Are Amazon fees cost of goods sold: what counts as inventory cost

An Amazon fee belongs in inventory cost when it is a transportation or other necessary charge incurred in acquiring possession of the goods (Cornell LII: 26 CFR §1.471-3). For a dealer in property, the IRS instructions for Schedule C (Form 1040) that refer to 2025 put commissions and fees paid to facilitate the sale of that property on line 10 (IRS: Instructions for Schedule C). Sort each fee by what it paid for: the goods or the sale.

What counts as inventory cost

If you buy merchandise and value it at cost, its inventory cost starts with the invoice price, less applicable discounts (Cornell LII: 26 CFR §1.471-3). You then add transportation or other necessary charges incurred in acquiring possession of the goods. In plain words, that means the price of the goods plus the necessary charges to get them into your hands.

A second set of rules, IRC §263A, covers capitalizing costs. Capitalizing a cost means treating it as part of the cost of goods. Under these rules, you are not required to capitalize indirect costs that do not directly benefit, or are not incurred because of, acquiring property for resale (Cornell LII: 26 CFR §1.263A-1). The same regulation also describes an optional election to capitalize such costs.

How the rules treat selling fees

For a dealer in property, the IRS Schedule C instructions put commissions and fees paid to facilitate the sale of that property on line 10 (IRS: Instructions for Schedule C). Schedule C is the business schedule of Form 1040. These instructions refer to 2025, so check the line number on the 2026 form before you file.

Four kinds of cost and where the cited rules place them:

Cost	Where it goes	Rule
Invoice price of merchandise you buy, less applicable discounts	Inventory cost, if you value inventory at cost	Cornell LII: 26 CFR §1.471-3
Transportation or other necessary charges incurred in acquiring possession of the goods	Added to inventory cost	Cornell LII: 26 CFR §1.471-3
Indirect costs that do not directly benefit, or are not incurred because of, acquiring property for resale	Not required to be capitalized under IRC §263A (the regulation describes an optional election to capitalize)	Cornell LII: 26 CFR §1.263A-1
Commissions and fees a dealer in property paid to facilitate the sale of that property	Schedule C line 10, in the instructions that refer to 2025	IRS: Instructions for Schedule C

To use the table, find the row that matches what each fee in your Amazon settlement report paid for. If a fee fits more than one row, or none, the answer depends on your facts. In that case, ask a qualified tax professional.

When freight counts as inventory cost

Freight counts as inventory cost when it is a transportation charge incurred in acquiring possession of the goods (Cornell LII: 26 CFR §1.471-3). Freight you pay to send goods into Amazon warehouses faces the same test. Whether that freight meets it depends on your facts, so review it with a qualified tax professional.

Changing how you treat a material item when you value inventory can be a change in accounting method (Cornell LII: 26 CFR §1.446-1). An accounting method is the set of rules your books and return follow. To change one, you generally must apply for the IRS Commissioner's consent on Form 3115, subject to exceptions in the regulation (Cornell LII: 26 CFR §1.446-1). That is why it helps to settle the freight question before you file.

Three related pages:

• Form 1099-K threshold guide
• Who remits Amazon sales tax
• Federal tax calendar

Quick answers

Is inbound shipping to Amazon warehouses cost of goods sold?

It belongs in inventory cost if it is a transportation charge incurred in acquiring possession of the goods (Cornell LII: 26 CFR §1.471-3). Whether shipping into Amazon warehouses meets that test depends on your facts, so review it with a qualified tax professional. Decide before you file. Changing how you treat a material inventory item later can be a change in accounting method. That change generally needs an application on Form 3115, subject to exceptions (Cornell LII: 26 CFR §1.446-1).

Where do Amazon fees go on Schedule C?

It depends on what each fee paid for. In the IRS Schedule C instructions that refer to 2025, a dealer in property enters commissions and fees paid to facilitate the sale of that property on line 10 (IRS: Instructions for Schedule C). A fee that is a transportation or other necessary charge incurred in acquiring possession of the goods is added to inventory cost instead (Cornell LII: 26 CFR §1.471-3). Check the line number on the 2026 form.

Where Taxller fits

Upload your Amazon settlement reports and Taxller turns them into double-entry books: sales, fees, refunds and payouts, split per payout. Our free tax calendar lists the federal deadlines for sellers and the state deadlines for 12 states, with weekend shifts applied and sources cited. Taxller never files or pays anything on your behalf: you or your accountant review and file.

Sources

• 26 CFR § 1.471-3 – Inventories at cost
• 26 CFR § 1.263A-1 – Determination of costs subject to section 263A
• Instructions for Schedule C (Form 1040)
• 26 CFR § 1.446-1 – General rule for methods of accounting