When filing your federal income tax return, you’ll need to report the gross receipts amount from your 1099-K, then deduct the sales tax you collected as either an expense or an adjustment on Schedule C.

This is essential because sales tax isn’t income – it’s money collected on behalf of state governments that you’re required to remit. By deducting it, you ensure you’re only paying income tax on your actual business earnings, not on funds that simply passed through your accounts to reach state tax authorities. You never truly received this money as income, so it shouldn’t be taxed as such.