Are eBay Fees Tax Deductible for Sellers?

Selling items on platforms like eBay is a common way for individuals to generate income. Understanding the tax implications, especially regarding deductible fees, can be complex. Many sellers wonder if the various fees paid to eBay are tax deductible. The answer depends on whether the selling activity qualifies as a business or is considered a hobby, and on the accuracy of financial records.

Classifying Your eBay Activity

The Internal Revenue Service (IRS) distinguishes between an activity conducted as a “hobby” and one operated as a “business.” This distinction significantly impacts tax deductibility. Only expenses incurred in a genuine business activity, conducted with the intention of making a profit, are deductible. If an activity is classified as a hobby, income is still taxable, but expenses are not deductible against other income for tax years 2018 through 2025 due to changes from the Tax Cuts and Jobs Act (TCJA).

The IRS considers several factors when determining if an activity is a business for profit, and no single factor is decisive; all facts and circumstances are reviewed. These factors include whether the activity is carried on in a businesslike manner, such as maintaining accurate books and records, and the amount of time and effort the taxpayer dedicates to the activity with the intent to make it profitable. Other considerations involve if losses are due to circumstances beyond the taxpayer’s control or are normal in a startup phase, and if the taxpayer or their advisors possess the necessary expertise to operate it as a business. The IRS also looks at whether the activity makes a profit in some years, and if there’s an expectation of future profit. An activity is presumed to have a profit motive if it generates a profit in at least three out of five consecutive years.

Understanding Deductible eBay Fees

Assuming the eBay selling activity is classified as a business, various fees and related costs become deductible as “ordinary and necessary” business expenses. An “ordinary” expense is common and accepted in the industry, while a “necessary” expense is helpful and appropriate for the business. These expenses directly relate to generating income from eBay sales and can reduce taxable income.

Specific examples of deductible eBay fees and related costs include insertion fees and Final Value Fees (FVF). Promoted Listings fees and eBay Store subscription fees are also deductible. Payment processing fees, such as those associated with eBay Managed Payments, which often combine the FVF and payment processing into a single fee, are deductible. Additionally, shipping costs paid by the seller and not reimbursed by the buyer, along with the cost of goods sold (the price paid for inventory), are deductible expenses.

Reporting eBay Income and Expenses

When an eBay activity is classified as a business, income and expenses are reported on Schedule C (Form 1040), “Profit or Loss From Business,” for sole proprietors. Total gross income from sales, including amounts paid by buyers for shipping, is reported as revenue. All deductible eBay fees and other business expenses are then reported in specific expense categories on this form. For instance, fees paid to eBay and payment processors can be listed under “Commissions and fees.”

Other common business expenses like advertising, office expenses, supplies, and utilities are also reported on Schedule C. The cost of goods sold is calculated separately and reduces gross receipts to arrive at gross profit. The net profit or loss from Schedule C then flows to Form 1040, the individual income tax return. This net profit is subject to both income tax and self-employment tax, which covers Social Security and Medicare contributions. While other business structures use different forms, Schedule C is the most common for individual eBay sellers operating as sole proprietors.

Maintaining Tax Records

Accurate and organized record-keeping is important for all income and expenses related to eBay sales. The IRS requires taxpayers to maintain records that clearly show income and expenses, though it does not mandate a specific system. Good records are necessary to substantiate deductions and income reported, which is crucial in case of an IRS inquiry or audit.

Sellers should retain various types of records. These include sales records, such as eBay sales reports and transaction details, and purchase receipts for inventory. Expense receipts are also important, including eBay fee statements, shipping receipts, and statements from payment processors. Bank and credit card statements reflecting business transactions should also be kept.

Generally, the IRS recommends keeping tax records for at least three years from the date the original return was filed or two years from the date the tax was paid, whichever is later. Longer retention periods may apply for certain situations, such as significant underreported income or fraudulent returns. Records can be maintained using spreadsheets, accounting software, digital scanning, or physical folders, as long as they are organized and accessible.