Do You Need to Report eBay Sales on Taxes?

Selling items online, particularly through platforms like eBay, is a common activity. Understanding the tax obligations associated with these sales is important. Tax rules apply to online transactions, and individuals must be aware of how their selling activities impact their overall tax situation. Navigating these requirements helps ensure compliance with federal tax laws.

Understanding Reporting Thresholds

Third-party payment networks, including platforms facilitating online sales, must report transactions to the Internal Revenue Service (IRS) using Form 1099-K. Historically, this form was issued if a seller had over $20,000 in gross payments and more than 200 transactions in a calendar year.

For the 2024 tax year, the reporting threshold for Form 1099-K is $5,000 in gross sales, regardless of the number of transactions. This change is part of a phased approach by the IRS, with the $600 threshold originally proposed for 2023 now slated for the 2026 tax year. Some states may have different or lower reporting thresholds for 1099-K forms, meaning sellers in those states might receive a Form 1099-K even if they do not meet the federal threshold. Receiving a Form 1099-K indicates the payment processor reported your gross sales to the IRS, but a tax obligation exists on taxable income regardless of whether this form is received.

Determining Taxable Income from Sales

The taxability of income from eBay sales depends on the nature of the items sold and whether the sale results in a profit. When selling personal items acquired for personal use, such as used furniture or old collectibles, a sale for less than the original purchase price does not result in taxable income. These sales are considered a non-deductible personal loss. However, if a Form 1099-K is received, the sale may need to be reported.

If a personal item is sold for more than its original purchase price, the profit is considered a capital gain. This capital gain is taxable income, and the tax rate depends on how long the item was held. For items bought or made specifically for resale, the income generated is classified as ordinary business income. This applies whether the activity is part-time or a full business. In these cases, only the profit, which is the selling price minus the cost of the item and selling expenses, is subject to tax.

Identifying Deductible Expenses

Individuals selling items on eBay with a profit motive can deduct expenses to reduce their taxable income. The cost of goods sold is a primary deduction, representing the price paid for items resold. This includes wholesale inventory purchases or manufacturing expenses if items are handmade.

Selling fees imposed by eBay, such as listing fees and final value fees, are deductible business expenses. Shipping costs, including postage and supplies like boxes, tape, and labels, can be deducted. Other common deductible expenses include packaging materials, advertising and marketing costs, and bank or payment processing fees. If a dedicated home space is used exclusively and regularly for business, a portion of home office expenses, like rent or utilities, may also be deductible, provided specific IRS criteria are met.

Classifying Your Selling Activity

The IRS distinguishes between a “hobby” and a “business” for tax purposes, and this classification significantly impacts how income and expenses are treated. A hobby is pursued for personal enjoyment with no intention of making a profit. A business is operated with the primary intention of generating a profit.

The IRS considers several factors when determining whether an activity is a hobby or a business:
Whether the activity is conducted in a businesslike manner.
The time and effort spent on the activity.
Whether there is an expectation of profit.
If the taxpayer depends on the income for their livelihood.

If an activity is classified as a hobby, any income earned must be reported, but related expenses are not deductible for tax years 2018 through 2025. For activities classified as a business, income must be reported, and ordinary and necessary business expenses are fully deductible against that income, which can reduce the overall taxable amount.

Reporting Your eBay Income

How you report your eBay income depends on the classification of your selling activity. If your eBay selling is a business, you report gross income and deductible expenses on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship). This form calculates your net profit or loss. Business income is subject to income tax and self-employment taxes, which cover Social Security and Medicare contributions, if your net earnings from self-employment are $400 or more. You may also need to make estimated tax payments throughout the year to cover these obligations.

If your eBay selling is classified as a hobby, the gross income from these sales must be reported on Schedule 1 (Form 1040), Line 8j, under “Other income.” Hobby expenses are not deductible from this income. For capital gains realized from selling personal items for a profit, these gains are reported on Schedule D (Form 1040), Capital Gains and Losses. Depending on the transaction, you may also need to use Form 8949, Sales and Other Dispositions of Capital Assets, to detail each transaction before summarizing on Schedule D.