An online store can sell across state lines before the owner has a separate office. That reach creates bookkeeping and tax questions that a simple bank-feed import cannot answer. Start by separating customer sales, processor settlements, inventory, and each jurisdiction's tax obligations.
A platform payout is not your gross revenue. Fees, refunds, reserves, chargebacks, and tax collected can separate the amount customers paid from the deposit in your bank. Recording only deposits can hide both sales and expenses.
1. Build a gross-sales-to-payout reconciliation
Export order, settlement, fee, refund, and tax reports for every sales channel and processor. Record sales and adjustments once, then use a clearing account to bridge processor activity to bank deposits. Avoid counting both the sales-platform import and the matching deposit as revenue.
Simplified example: $10,000 of merchandise sales, less $500 of refunds and $800 of fees, produces an $8,700 settlement when there is no sales tax, reserve, shipping adjustment, or timing difference. The $8,700 bank deposit is not the whole accounting entry. Match the actual settlement period before using this illustration.
Keep sales tax collected on behalf of a taxing authority separate from your own sales revenue where applicable. Marketplace-collected tax may never reach your account, so document the platform's treatment instead of inventing a cash receipt.
2. Treat Form 1099-K as a reconciliation document
Current federal rules generally require a third-party settlement organization to report when payments exceed $20,000 and more than 200 transactions. Payment-card reporting is different and generally has no minimum amount or transaction threshold. A form can still arrive below a threshold, and state reporting requirements may differ.
None of these thresholds exempts business income from tax. Report taxable sales even without a form. Reconcile each 1099-K to your books using the form's reporting rules, including refunds, fees, duplicates, and year-end timing. A 1099-K is not a profit statement; do not add it to revenue already recorded from orders.
3. Review marketplace and direct-sales tax duties separately
A marketplace facilitator may collect and remit sales tax on covered transactions. That does not automatically cover your own website, every product, every state, or every tax. A hosted storefront is not necessarily a marketplace facilitator for all sales.
- Physical presence: Employees, offices, or inventory held in a fulfillment warehouse can create obligations even without high sales.
- Economic nexus: Remote-selling thresholds, measurement periods, and whether marketplace sales count vary by state. There is no single nationwide threshold.
- Product and sourcing rules: Tangible goods, digital products, services, shipping charges, and exempt buyers can receive different treatment.
- Registration and returns: Confirm registration before collecting tax, filing frequency, and any continuing or zero-return requirements. Retain marketplace collection reports.
4. Washington B&O is not a tax on profit
Washington's business and occupation tax generally applies to gross receipts under the appropriate activity classification, not federal net profit. Ordinary operating costs such as labor, materials, and platform fees generally do not reduce the B&O base. Specific deductions, credits, sourcing, and registration rules still need review.
A marketplace's sales tax collection does not automatically discharge a seller's B&O obligations. Keep Washington sales, out-of-state sales, marketplace transactions, and direct transactions separately identifiable. Review city business taxes and licenses as well.
5. Track inventory and prepare a useful year-end package
Track quantities, supplier costs, freight, returns, damaged items, and stock held by third parties. Buying goods for resale does not always create an immediate deduction. Cost-of-goods-sold and qualifying small-business inventory methods depend on the accounting method and applicable rules; do not expense the same goods twice.
Provide your CPA a channel-by-channel sales summary, reconciled settlement accounts, all 1099-Ks, inventory counts and valuation support, sales tax returns, marketplace tax reports, and a state-by-state activity summary. Add foreign supplier, import, and overseas account records when relevant.
Official sources
- IRS: Understanding Form 1099-K and current thresholds
- IRS: What to do with Form 1099-K
- IRS: Business recordkeeping
- Washington DOR: B&O tax
- Washington DOR: Retail sales tax
Related reading
Monthly bookkeeping checklist | 2026 business tax update | Small-business tax preparation