Do I Need to Pay Taxes on eBay Sales?

Selling items on eBay can be a way to clear out unused belongings or build an online business. Understanding the tax implications of these sales is key for financial management. The Internal Revenue Service (IRS) considers income from online sales taxable, with rules based on your selling activity’s classification. Compliance with these regulations prevents unexpected tax obligations. This guide outlines tax implications for eBay sales.

Determining Your Tax Status

The IRS distinguishes between selling as a “hobby” and selling as a “business,” a classification that impacts your tax obligations. A hobby is for personal enjoyment, not profit. A business operates for profit and is conducted regularly. The IRS evaluates factors like businesslike operation, effort for profitability, and income/loss history to determine this status.

If your eBay selling is a hobby, gross income is reported on Schedule 1 (Form 1040) as “Other Income.” The Tax Cuts and Jobs Act (TCJA) of 2017 suspended hobby expense deductions. For tax years 2018 through 2025, hobby expenses are not deductible, which can increase taxable income.

For activities classified as a business, gross income is reportable, and ordinary and necessary business expenses are deductible. Business expenses reduce your net profit and taxable income. Business net earnings are also subject to self-employment taxes for Social Security and Medicare, unlike hobby income. The IRS determines your status based on specific facts and circumstances, not solely on your activity’s label.

Calculating Your Taxable Income and Deductions

For eBay business sellers, taxable income is gross sales minus eligible business expenses. Gross income includes total buyer payments, including shipping charges. This total is considered before any fees or expenses are deducted by eBay or payment processors.

After establishing gross income, reduce your taxable amount by deducting ordinary and necessary business expenses. The cost of goods sold (COGS) is a primary deduction, representing the original purchase price of items, including materials for custom products. Other common deductible expenses for eBay sellers include:
eBay listing and final value fees
Payment processing fees
Shipping costs (e.g., postage, packaging materials, insurance)

Deductible expenses include home office costs, if you meet IRS criteria for regular, exclusive business use. This includes a portion of rent or mortgage interest, utilities, and office supplies. Business mileage for sourcing inventory or post office trips is also deductible, at the 2025 standard rate of 70 cents per mile. Other deductible costs include advertising, business software, subscriptions, and prorated internet/phone expenses. Maintain detailed records of income and expenses to support deductions claimed on your tax return.

Reporting Your Income and Taxes

Reporting eBay income and expenses to the IRS requires specific tax forms, particularly for businesses. Many eBay sellers receive a Form 1099-K from payment processors or online marketplaces. For calendar year 2025, this form is issued if you receive payments totaling over $2,500 through the platform. All income must be reported, regardless of whether you receive a Form 1099-K.

Business sellers report income and expenses on Schedule C (Form 1040), “Profit or Loss from Business (Sole Proprietorship).” This form details gross receipts and deductible business expenses to calculate net profit or loss. The net profit from Schedule C then flows to your individual income tax return, Form 1040.

Net earnings from self-employment reported on Schedule C are subject to self-employment tax, for Social Security and Medicare. Self-employment tax is calculated on Schedule SE (Form 1040) at 15.3% on net earnings up to an annual income limit, with a portion applied above that threshold. Individuals expecting to owe at least $1,000 in federal income tax for the year must pay estimated taxes quarterly. These payments help meet tax obligations and avoid underpayment penalties.

Understanding Sales Tax Obligations

Sales tax is a consumption tax collected by sellers from buyers at the point of sale and remitted to state/local tax authorities. For eBay sellers, sales tax obligations differ from federal income tax. The landscape for online sales tax has evolved due to “marketplace facilitator” laws.

In most states, eBay operates as a marketplace facilitator. It calculates, collects, and remits sales tax for sellers on its platform. This simplifies compliance, as the platform handles varying state and local sales tax rates and rules. eBay automatically adds the applicable sales tax to the buyer’s order total at checkout in these states.

Sellers may still have sales tax responsibilities in specific circumstances. This includes direct sales outside eBay or in states where marketplace facilitator laws may not apply. Sales tax rules vary by state. While eBay manages most sales tax for typical transactions, sellers should consult their state’s tax authority for guidance on remaining obligations.