E-commerce sellers face heightened audit risks and tax compliance challenges in today’s evolving digital marketplace. This presentation by Spyglass Accounting & Financial Services uncovers why online sellers—especially Amazon/FBA merchants—are prime audit targets, detailing critical issues like 1099-K reporting changes, sales tax nexus complexities, and common tax mistakes. Learn proactive strategies to stay off the IRS radar, including accurate record-keeping, nexus monitoring, and proper income reporting. With a compliance checklist and expert insights, this guide helps e-commerce businesses minimize audit risks, avoid penalties, and navigate multi-state tax obligations with confidence.

1. E-Commerce Audit Risks
and Tax Compliance
Spyglass Accounting & Financial Services
www.spyglassaccounting.com
+1-877-8111-779
myaccountant@spyglassaccounting.com

2. Contents
1. Introduction to E-Commerce Audit Risks
2. Why E-Commerce Sellers Are Audit Targets
3. Amazon/FBA Sellers: A Prime Target
4. Understanding the 1099-K Changes
5. How the 1099-K Affects E-Commerce Sellers
6. Sales Tax Nexus: A Growing Risk
7. Common Tax Mistakes for Online Sellers
8. Staying Off the IRS Radar: Best Practices
9. Tax Compliance Checklist for E-Commerce
10. Conclusion: Minimizing Audit Risk
11. Contact Us

3. Introduction to E-Commerce Audit Risks
Understanding the Landscape
Overview of Audit Risks
E-commerce sellers face increasing scrutiny from tax authorities
due to the rapid growth of online sales and evolving regulations.
Understanding the nature of these audit risks is crucial for
maintaining compliance and minimizing potential liabilities.
Why Audits Matter
Audits can lead to significant financial consequences including
penalties, interest, and loss of business reputation. Being
informed about audit triggers helps sellers adopt proactive
strategies to safeguard their operations.

4. Why E-Commerce Sellers Are Audit Targets
Factors Making Sellers Vulnerable
Rapid Growth and
Revenue Increases
The explosive growth in e-
commerce has drawn
attention from tax authorities
aiming to capture revenue
less visible in traditional retail.
Complex Tax Regulations
Many online sellers struggle
with the complexities of multi-
state sales tax and income tax
rules, increasing the
likelihood of errors that can
trigger audits.
Data Accessibility
Platforms provide transaction
data to tax authorities
directly, making it easier for
the IRS and state agencies to
identify discrepancies and
irregularities.

5. Amazon/FBA Sellers: A Prime Target
Understanding Marketplace Seller Risks
Third-Party Reporting
Requirements
Amazon and other large
marketplaces must report
seller transactions using IRS
Form 1099-K, making sellers'
income highly visible to tax
authorities.
1
Fulfillment by Amazon
(FBA) Complexities
Handling inventory and
shipping through FBA can
complicate sales tax nexus
determinations and
accounting, increasing audit
risk.
2 High Volume Transactions
FBA sellers often have high
volume sales and multiple
income streams that require
meticulous record-keeping
and compliance.
3

6. Understanding the 1099-K Changes
Critical Tax Form Updates
Lowered Reporting Thresholds
Starting in recent tax years, the IRS lowered the 1099-K reporting thresholds
to $600 in gross payments, regardless of transaction count, increasing the
number of sellers receiving these forms.
Impact on Reporting Obligations
This change increases the visibility of small and part-time sellers' incomes,
prompting a need for more accurate tax reporting and recordkeeping.

7. How the 1099-K Affects E-
Commerce Sellers
Navigating New Income Reporting Requirements
Mandatory Reporting of Gross Sales
Sellers must report all income reflected on the 1099-K, but must differentiate
between gross sales and net profit for accurate tax filings.
Reconciling Discrepancies
Discrepancies between 1099-K amounts and seller records can trigger IRS
inquiries; maintaining detailed books and clear documentation is essential.

8. Sales Tax Nexus: A Growing Risk
Expanding Tax Obligations
What Is Sales Tax Nexus?
A sales tax nexus is a
connection between a seller
and a state that obligates the
collection and remittance of
sales taxes, often based on
physical presence or
economic thresholds.
Economic Nexus Laws
States are increasingly
adopting economic nexus
thresholds (e.g., $100,000 in
sales or 200 transactions) that
trigger tax collection
responsibilities even without
physical presence.
Implications for Online
Sellers
Sellers must monitor their
sales across states and
register to collect taxes where
applicable to avoid use tax
liabilities and penalties.

9. Common Tax Mistakes for Online Sellers
Avoiding Pitfalls
Failing to Collect and Remit Sales Tax
Many sellers overlook their sales tax
responsibilities, risking interest and penalties.
1 Incorrect Income Reporting
Underreporting income or failing to account for
refunds and chargebacks properly can lead to
audit red flags.
2
Ignoring Nexus Thresholds
Neglecting to track sales and transactions by
state leads to missed tax filings and non-
compliance.
3 Poor Record Keeping
Inadequate or disorganized financial records
complicate tax reporting and audit defense.
4

10. Staying Off the IRS Radar: Best Practices
Proactive Compliance Strategies
Maintain Accurate and Detailed
Records
Keep organized documentation of all
sales, expenses, returns, and
deductions to support tax filings.
Understand and Comply with
Nexus Requirements
Regularly evaluate where sales tax and
income tax obligations exist and meet
all reporting and remittance
requirements.
Report Income Fully and
Correctly
Disclose all income, including
amounts reported on 1099-K forms, to
avoid mismatches with IRS data.
Consult Professionals When
Needed
Engage with tax professionals familiar
with e-commerce to ensure
compliance and optimize tax
positions.

11. Tax Compliance Checklist for E-Commerce
Ensuring Comprehensive Compliance
Accurate Sales Tracking
Use software or tools to capture all transaction
data precisely.
1 Monitor Sales Tax Nexus States
Track sales in all states and register for tax
collection where necessary.
2
Proper 1099-K
Reconciliation
Review 1099-K forms against
internal records yearly.
3
Document Expenses
Thoroughly
Keep receipts and logs to
substantiate deductions and
credits.
4
File Timely and Complete
Tax Returns
Meet all federal, state, and
local filing deadlines to avoid
penalties.
5

12. Conclusion: Minimizing Audit Risk
Summarizing Key Takeaways
Adopt a Compliance
Mindset
Being proactive about tax
obligations and record-
keeping greatly reduces audit
exposure and financial risks.
1
Leverage Resources and
Expertise
Stay informed about evolving
e-commerce tax laws and
work with professionals to
navigate complexities.
2
Stay Vigilant and Updated
Continuously monitor
changes in reporting
thresholds, nexus laws, and
marketplace requirements to
remain compliant.
3

13. Contact Us
Get in Touch
Professional Tax Assistance
Our team specializes in e-commerce tax compliance and audit risk reduction to help your business thrive.
Spyglass Accounting & Financial Services
www.spyglassaccounting.com
+1-877-8111-779
myaccountant@spyglassaccounting.com
Consultation Services
Reach out to schedule a personalized session tailored to your unique selling situation and challenges.
Ongoing Support
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