How Does Tax on Clothes Apply to Buying, Selling, and Donations?

Sales tax and income tax can both apply when dealing with clothing, whether buying, selling, or donating. Sales tax is often charged at the point of purchase, while reselling clothes for profit has separate tax implications. Donations, under certain conditions, may provide tax deductions.

Taxability on Purchases

Sales tax on clothing varies by location. Some states, including Oregon, Montana, and Delaware, do not impose sales tax, making clothing purchases there tax-free. Others, like New York and Massachusetts, exempt clothing from sales tax if the price per item is below a set threshold—$110 in New York and $175 in Massachusetts. In contrast, states like California and Texas apply sales tax to most clothing purchases without exemptions.

Local tax rates add complexity. Illinois has a state sales tax of 6.25%, but local jurisdictions may impose additional taxes. Chicago, for example, has a combined sales tax rate of 10.25%. Some states offer tax holidays, such as Florida’s back-to-school tax-free weekend, where clothing purchases under a set amount are temporarily exempt.

Online purchases further complicate tax obligations. Since the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc., states can require online retailers to collect sales tax even without a physical presence in the state. Many states have economic nexus laws, meaning if a retailer exceeds a certain sales threshold—such as $100,000 in sales or 200 transactions—they must collect and remit sales tax. Buying clothes from an out-of-state retailer does not necessarily exempt the purchase from tax.

Income from Reselling

Selling clothing for profit carries tax obligations. The IRS requires individuals to report earnings from reselling, whether as a side hustle or a full-time business. Sellers on platforms like eBay, Poshmark, or Depop may receive a Form 1099-K if total sales exceed $5,000 in a calendar year. While this threshold increased from $600 under the American Rescue Plan Act, all income must still be reported, even if a 1099-K is not issued.

Deductible expenses can reduce taxable income. The cost of acquiring inventory, shipping fees, platform selling fees, packaging materials, and a portion of home internet costs used for business purposes may be deductible. Keeping receipts, tracking mileage for sourcing trips, and maintaining a spreadsheet of sales and expenses ensures proper documentation in case of an audit.

Sales tax collection varies by state. Some states require sellers to collect and remit sales tax on transactions within the state. Many states have economic nexus laws, meaning if sales exceed a threshold—often $100,000 or 200 transactions—registration for a sales tax permit may be required. Online marketplaces like eBay and Etsy often handle sales tax collection, but understanding state-specific obligations remains important.

Charitable Donations

Donating clothing to qualified nonprofit organizations can provide a tax benefit if deductions are itemized on a federal tax return. The IRS allows deductions for the fair market value of donated goods, typically the price an item would sell for in a thrift store. A designer jacket in excellent condition may be worth more than a generic brand sweater with visible wear. While the IRS does not provide a fixed valuation guide, organizations like Goodwill and The Salvation Army offer general pricing estimates.

For donations exceeding $500 in total value within a tax year, taxpayers must complete Form 8283. If any single item or group of similar items is valued over $5,000, a qualified appraisal is required. Donations must be made to IRS-recognized 501(c)(3) organizations to qualify for deductions. Contributions to individuals, crowdfunding campaigns, or for-profit thrift stores do not qualify.

Recordkeeping for Clothing Transactions

Maintaining thorough records ensures compliance with tax regulations. Whether tracking inventory for resale, documenting deductible expenses, or substantiating charitable contributions, proper documentation prevents discrepancies and reduces audit risk.

For sellers operating as a business, structured accounting is necessary. Accounting software like QuickBooks or Xero helps track revenue, cost of goods sold, and expenses. Accurate categorization of transactions aids in tax preparation and financial reporting. Retaining invoices, consignment agreements, and proof of payment for inventory purchases supports deductions and profit calculations. Under IRS regulations, records should be kept for at least three years from the filing date, though longer retention may be advisable in some cases.