Accounting and Tax for E-Commerce Sellers

Should a foreign seller form a Delaware C-Corp or an LLC?

For a foreign-owned business that will actively sell in the US, a C-Corporation is usually the cleaner choice, because it keeps US income tax inside the US company instead of pushing it up to the foreign owner.

A single-member LLC owned by a foreign individual or a Korean company is disregarded for US income tax. When that LLC runs a US sales business, the return obligation moves up to the owner, who files its own US return and, unless a treaty exemption applies, pays the tax. A C-Corporation files Form 1120 and pays tax itself; dividends to a foreign shareholder later bear US withholding, which a treaty can reduce.

Delaware suits companies planning to raise outside investment (see Incorporate in Delaware: Is It the Right Choice?), but it does not reduce tax, and a corporation with inventory, staff or an office in California or another state must also register and file there. Setup includes the EIN — foreign owners without an SSN apply by fax or phone, as our guide to getting an EIN without an SSN explains — and the documents banks and marketplaces request, such as the IRS EIN verification letter and a Form W-9 for the marketplace tax interview.

Either structure brings Form 5472. A US corporation that is at least 25% foreign-owned files it with Form 1120 to report transactions with its foreign owner and other related parties. A foreign-owned single-member LLC is treated as a corporation for this purpose and attaches Form 5472 to a pro forma Form 1120 even when it owes no tax. Under the IRS Instructions for Form 5472, the penalty for not filing — a substantially incomplete form counts — is $25,000, with more added if the failure continues after IRS notice.

Who collects sales tax — Amazon, TikTok Shop, or me?

On marketplace orders, Amazon and TikTok Shop generally collect and remit sales tax as marketplace facilitators; on your own Shopify store, collecting is your job in every state where you have nexus.

Every state with a statewide sales tax has a marketplace facilitator law that puts the collection duty on the marketplace for the sales it facilitates. On a Shopify storefront you are the seller, so registration, collection and filing are yours. Since South Dakota v. Wayfair (2018), states can require that of remote sellers whose sales into the state cross an economic nexus threshold. Thresholds vary — California, for example, uses $500,000 of sales into the state — and states differ on whether your marketplace sales count toward your own total.

Marketplace collection does not end your obligations. Inventory in fulfillment centers in other states can create a physical presence there. Gross receipts taxes, such as Washington’s business and occupation tax, are owed by the seller, not collected by the marketplace. Sales off the marketplace — your Shopify site, wholesale orders, a pop-up shop or trade show — are always yours. We map your nexus, register where required, and set up filings so marketplace-collected and self-collected sales are each reported correctly.

Why doesn’t my payout match my sales?

Because a payout is a net number: before money reaches your bank, the marketplace has deducted its fees, refunds, ad spend and reserves, and on marketplace orders it has kept the sales tax it remits for you.

Between the order and the deposit sit referral or commission fees, FBA and other fulfillment and storage fees, shipping labels, ad charges deducted from proceeds, TikTok Shop affiliate and creator commissions, promotions, refunds, chargebacks, lost-inventory reimbursements, and reserves the marketplace holds back. A Shopify payout has its own processing deductions and holds — and includes sales tax you collected and now owe the state. Booking deposits as revenue understates sales and buries your largest expenses.

We work from each channel’s settlement and payout reports, not the bank feed. Each settlement is booked through a clearing account for that channel: gross sales as revenue, each marketplace fee type as its own expense, refunds against sales, marketplace-collected tax kept out of revenue, and reserves carried as a receivable. The clearing account must tie to the actual deposit, so differences surface in the month they happen rather than at year-end — and the monthly statements show margin by channel, the number you need to decide where ad and inventory spending goes.

Will I get a Form 1099-K, and why won’t it match my books?

Form 1099-K reports the gross payments processed for you — before fees, refunds and other deductions — so it will rarely equal the cash you received.

Following the 2025 federal legislation, a marketplace or payment app must issue a Form 1099-K when payments for goods exceed $20,000 across more than 200 transactions in the year — see the IRS page Understanding your Form 1099-K and our summary of the 2026 Form 1099-K rules. Platforms may issue the form below that level, and some states set lower thresholds for their own reporting.

The IRS compares the form with your return. Books built from settlement reports tie to the 1099-K through a short, documented reconciliation: refunds, shipping and tax amounts, and year-end timing. Books built from deposits report less than the form shows, and that mismatch is what tends to trigger IRS notices.

How should inventory, cost of goods sold and import duties be handled?

Inventory stays on the balance sheet until it sells; its full landed cost — product, freight, duties and customs brokerage — moves to cost of goods sold only as units are sold.

Expensing purchases when you pay for them makes profit swing with each reorder rather than with sales. We track inventory across your own warehouse, third-party logistics providers and marketplace fulfillment centers, and reconcile the marketplace’s inventory records to the books — lost and damaged units, reimbursements, removals and disposals included. Smaller businesses can qualify for simplified inventory methods for tax; larger sellers capitalize more of their indirect costs under the uniform capitalization rules.

Someone — your US company, the overseas company or a service provider — has to act as importer of record and pay the duties. Duty-free de minimis entry for low-value parcels, long relied on by cross-border sellers, was suspended for all countries in 2025, Congress has legislated its repeal for commercial shipments, and related tariff measures have been through litigation since. Rather than build margins on a rule that keeps moving, we cost each product as fully dutiable and confirm current treatment with your customs broker.

We are a Korean brand. Should we sell through a US entity or from the Korean company?

Both are possible, but a US subsidiary usually makes banking, marketplace onboarding and tax administration simpler — at the cost of setting a transfer price between Korea and the US from the first shipment.

A Korean company can sell on Amazon and other platforms that accept overseas sellers, completing the marketplace tax interview on Form W-8BEN-E; sales tax follows the rules above. Whether the company owes US federal income tax turns on whether it is engaged in a US trade or business and, if so, whether it has a permanent establishment under the US–Korea income tax treaty. Inventory in US warehouses, people or agents acting in the US, and who concludes sales all matter, and the answer depends on the facts. The treaty also does not cover state taxes.

With a US subsidiary, the Korean parent typically sells inventory to the US company, which resells to American customers. That intercompany pricing decides how much profit stays in each country, so it must be arm’s length under section 482 and Korea’s own transfer pricing rules: an intercompany agreement, a method that fits who runs advertising, holds inventory and bears the risk of unsold stock, and annual documentation. Those sales are also reported on Form 5472. Because federal law generally caps the inventory cost the US company can claim at the value used for customs (section 1059A), the customs value and the intercompany pricing should be set together.

The Korean parent has its own reporting on the overseas investment and the intercompany transactions. We work with your accounting team in Seoul in Korean so both sides tell the same story; our US subsidiary setup guide for Korean companies covers the formation steps in more detail.

What do you need from us to get started?

Ownership details for the setup, and each sales channel’s reports plus your bank and card statements for the books.

For a new US entity: passports for owners and officers; for a corporate owner, the Korean parent’s business registration certificate and corporate registry extract; an ownership chart; the planned US business address; and where inventory, staff and decision-makers will be — which drives the state registrations and the treaty analysis.

For bookkeeping and tax: settlement and payout reports from each channel, or user access with reporting permissions; bank, credit card and loan statements; supplier invoices; freight and customs entry documents; inventory reports; any Forms 1099-K received; existing sales tax registrations; and prior-year returns. If earlier years were booked from deposits, we rebuild them from the settlement reports.