Do I Have to Report My eBay Income?

Selling items online, particularly on platforms like eBay, often brings questions about tax obligations. Many individuals start selling items online without realizing the potential tax implications of their earnings. Understanding these requirements is important for anyone generating income through such marketplaces.

Determining Taxable eBay Income

Not all money received from eBay sales is considered taxable income. A fundamental distinction exists between selling personal items at a loss or for no profit and selling items for profit or as part of a recurring business or hobby. If you sell personal items, such as old furniture or clothing, for less than or equal to what you originally paid for them, the sale typically does not generate taxable income and generally does not need to be reported. However, if you sell an item for more than you paid for it, the profit generated from that sale may be subject to capital gains tax.

The Internal Revenue Service (IRS) requires reporting of income from sales made for profit or as part of a regular activity. For tax year 2025, third-party payment networks, including eBay, are generally required to issue a Form 1099-K if gross payments exceed $2,500. Even if you do not receive a Form 1099-K, you are still legally required to report all income from your eBay sales on your tax return, regardless of the amount.

The IRS distinguishes between a “hobby” and a “business” for tax purposes, which impacts how income is reported and what deductions are allowed. A business is an activity undertaken with the intention of making a profit, characterized by a businesslike manner, effort to make it profitable, and reliance on income for livelihood. Conversely, a hobby is an activity pursued for enjoyment without a primary profit motive. If your eBay activity is considered a business, you report gross income and can deduct related expenses to arrive at your net profit. If it is a hobby, you must report all income, but generally cannot deduct expenses for tax years 2018 through 2025.

Reporting eBay Income on Your Tax Return

Once you have determined that you have taxable eBay income, the next step involves reporting it accurately on your tax return. The specific form used depends on whether your selling activity is classified as a business or a hobby. If your eBay sales constitute a business, you will report your income and expenses on Schedule C, Profit or Loss from Business (Sole Proprietorship), which is part of Form 1040. This form allows you to detail your gross receipts and then subtract allowable business expenses to arrive at your net profit or loss.

For those whose eBay selling is considered a hobby, the income is reported on Schedule 1 (Form 1040), specifically on Line 8, designated for “Other Income.” Unlike business income, hobby income is not subject to self-employment tax. Regardless of whether you receive a Form 1099-K, all income must be reported. The Form 1099-K simply serves as an informational document sent by payment processors to both you and the IRS, detailing the gross amount of payments processed.

Business sellers must also consider self-employment taxes. This tax covers Social Security and Medicare contributions for individuals who work for themselves. The self-employment tax rate is 15.3% on net earnings, consisting of 12.4% for Social Security and 2.9% for Medicare. Generally, 92.35% of your net earnings from self-employment are subject to this tax. A portion of the self-employment tax can be deducted when calculating your adjusted gross income.

Allowable Deductions for eBay Sellers

For eBay sellers operating a business, various expenses can be deducted to reduce taxable income. These deductions are generally limited to “ordinary and necessary” business expenses, meaning they are common and helpful for your type of business. A primary deduction is the Cost of Goods Sold (COGS), which includes the direct costs of items you sell, such as purchase price, shipping to acquire the item, and any costs to prepare it for sale. This is often the largest expense for online sellers.

Other common deductible expenses include eBay selling fees and listing fees, payment processing fees, and shipping costs for sold items. Packaging supplies like boxes and tape are also deductible. Advertising and marketing expenses, such as paid ads on social media platforms or email marketing software, can be written off.

If you use a dedicated space in your home exclusively and regularly for your eBay business, you may qualify for the home office deduction. This allows you to deduct a portion of your home expenses, including rent, mortgage interest, utilities, and insurance. You can calculate this using either the simplified method ($5 per square foot, up to 300 square feet) or the regular method based on the percentage of your home used for business. Internet and phone expenses, mileage for business-related travel (e.g., sourcing inventory or going to the post office), and professional fees for accounting or legal services are also potential deductions. For hobby sellers, expenses are generally not deductible for tax years 2018 through 2025.

Record Keeping for eBay Activities

Maintaining accurate and organized records is important for all eBay selling activities, regardless of whether they are classified as a hobby or a business. Thorough record-keeping ensures accurate tax filing and provides necessary documentation in the event of an IRS inquiry or audit. Keeping detailed records allows you to correctly calculate your income, claim all eligible deductions, and demonstrate compliance with tax laws.

You should keep comprehensive records of all sales, including the date of sale, item description, selling price, and shipping charges collected. Equally important are records of all expenses, such as receipts for inventory purchases, eBay and payment processing fees, shipping costs, and packaging supplies. For business sellers, this extends to records for advertising, home office expenses, and mileage logs for business-related travel. Bank statements related to your eBay income and expenses are also valuable.

The general recommendation for retaining tax records is to keep them for at least three years. Utilizing spreadsheets, accounting software, or well-organized physical files can help manage these records effectively.