Fix unreported Amazon/Shopify income

I researched authoritative federal and state guidance on fixing unreported Amazon/Shopify income for US business owners and LLC founders. I collected and compressed content from IRS pages about reporting (Form 1099-K guidance, amending returns via Form 1040-X), IRS payment/collection options (online payment agreements/installment plans, Offers in Compromise), and reputable tax compliance resources and marketplace-facilitator state guides (Avalara, TaxJar, Numeral) and practitioner guidance on responding to IRS notices and voluntary disclosure.

The summary below compiles the practical remediation steps, compliance actions, and links you can use to fix unreported marketplace income for a US business. Summary of steps and key points (synthesized from the sources below):

I researched authoritative federal and state guidance on fixing unreported Amazon/Shopify income for US business owners and LLC founders. I collected and compressed content from IRS pages about reporting (Form 1099-K guidance, amending returns via Form 1040-X), IRS payment/collection options (online payment agreements/installment plans, Offers in Compromise), and reputable tax compliance resources and marketplace-facilitator state guides (Avalara, TaxJar, Numeral) and practitioner guidance on responding to IRS notices and voluntary disclosure.

The summary below compiles the practical remediation steps, compliance actions, and links you can use to fix unreported marketplace income for a US business. Summary of steps and key points (synthesized from the sources below):

Don’t panic — but act promptly. Voluntary correction (amending returns) is generally viewed more favorably than waiting for IRS contact. Reconcile records (platform transaction reports, bank statements, fees/returns/refunds) to determine true gross receipts, net of non-taxable items where appropriate.

Reconcile 1099-K(s) and your books. The IRS notes TPSOs will issue Form 1099-K based on platform reporting thresholds, but you must report all income whether or not you receive a 1099-K. Use platform reports to explain differences (refunds, shipping, cost of goods not income) and prepare corrected returns where needed. 3) File amended returns where required (Form 1040-X for individuals/sole proprietors, or correct business returns). Electronic filing of Form 1040-X is available for current and two prior tax periods — file amended returns to report missing income and claim allowable deductions/COGS. 4) Respond to IRS notices. If you receive a CP2000 or other notice, respond timely with documentation. If you proactively amend before a notice, that shows good faith and can reduce penalties.

Pay tax, interest; negotiate penalties. If you owe tax, use IRS online payment agreements/installment plans, or consider an Offer in Compromise if you can’t pay in full. Ask about penalty relief (reasonable cause or first-time abatement) — professional help may improve outcomes.

Sales tax & marketplace facilitator rules. Most states have marketplace facilitator laws shifting collection/remittance obligations to marketplaces (Amazon, Etsy, etc.), but sellers remain responsible for sales made off-platform (your own Shopify storefront or in-person sales). Verify state rules where you do business and register/collect where required for non-marketplace sales. State thresholds and rules vary by state.

State voluntary disclosure/amnesty. Many states offer voluntary disclosure/VDP programs allowing sellers to come forward for uncollected sales/use tax or unfiled returns; these programs may limit penalties if you disclose before the state initiates an audit or assessment. Check the revenue department in each relevant state for program specifics.

Improve systems to prevent recurrence

set up bookkeeping, connect payment platforms with accounting software, collect sales tax on non-marketplace sales, keep clear records of refunds/cost of goods, and consult a CPA or tax attorney for multi-state exposure or large liabilities. Practical remediation checklist for an Amazon/Shopify seller with unreported income: - Pull platform reports (seller transaction reports, settlement reports) for the years in question. - Reconcile gross receipts to bank deposits and identify non-taxable items (gifts, reimbursements) and offsets (refunds, returns). - Calculate taxable income (gross receipts minus allowable COGS and business expenses) per year. - File amended returns (Form 1040-X or amended business returns) for affected years; attach explanations and documentation as needed. - If you owe tax, pay balance or set up an IRS payment plan online; if you can’t pay, evaluate Offer in Compromise or partial-payment options. - Respond promptly to any IRS CP2000 or other notices — supply reconciliations and documents. - For sales tax exposure: determine which states you had nexus/economic nexus; if marketplaces collected tax on your behalf, document that; register in states where you must collect for non-marketplace sales and consider entering state VDPs for past periods. - Document reasonable cause if penalty abatement is requested (illness, natural disaster, reliance on incorrect professional advice), and consider first-time abatement if eligible. - Retain a tax professional experienced with e-commerce sellers to negotiate with federal and state agencies, prepare amended returns, or submit VDA applications. Next resources (links used and why they support the guidance): see citations below — each item includes a verbatim excerpt used in the summary. Use those pages to get form instructions, online filing/payment options, and state-by-state marketplace facilitator details.