Do You Have to Report eBay Sales on Taxes?

This article clarifies when and how sales made through platforms like eBay should be reported to the Internal Revenue Service (IRS). Understanding the tax implications of these activities is important for compliance.

Determining Your Tax Obligation

Your eBay sales’ taxability depends on what you sell and your intent. Generally, selling personal items for less than their original purchase price results in a loss and is not taxable, nor is the loss deductible. However, if you sell personal items for more than you originally paid, the profit from that sale is considered taxable income.

When sales activities transition from casual transactions to an ongoing venture, they may be classified as a business rather than a hobby. The IRS considers several factors to distinguish a business from a hobby, including whether you engage in the activity for profit, the time and effort you spend, your expertise, and whether you depend on income from the activity. For instance, if you consistently buy items with the intent to resell them for profit, your activities likely constitute a business.

Even if your activity is considered a hobby, any gross income generated from selling personal items for a profit is still subject to tax. Third-party payment networks like eBay’s payment processor may issue Form 1099-K. For the 2024 tax year, the threshold for Form 1099-K reporting is set to $5,000 for gross payments. Receiving a Form 1099-K indicates a payment processor reported transactions to the IRS. Regardless of whether you receive this form, all taxable income from your sales, including profits from personal items or gross revenue from a business, must be reported on your tax return.

Calculating Your Taxable Profit

Once it is determined that your eBay sales are taxable, the next step involves accurately calculating your net profit or loss. Your total gross sales from eBay can typically be found in reports provided by eBay or your payment processor, which detail the total amount received from buyers before any fees are deducted. This is the starting point for your income calculation.

A significant element in determining profit is the Cost of Goods Sold (COGS). For items purchased specifically for resale, COGS includes the purchase price of the item, shipping costs to acquire it, and any other costs directly attributable to getting the item ready for sale. For personal items sold at a profit, the “cost basis” is your original purchase price plus any improvements that increased the item’s value. Accurately tracking COGS reduces your taxable income.

Beyond COGS, many other expenses incurred in the course of selling on eBay can often be deducted. These include various fees charged by eBay, such as listing fees, final value fees, and fees for promoted listings. Payment processing fees, whether from eBay’s managed payments system or other processors, are also deductible. Direct costs associated with preparing and shipping items, such as postage, shipping insurance, and packaging materials like boxes and bubble wrap, further reduce your taxable profit.

Additional deductible expenses might include costs for advertising and marketing your listings, internet and phone service directly related to your selling activities, and even a portion of home office expenses if you meet specific IRS requirements for using a dedicated space regularly and exclusively for your business. Mileage for business-related trips, such as picking up inventory or going to the post office, can also be deducted at the standard mileage rate. The basic calculation for your net profit or loss is straightforward: Gross Sales minus Cost of Goods Sold minus all other deductible business expenses. Maintaining meticulous records of all sales, costs, and expenses is paramount for accurate calculation and substantiation.

Reporting Your Sales to the IRS

After determining your tax obligation and calculating your net profit or loss, the final step involves reporting these figures to the IRS on your annual tax return. This ensures compliance with federal tax laws.

For individuals operating an eBay business with a profit motive, income and expenses are typically reported on Schedule C (Form 1040), Profit or Loss from Business. This form allows you to report gross receipts, Cost of Goods Sold, and itemize various deductible expenses.

If your eBay activities are considered a hobby rather than a business, any taxable income is reported on Schedule 1 (Form 1040), Additional Income and Adjustments to Income. Unlike business expenses, expenses related to hobby income are generally not deductible under current tax law. This means the entire gross profit from a hobby is subject to tax.

Individuals who report their eBay income on Schedule C are generally subject to self-employment tax. This tax covers Social Security and Medicare contributions for self-employed individuals. Self-employment tax is calculated on 92.35% of your net earnings from self-employment. A significant benefit for self-employed individuals is that one-half of their self-employment tax can be deducted as an adjustment to income on Form 1040, which reduces their overall adjusted gross income.

If you expect to owe at least $1,000 in tax from your eBay activities for the year, you may be required to make estimated tax payments throughout the year. Since income from self-employment is not subject to traditional payroll withholding, making quarterly estimated tax payments helps you avoid penalties for underpayment at tax time. These payments are typically due on April 15, June 15, September 15, and January 15 of the following year.