Do I Have to Claim eBay Sales on Taxes?

Selling items online, especially through platforms like eBay, is common. Understanding the tax implications of these sales is important. Selling personal items at a loss generally isn’t taxable, but regular sales generating income may create tax obligations.

Understanding When Your Sales Are Taxable

Whether your eBay sales are taxable depends on distinguishing between a hobby and a business for tax purposes. The IRS considers factors like your primary purpose for income or profit. Conducting sales in a businesslike manner, dedicating significant time, or depending on the income for livelihood indicates a business. Conversely, sporadic sales, personal items sold at a loss, or lack of profit motive indicate hobby sales.

All business income, regardless of amount, is taxable. This includes sales revenue from platforms like eBay. Business income is reported on specific tax forms and can be offset by related expenses. Income from hobby sales is also taxable, but the ability to deduct associated expenses is limited.

Online sales reporting involves Form 1099-K, issued by payment processors for gross transactions. For the 2023 and 2024 tax years, payment processors like eBay’s managed payments system are required to issue a Form 1099-K if gross payments exceed $20,000 and the total number of transactions exceeds 200. Receiving a Form 1099-K indicates the income has been reported to the IRS. You are responsible for reporting all taxable income, even if you do not receive this form.

Regularly buying items to resell on eBay for profit is considered a business. Gross sales income from these transactions is taxable. However, if you sell old household items from your garage at prices below what you originally paid, this activity is viewed as a hobby. Any income from such sales may be taxable, but no tax is due if sold below original purchase price.

Reporting Your Sales to the IRS

Once eBay sales are taxable, report income to the IRS. The reporting method depends on whether your selling activity is classified as a business or a hobby. Accurate record-keeping ensures necessary tax preparation information. Maintaining detailed records of gross sales, platform fees, shipping costs, and the original cost of items sold simplifies the reporting process.

If your eBay sales are a business, report income and expenses on Schedule C, Profit or Loss From Business. Sole proprietors use this form to calculate net profit or loss. Report gross sales revenue on Schedule C, then deduct allowable business expenses to arrive at your net taxable income. This net income is then transferred to your personal Form 1040.

Schedule C business income is subject to self-employment taxes (Social Security and Medicare). Calculate these taxes on Schedule SE, Self-Employment Tax. The amount of self-employment tax due is based on your net earnings from self-employment, 92.35% of your net Schedule C profit. One-half of your self-employment taxes can be deducted as an adjustment to income on Form 1040.

If eBay sales are a hobby, report income on Schedule 1, “Other Income” line. Hobby income is taxable, but expense deductions are limited. Under current tax law, individuals cannot deduct hobby expenses to offset hobby income. If your activity is deemed a hobby, your gross income from those sales will be fully taxable without corresponding expense reductions.

Reducing Your Taxable Income

For business-classified eBay sales, various deductions can reduce taxable income. These deductions directly lower your net profit, reducing both your income tax and self-employment tax liabilities. Meticulous record-keeping of business expenses is essential for accurate claims and IRS substantiation. Proper documentation ensures you can take full advantage of available tax benefits.

The cost of goods sold (COGS) is a primary deduction for any business selling products. This includes direct costs like inventory purchase price, inbound shipping, and labor for item preparation. Tracking COGS accurately reduces your gross sales to arrive at your gross profit.

Operating expenses for your eBay business are deductible. These include eBay listing, final value, and other platform transaction fees. Shipping costs (postage, insurance) and packaging materials (boxes, bubble mailers, tape) are deductible. Advertising or marketing expenses for listings, like promoted listings fees or social media ads, are also deductible.

If you use a portion of your home exclusively and regularly for your eBay business, you may be eligible for the home office deduction. This deduction allows a portion of rent or mortgage interest, utilities, and other home expenses. Prorated internet and phone expenses for business use are deductible. Mileage for business travel, like sourcing inventory or post office runs, is deductible at the IRS standard rate.