet or on paper. Count on the same day each year, and record the cost, not the price you hope to sell at.

Packaging, gear and the packing room

Boxes, mailers, tape, tissue and printer labels go on supplies, line 22. Shipping labels can go on line 22 or line 27b. Pick one and be consistent.

The camera, lights and backdrop for product photos are business gear. Under the de minimis safe harbor in the tangible property regulations, you can deduct any item or invoice of $2,500 or less in the year you buy it, if you make the election on your return. A $1,400 camera body or a $260 light kit is a supply. A more expensive item goes on depreciation, line 13. If the camera also takes your family photos, deduct only the business share.

If a room or a clearly defined part of a room is used regularly and only for the shop, for packing, photography or storage of stock, you may qualify for the home office deduction on line 30. Publication 587 has a specific rule that helps sellers: space used regularly to store inventory can qualify even if it is not used only for business, as long as your home is the only fixed location of the business. The home office tool compares the simplified and regular methods.

Sales tax

Most states now require marketplaces to collect and remit sales tax for sales made through them. That is the marketplace’s job, not yours, for those sales. If you also sell through your own site, at markets, or in person, you may need to collect it yourself, depending on where your buyers are and your state’s rules. The sales tax tool helps with the arithmetic. Sales tax you collect yourself and pay to the state is not income and not an expense; keep it in its own liability account.

A worked example

Priya sells vintage kitchenware on two marketplaces. Her 2026 numbers:

Her gross profit is $31,150. After $14,450 of other expenses, her net profit is $16,700, before any home office deduction.

The year-end count matters. If Priya forgot it and deducted all $17,800 of purchases, she would deduct $1,700 too much, and next year’s numbers would be off too. On the other side, if she did not keep the receipts for stock bought at estate sales, she would deduct too little. Cash receipts from estate sales are the most often lost records in the business. She photographs each one and writes what she bought on it.

The profit margin tool and the markup tool help her check each product line. Her ceramics sell for about three times cost; after fees and shipping, they still earn the most per hour.

Setting money aside for tax

Profit is not cash. Priya’s books show $16,700 of profit, but she spent money on stock that is still on the shelf, so her bank account may show less. Plan for that.

Self-employment tax is 15.3% on 92.35% of net profit, plus income tax. Check your number with the self-employment tax calculator. Pay quarterly on the dates in the estimated tax dates tool. Busy seasons help here: if most of your sales come in November and December, your fourth-quarter estimate in January will be larger. Publication 505 explains how to pay unevenly when your income is uneven.

Common mistakes

• Recording the net payout as income. Take it apart.
• Deducting all stock purchases in the year bought. Count stock at year-end.
• No receipts for cash stock buys. Photograph them on the day.
• Mixing personal sales with the shop. Separate accounts.
• Counting sales tax the marketplace collected as income. It was never yours.
• Forgetting refunds in January for December sales. They reduce income in the month you pay them.

A monthly routine

Once a month, download each marketplace’s payout or transaction report and your bank statement. Import them into Righto. It reads CSV, OFX and QFX files, and PDF statements, including scanned PDFs read on your Mac (importing statements). Set rules so each line of the report goes to the right category: sales to income, fees to line 10, labels to shipping (rules). Then reconcile: the payouts in your books should equal the deposits in the bank, to the cent (how to reconcile). If they do not, a fee or refund is missing.

This takes about ten minutes once the rules are in place.

What to hand your preparer

At year-end, Righto builds a package with profit and loss by Schedule C line and the transaction detail (year-end). Add:

• Every 1099-K, with your notes on any difference from your books.
• Your stock count on December 31, with cost, and last year’s count.
• Receipts for stock purchases, especially cash ones.
• A list of gear over $2,500.
• Home office measurements, if you use one.
• Estimated tax payments with dates.

If you want help with the monthly work, you can connect your own AI agent to Righto at an access level you choose (agents). Every change it makes is recorded and undoable.

General information, not advice for your situation. Ask a tax professional about your own return.