Do I Have to Pay Taxes on eBay Sales?

Selling items online, especially through platforms like eBay, can lead to tax obligations. While some casual sales may not generate taxable income, frequent or profit-motivated selling often does. Understanding how different sales are treated by tax authorities is important for online sellers.

Understanding Taxable vs. Non-Taxable Sales

The tax implications of selling items on eBay depend on the sale’s nature. When personal items are sold for less than their original purchase price, the transaction does not result in taxable income. For instance, selling used furniture, old electronics, or clothing for less than what you paid is considered a personal loss and does not need to be reported to the IRS. These sales are not intended to generate profit.

However, sales made with intent to profit, or as part of a regular business activity, are subject to income tax. This includes selling new items, items purchased for resale, or frequent selling that indicates a business. For example, if you buy products wholesale to sell on eBay, or consistently create and sell crafts to make money, these activities are viewed as a business by the IRS. The income generated is taxable.

The IRS distinguishes between a “hobby” and a “business” based on the intent to make a profit. A business activity’s primary purpose is income or profit, carried out with continuity and regularity. Factors the IRS considers include whether the activity is conducted in a businesslike manner, time and effort spent, and the taxpayer’s financial dependence on the income. While hobby income is taxable, associated expenses are not deductible. If an activity shows a profit in at least three out of five consecutive years, it is presumed to be a business, though other factors are also weighed.

Reporting Your Income

When income from eBay sales is taxable, it must be reported to the IRS. Online payment platforms and marketplaces like eBay are required to provide a Form 1099-K to sellers who meet certain thresholds. For tax year 2023, the threshold was $20,000 in gross payments and at least 200 transactions. For 2024, the threshold for Form 1099-K reporting has been lowered to $5,000, with no transaction minimum. All taxable income from your online sales must still be reported, even if you do not receive a Form 1099-K.

Income from eBay sales, if classified as a business, is reported on Schedule C (Form 1040), “Profit or Loss from Business (Sole Proprietorship).” This form is used by sole proprietors and single-member LLCs to report business income and expenses. The net profit or loss calculated on Schedule C flows through to your personal income tax return, Form 1040. Maintaining detailed records of all sales, costs, and expenses is important to support the information reported on Schedule C.

If your online selling activity is considered a hobby rather than a business, the income is reported differently. Hobby income is reported on Schedule 1 (Form 1040), “Additional Income and Adjustments to Income,” specifically on Line 8, “Other income.” Expenses related to the hobby are not deductible, unlike business expenses.

Business income from eBay sales may be subject to self-employment taxes. This includes Social Security and Medicare taxes, calculated on Schedule SE (Form 1040) if your net earnings from self-employment are $400 or more. The self-employment tax rate is 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare, applied to 92.35% of your net earnings from self-employment.

Deductible Expenses

For those operating an eBay business, various expenses can be deducted to reduce taxable income. The cost of goods sold (COGS) is a primary deduction, representing what the seller paid for the items being sold. This directly reduces the gross profit from sales.

Other common deductions include fees charged by the platform and payment processors, such as eBay listing fees, final value fees, and PayPal transaction fees. These operational costs are considered ordinary and necessary for conducting the business.

Shipping costs and packaging supplies are also deductible expenses. This includes postage, shipping services, and materials like boxes, tape, and labels used to prepare items for shipment. Advertising and marketing costs incurred to promote your eBay sales, such as social media ads or other promotional efforts, can also be deducted. These expenses are directly related to generating sales.

A home office deduction may be available if a portion of your home is used exclusively and regularly for your eBay business. This means the space cannot be used for personal activities. There are two methods for calculating this deduction: the simplified method, which allows a deduction of $5 per square foot up to a maximum of 300 square feet ($1,500 maximum deduction), or the regular method, which involves calculating actual expenses like a percentage of rent, utilities, and depreciation.

Other potential deductions for an eBay business include:
A portion of internet and phone bills.
Office supplies.
Business insurance.
Professional services related to your business.

State Sales Tax Considerations

Sales tax obligations for eBay sellers are distinct from income tax and are largely managed by marketplace facilitator laws. Due to these laws, eBay and similar online platforms are responsible for calculating, collecting, and remitting sales tax on behalf of sellers in states where these laws are in effect. This means the platform handles sales tax for most eBay transactions, simplifying the process for individual sellers. This legal framework aims to streamline tax collection for online commerce.

There are limited scenarios where an individual seller might still have sales tax responsibilities. If you sell items outside of eBay, for example, through your own website or direct sales, you may need to determine your sales tax obligations. Sales tax nexus, a connection between a business and a state that triggers the requirement to collect sales tax, could be established through physical presence (like having a store or inventory in a state) or economic activity (meeting certain sales thresholds in a state).

While marketplace facilitator laws cover sales made through eBay, sellers conducting sales on other platforms that are not marketplace facilitators, or through direct channels, need to be aware of nexus rules. Economic nexus laws mean that even without a physical presence, reaching a certain volume of sales or number of transactions in a state can create a sales tax obligation. For the eBay seller, the platform’s role as a marketplace facilitator significantly reduces the direct burden of sales tax collection and remittance.