Does Selling on eBay Count as Income?

Selling items on platforms like eBay can generate income. Understanding the tax implications of these sales is important for financial compliance. Whether you sell occasionally or operate a regular online store, the Internal Revenue Service (IRS) considers income from these activities for tax purposes.

Determining If Your eBay Sales Are Taxable

The taxability of your eBay sales depends on whether your activity is classified as a hobby or a business by the IRS. A hobby is generally an activity pursued for enjoyment without the primary intention of making a profit. In contrast, a business is conducted with the clear intention of earning a profit through consistent and regular effort.

The IRS uses several factors to determine if an activity is a hobby or a business. These include whether you carry out the activity in a businesslike manner, the time and effort you put into it, and if you depend on the income for your livelihood. The IRS also considers your history of income or losses from similar activities, and if you have made a profit in at least three out of the last five tax years, which generally creates a presumption of a business. No single factor is definitive; the IRS considers all facts and circumstances.

If you sell personal items for less than their original cost, such as used clothing or household goods, the sale typically does not result in taxable income. This applies when you sell an item at a loss relative to its purchase price. However, if you sell items for a profit, such as a collectible that has appreciated in value or new items purchased for resale, that profit is considered taxable income. Gross sales are the starting point for determining your overall income from selling activities.

Identifying Relevant Income and Expenses

All income generated from eBay sales must be reported to the IRS, whether your activity is a hobby or a business. For businesses, identifying and calculating all relevant income and expenses is essential for determining taxable profit. This includes the “Cost of Goods Sold” (COGS), which represents the direct costs attributable to the items you sell.

For business sellers, COGS typically includes the purchase price of inventory, shipping costs to receive items, and direct costs for preparing items for sale. For instance, the price paid for wholesale items to resell is part of your COGS. Other common deductible business expenses include eBay listing fees, final value fees, payment processing fees, shipping costs to the buyer, and packaging supplies. A portion of expenses like home office costs, business software subscriptions, and internet/phone bills may also be deductible if used regularly and exclusively for the business.

The IRS issues Form 1099-K to report payments processed through third-party payment networks like eBay. For the 2024 tax year, platforms must issue a Form 1099-K if gross payments for goods or services exceed $5,000. Even if you do not receive a Form 1099-K because your sales did not meet this threshold, you must still report all income from your selling activities. Accurate record-keeping of all sales, income, and expenses is important for tax reporting, regardless of the activity’s classification.

For hobby sellers, income from sales is reportable. However, under the Tax Cuts and Jobs Act (TCJA), from 2018 through 2025, hobby expenses are generally not deductible for federal income tax purposes. This means you must report all hobby income, but you cannot reduce your taxable income by claiming associated costs. Hobby losses also cannot be claimed to offset other income.

Reporting Your eBay Income on Your Tax Return

Once you have determined whether your eBay selling activity is a business or a hobby and compiled your income and expense figures, the next step is to report them on your federal tax return.

If your eBay selling is considered a business, you will typically report your income and expenses on Schedule C, Profit or Loss from Business (Sole Proprietorship). On Schedule C, you report your gross receipts or sales from your eBay activity in Part I. Your calculated Cost of Goods Sold (COGS) is entered in Part III, and other ordinary and necessary business expenses, such as eBay fees, shipping costs, and advertising, are detailed in Part II. The net profit or loss from your business is then transferred to Form 1040.

Business income is also subject to self-employment tax, which covers Social Security and Medicare taxes. You must pay self-employment tax if your net earnings from self-employment are $400 or more. This tax rate is 15.3% on net earnings, consisting of 12.4% for Social Security and 2.9% for Medicare. You can deduct one-half of your self-employment taxes paid when calculating your adjusted gross income.

For activities classified as a hobby, you report the income on Schedule 1 (Form 1040), specifically on Line 8, “Other Income.” Hobby expenses are not deductible for federal income tax purposes from 2018 through 2025, meaning you report the gross income without offsetting it with related costs. Hobby income is subject to income tax but not to self-employment tax.