Do Depop Sales Require a 1099 Form for Tax Reporting?

As online marketplaces like Depop grow in popularity, understanding the tax implications of selling on these platforms is crucial. Sellers must be aware of their obligations to report income from sales and determine whether they require a 1099 form for tax purposes.

Income Thresholds That Trigger a 1099

For 2024, the IRS mandates third-party payment processors, such as PayPal or Venmo, to issue a Form 1099-K to sellers with gross sales exceeding $600 in a calendar year. This represents a significant decrease from the previous threshold of $20,000 and 200 transactions. The updated rule aims to capture more income from online sales, reflecting the expanding role of e-commerce. Depop sellers, even those selling occasionally, need to monitor their sales carefully to see if they surpass this $600 threshold. Importantly, this amount refers to gross sales, not net profit, meaning it includes total revenue before deducting expenses or fees.

Personal vs. Business Depop Sales

Distinguishing between personal and business sales on Depop is critical for accurate tax reporting. The IRS evaluates the nature and intent of transactions rather than the platform. Personal sales typically involve the occasional sale of used items not intended for profit, such as selling clothes from a closet clean-out. These are generally non-taxable unless the items are sold for more than their original purchase price. Business sales, on the other hand, involve regular profit-driven activities, like purchasing inventory to resell. Business sellers must report all income and may also owe self-employment taxes. Factors such as transaction frequency and seller intent help the IRS classify the activity.

Recordkeeping Protocols for 1099 Filings

Effective recordkeeping is essential for Depop sellers who may receive a 1099-K form. Detailed records substantiate reported income and expenses and provide a clear trail for potential IRS inquiries. Sellers should keep digital or physical copies of sales receipts, payment confirmations, and transaction-related correspondence. These records should include details such as the item sold, sale price, sale date, and associated shipping costs or fees. Financial software or apps that integrate with Depop can simplify this process by automatically organizing transaction data.

Documenting deductible expenses is equally important, particularly for business sellers. Expenses like inventory purchases, shipping supplies, and platform fees can significantly reduce taxable income. Under Section 162 of the Internal Revenue Code, the IRS permits deductions for ordinary and necessary expenses incurred to generate income. Accurate documentation maximizes deductions, helping sellers reduce their tax liability.