Do I Have to Pay Income Tax on eBay Sales?

Selling items online can lead to tax obligations. Income from online sales, such as those made on platforms like eBay, is generally subject to federal income tax. Understanding how the Internal Revenue Service (IRS) classifies sales activities, calculates, and reports taxable income helps ensure compliance.

Determining Taxable Sales Activity

Distinguishing between a hobby and a business determines if your eBay sales are taxable. Selling personal items at a loss, such as old belongings for less than their original purchase price, does not result in taxable income. This activity is generally considered a non-taxable event, as there is no profit earned. However, if you acquire items with the intent to resell them for profit, your activity may be classified as a business for tax purposes.

The IRS uses several factors to determine whether an activity is a hobby or a business. These factors include whether you conduct the activity in a businesslike manner, the time and effort you put into the activity, and if you depend on the income for your livelihood. The IRS also considers your expertise in the activity, your history of income or losses from similar activities, and whether you expect to profit from the appreciation of assets used in the activity. If an activity generates a profit in at least three out of five consecutive tax years, the IRS generally presumes it is carried on for profit.

Online marketplaces and payment processors often issue Form 1099-K, which reports the gross amount of transactions. The Form 1099-K reporting threshold is $20,000 in gross payments and over 200 transactions, as reinstated by recent legislative changes in 2025.

Even if you do not receive a Form 1099-K, your income from eBay sales may still be taxable. The absence of this form does not exempt you from your tax obligations. All income from selling goods or services with the intent to profit, regardless of the reporting threshold, must be reported to the IRS.

Calculating Your Taxable Income

Your taxable income from eBay sales is generally based on your net profit, not the total amount of your sales. Net profit is determined by subtracting your allowable business expenses from your gross sales revenue. Keeping meticulous records of all income and expenses is essential.

The Cost of Goods Sold (COGS) is a significant deduction. This includes the direct costs associated with acquiring or producing the items you sell. Examples of COGS include the purchase price of the inventory, shipping costs incurred to receive the inventory, and any other expenses directly related to preparing the items for sale. Tracking COGS reduces your gross profit and, consequently, your taxable income.

eBay charges various fees that can be deducted as business expenses. These include listing fees, which are charged when you create an item listing, and final value fees, which are a percentage of the final sale price. Any store subscription fees you pay to eBay for access to advanced selling tools or reduced listing fees are also deductible. These costs directly reduce your taxable earnings from the platform.

Shipping costs incurred when sending items to buyers are also deductible expenses. This includes the actual postage fees, the cost of shipping insurance, and any delivery confirmation services. Packaging materials, such as boxes, bubble mailers, packing peanuts, and labels, are considered supplies and can be fully deducted. These expenses reduce your profit.

Other allowable expenses can further reduce your taxable income. These may include returns processed, advertising costs for promoting your listings or store, and a portion of your internet and phone bills if used for business. If you use a part of your home exclusively and regularly for business, you might also qualify for a home office deduction. Mileage driven for business purposes, such as trips to the post office or to source inventory, can be deducted at the standard mileage rate set by the IRS.

Reporting Your eBay Sales

For activities considered a business, the net profit is reported on Schedule C, Profit or Loss from Business (Form 1040). This form is used by sole proprietors and single-member Limited Liability Companies (LLCs) to detail their business income and expenses. Gross sales figures are entered on the appropriate line, while your calculated Cost of Goods Sold and other allowable expenses are itemized in designated sections.

If your eBay sales are classified as a hobby, any income earned must be reported on Schedule 1 (Form 1040), Additional Income and Adjustments to Income. Unlike business income, expenses related to hobby activities are generally not deductible under current tax law through 2025. This means that if your activity is a hobby, you report the gross income without offsetting it with related expenses.

Individuals with net earnings from self-employment of $400 or more are generally subject to self-employment tax. The self-employment tax rate is 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare. This tax applies to 92.35% of your net earnings from self-employment, and there is an annual earnings limit for the Social Security portion, which is $176,100 for 2025.

If you anticipate owing a significant amount of self-employment tax or income tax, generally $1,000 or more, you may be required to make estimated tax payments throughout the year. These payments are typically made quarterly to the IRS. Making these timely payments helps avoid penalties for underpayment of taxes. The estimated tax payments cover both your income tax liability and your self-employment tax obligations.

Essential Record Keeping

Maintaining accurate and comprehensive records is fundamental for any individual selling on eBay, whether as a hobby or a business. Detailed record keeping supports the income and expense figures reported on your tax return, which is crucial in case of an IRS audit. Without proper documentation, deductions claimed could be disallowed, leading to additional tax liabilities and penalties.

Records to keep include all sales receipts or transaction logs from eBay, detailing each sale. You should also retain purchase receipts for all inventory items, especially those used to calculate your Cost of Goods Sold. Expense receipts for shipping, packaging supplies, advertising, and any other deductible business costs are equally important. Bank statements and 1099-K forms received from eBay or payment processors also serve as official documentation of your financial activity.

The general guideline for retaining tax records is to keep them for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later. Some situations require longer retention periods; for instance, records related to property should be kept until the period of limitations expires for the year in which you dispose of the property. If you substantially underreport income, the IRS may have up to six years to assess additional tax.

You can choose between physical or digital methods for record keeping. Digital methods, such as scanning receipts, using spreadsheets for tracking income and expenses, or employing accounting software, offer convenience and can help organize financial data efficiently. Regardless of the method chosen, the records must be clear, legible, and readily accessible to demonstrate the accuracy of your reported income and deductions.