Taxes are one of the most anxiety-inducing topics for new e-commerce sellers — yet understanding the basics can save you from expensive mistakes. This guide covers the essentials without the legal jargon.
The Two Main Types of Tax E-Commerce Sellers Deal With
1. Income Tax
Income tax is charged on your profits — what's left after deducting business expenses from your revenue. As an e-commerce seller, you're running a business, so your net profit is taxable income. Keep detailed records of all revenue and expenses throughout the year.
2. Sales Tax (US) / VAT (UK & EU)
Sales tax and VAT are consumption taxes charged on the sale of goods. The key distinction: sales tax is added on top of the price (the buyer pays it), while VAT is typically included in the displayed price. As a seller, you may be responsible for collecting and remitting these taxes to the government.
Do Platforms Collect Tax for You?
Good news — major platforms handle a lot of this automatically:
| Platform | Collects Sales Tax? | Collects VAT? |
|---|---|---|
| Etsy | Yes (US states with marketplace facilitator laws) | Yes (for EU/UK buyers) |
| Amazon | Yes (US, most states) | Yes (EU/UK) |
| Shopify | Partially — depends on your settings | You must configure VAT settings |
| eBay | Yes (US) | Yes (EU/UK) |
| TikTok Shop | Yes (US) | Partially |
US Sales Tax: What You Need to Know
In the US, 45 states and Washington DC have sales tax. After the 2018 South Dakota v. Wayfair Supreme Court ruling, most large marketplaces (Etsy, Amazon, eBay) are classified as Marketplace Facilitators — meaning they collect and remit sales tax on your behalf for most US states. If you sell on Shopify directly, you may need to collect and remit sales tax yourself once you exceed thresholds in certain states.
UK and EU VAT
In the UK, you're required to register for VAT once your annual taxable turnover exceeds £90,000 (2026 threshold). In the EU, rules vary by country but most countries require VAT registration for non-EU sellers once you exceed €10,000 in cross-border sales. Etsy and Amazon collect and remit VAT for their marketplaces.
Deductible Business Expenses
One of the biggest advantages of running an e-commerce business is the number of legitimate expenses you can deduct from your taxable income:
- Cost of goods sold (inventory, materials)
- Shipping costs and packaging materials
- Platform fees (Etsy, Shopify, Amazon subscriptions)
- Home office expenses (if you work from home)
- Equipment (cameras, computers, printers used for business)
- Software subscriptions (design tools, research tools)
- Advertising and marketing spend
- Bank and payment processing fees
- Professional development (courses, books)
- Accountant fees
Practical Tax Tips for Sellers
- Open a separate business bank account immediately — mixing personal and business finances is the #1 bookkeeping mistake
- Use accounting software (QuickBooks, Wave, or Xero) to track everything automatically
- Set aside 25–30% of your profits each month for tax in a separate savings account
- Keep all receipts — digital copies are fine
- File quarterly estimated taxes in the US to avoid penalties
- Review your deductions with an accountant once a year