Do You Pay Taxes on eBay Sales? What You Need to Know

When selling items online, particularly through platforms like eBay, understanding tax implications is important. While selling personal belongings for less than their original purchase price typically does not trigger a tax obligation, other sales can result in taxable income. The nature of the sale, whether casual or regular, determines its tax treatment, including potential sales tax obligations.

Determining Taxable Sales

If you sell a personal item, such as used furniture or clothing, for less than you originally paid, that sale is not taxable income. This is because it represents a loss, not a profit. The “cost basis” of an item, typically its original purchase price plus improvements, determines if a gain or loss occurred.

However, if you sell an item for more than its cost basis, or acquire items specifically for resale, any profit is taxable income. The Internal Revenue Service (IRS) differentiates between a “hobby” and a “business” based on various factors, primarily the intent to make a profit.

The IRS considers several factors to determine if an activity is a hobby or a business. These include whether the activity is conducted in a businesslike manner, such as maintaining accurate records, and the time and effort dedicated. Other considerations include the taxpayer’s expertise, success in similar activities, and whether methods are modified to improve profitability. If an activity is deemed a business, all income is taxable, and associated expenses can be deducted. Conversely, income from a hobby is taxable, but hobby expenses are not deductible for tax years 2018 through 2025.

Income Tax Reporting

Taxable sales must be reported to the federal government. Online payment processors and marketplaces, including eBay, report gross payment transactions to the IRS using Form 1099-K. For the 2024 tax year, a Form 1099-K is issued if gross payments exceed $5,000, with no minimum transaction count. A $600 threshold is anticipated in future years.

Even if a seller does not receive a Form 1099-K, they must report all taxable income from eBay sales. For individuals operating an eBay business with a profit motive, income and deductible expenses are reported on Schedule C (Form 1040), “Profit or Loss from Business (Sole Proprietorship).” Deductible expenses for eBay sellers include the cost of goods sold, eBay listing and final value fees, shipping costs, packaging materials, and payment processing fees. Other deductions encompass advertising, a portion of internet and phone bills for business use, and home office expenses if a dedicated space is used exclusively for the business.

For sellers whose activity is a hobby, gross income must be reported as “Other Income” on Schedule 1 (Form 1040). Hobby expenses are not deductible against this income, meaning the entire gross income from hobby sales is subject to income tax.

Sales Tax Considerations

Sales tax is separate from income tax and applies to goods and services at the point of sale. For most eBay sellers, sales tax collection and remittance are simplified by “Marketplace Facilitator” laws. These laws, adopted across nearly all U.S. states with sales tax, designate online marketplaces like eBay as responsible for calculating, collecting, and remitting sales tax on behalf of their sellers.

eBay automatically calculates the applicable sales tax based on the buyer’s location and includes it in the order total, then remits these funds to the appropriate state tax authorities. This arrangement removes the burden of sales tax compliance from individual sellers.

While eBay manages most sales tax responsibilities, certain scenarios might still require a seller to address sales tax directly. This occurs for sales made outside of the eBay platform, such as through a personal website or in-person transactions. Larger businesses with significant sales volume or physical presence in various states might also have sales tax obligations beyond what the marketplace facilitates, requiring them to monitor their nexus obligations.

Essential Record Keeping

Maintaining thorough and accurate records is important for all eBay sellers. Proper record keeping helps calculate taxable income, substantiate claimed deductions, and demonstrate the nature of selling activities during potential IRS inquiries.

Key records to retain include original purchase receipts for items sold, necessary to determine cost basis and calculate profit or loss. Detailed sales records from eBay and payment processors, documenting gross sales amounts and transaction dates, are also important. Sellers should also keep records of all associated expenses, such as eBay listing and final value fees, shipping costs, packaging material purchases, and advertising expenditures.

Organizing these records can be done through digital spreadsheets, specialized accounting software, or physical files. Consistent record keeping allows sellers to accurately track financial performance and provides documentation to support reported income and deductions if reviewed by a tax authority.