How Much Can You Sell on Facebook Before Paying Taxes?

Selling items online, especially through platforms like Facebook Marketplace, has become a common activity for many. While it offers a convenient way to declutter or earn extra money, understanding the tax implications of these sales is important. Your tax obligations depend on various factors, including the nature of what you sell and your intent behind the sales. Navigating these rules ensures compliance with tax laws.

Determining Taxable Income from Sales

The IRS distinguishes between sales types for tax purposes. Selling personal items, such as used furniture or clothing, for less than their original purchase price generally does not result in taxable income.

However, if you sell a personal item for more than its original purchase price, the profit, known as a capital gain, is usually taxable. For example, selling a collectible for more than you paid for it results in a taxable gain. This gain is subject to capital gains tax rates.

A key distinction is whether your selling activity is a hobby or a business. The IRS evaluates factors like profit motive, time and effort, and business-like conduct. For example, consistently selling newly purchased items with the intent to profit suggests a business. While income from both hobbies and businesses is generally taxable, the treatment of associated expenses differs significantly.

Understanding Reporting Thresholds

Platforms like Facebook Marketplace are Third-Party Payment Networks (TPPNs) subject to IRS reporting rules under Internal Revenue Code Section 6050W. These platforms issue Form 1099-K, which reports the gross amount of transactions processed for sellers. This form helps the IRS identify potential taxable income.

For the 2024 tax year, TPPNs are required to issue a Form 1099-K if the gross amount of payments for goods or services exceeds $5,000. For the 2025 tax year, this threshold is scheduled to decrease to $2,500.

Receiving a Form 1099-K means the platform has reported your gross transactions to the IRS. However, even if you do not receive a Form 1099-K because you did not meet the reporting threshold, or if you receive cash payments, you are still legally required to report all taxable income from your sales. The 1099-K serves as an information report for the platform, not as a definitive statement of your tax liability.

Reporting Sales Income to the IRS

Once you have determined that your online sales generate taxable income, you must report it to the IRS using the appropriate forms. If your selling activity is a business, report income and expenses on Schedule C (Form 1040). This form requires detailing your gross receipts and various business expenses to arrive at your net profit or loss.

For hobby income, where profit is not the primary intent, report it on Schedule 1 (Form 1040). If you sell personal items for a gain, report these capital gains on Schedule D (Form 1040).

When you receive a Form 1099-K, the amount reported represents the gross payments you received through the third-party network. This figure is a starting point and does not necessarily equate to your net taxable income. You will use the information from your 1099-K, along with your own records of expenses, to accurately calculate your taxable profit on your Schedule C or other relevant tax forms.

Reducing Taxable Sales Income

Sellers engaged in a business or a for-profit hobby can reduce their taxable income by deducting eligible expenses. The Cost of Goods Sold (COGS) is a deduction for those who purchase items for resale. This includes the original purchase price of the items you sell, as well as costs directly associated with acquiring or producing them.

Beyond COGS, common business expenses include:
Shipping costs for delivering products to customers.
Fees charged by online platforms like Facebook Marketplace or payment processors.
Advertising expenses incurred to promote your sales.
Packaging supplies such as boxes, tape, and labels.

If you use a dedicated space in your home exclusively and regularly for your selling activity, you may qualify for the home office deduction. This deduction allows you to write off a portion of your home-related expenses like utilities and rent or mortgage interest. Additionally, business-related mileage for activities such as sourcing inventory or making shipments can be deducted, often using a standard mileage rate. For activities classified as hobbies, expenses can only be deducted up to the amount of hobby income, and these deductions generally cannot create a loss.

Maintaining Accurate Records

Accurate record keeping is essential for all online selling activities, ensuring tax reporting and compliance. Detailed records allow you to correctly calculate taxable income and identify eligible deductions. This supports the information reported on your tax return, especially if the IRS has inquiries.

Essential records include sales logs detailing date, item sold, selling price, buyer, and platform used. Retain all purchase receipts for inventory, raw materials, and supplies. Records of all expenses, such as shipping costs, platform fees, advertising, and packaging materials, are also necessary.

Keep bank statements and records from payment processors (e.g., PayPal, Venmo) to reconcile income. If deducting vehicle expenses, maintain a mileage log for business travel. These records also help distinguish between non-taxable personal sales and taxable business or hobby sales.