Is eBay Income Taxable? How to Report Sales to the IRS

Selling items on eBay can generate income, and understanding the tax implications of these sales is important. While some sales may not be taxable, others create a tax obligation, requiring sellers to report earnings to the Internal Revenue Service (IRS). Knowing how to report earnings and claim deductions helps ensure compliance with tax regulations.

Understanding Taxable eBay Income

Only the profit generated from a sale is considered taxable income, not the total sales amount. Taxable income is calculated by subtracting your original cost basis from the sales price. Cost basis includes the original purchase price of the item plus any associated costs, such as shipping fees when you acquired it.

If you sell a personal item for less than or equal to what you originally paid for it, you do not have taxable income from that transaction. For example, if you bought a collectible for $100 and later sell it on eBay for $80, you incurred a loss, and this sale does not result in taxable income. You cannot claim a deduction for a loss on the sale of personal-use property. However, if you sell that same collectible for $120, the $20 difference between the sale price and your original cost basis is taxable profit.

Business Versus Hobby Sales

The IRS distinguishes between an eBay activity being a “business” and a “hobby,” and this classification affects tax obligations. A business aims to make a profit, while a hobby is for enjoyment without profit intent. The IRS considers several factors to determine if an activity is a business or a hobby. These factors include whether the activity is conducted in a businesslike manner, the time and effort spent on the activity, and whether the taxpayer depends on the income for their livelihood.

The IRS also considers whether losses are due to circumstances beyond the taxpayer’s control or are normal for a startup business. They examine whether the taxpayer has been successful in similar activities, or if there is an expectation of future profit from asset appreciation. All facts and circumstances are considered, and no single factor is more important than another. This distinction is important because business expenses are deductible against business income, and business activities may be subject to self-employment taxes (Social Security and Medicare). Hobby expenses cannot be deducted to offset hobby income for tax years 2018 through 2025.

Reporting Your eBay Earnings

The method for reporting eBay earnings to the IRS depends on whether the activity is classified as a business or a hobby. If your eBay selling is a business, you report income and expenses on Schedule C (Form 1040), Profit or Loss From Business. This form is used by sole proprietors and single-member LLCs to report their business income and deductible expenses, which then determines the net profit or loss that carries over to your individual tax return, Form 1040. If your net earnings from self-employment are $400 or more, you must file a tax return.

For activities classified as a hobby, any income generated must be reported as “Other Income” on Schedule 1 (Form 1040). Schedule 1 is used for various types of income not reported directly on Form 1040, including hobby income. Regardless of classification, all income from selling on eBay must be reported, even if no Form 1099-K is received. Third-party payment networks, such as those used by eBay, are required to issue Form 1099-K to sellers who meet certain thresholds. For the 2024 tax year, the reporting threshold for Form 1099-K is $5,000 in aggregate payments, with no transaction minimum. This threshold is part of a phased-in approach by the IRS.

Allowable Deductions and Recordkeeping

For those operating an eBay business, various expenses can be deducted to reduce taxable income. Common deductible expenses include the cost of goods sold (the price paid for items intended for resale), eBay and payment processing fees, shipping costs, and packaging supplies. Other potential deductions include advertising and marketing expenses, business software subscriptions, and a portion of internet and phone bills if used for business. If you use a part of your home exclusively and regularly for your eBay business, you may also qualify for the home office deduction. This deduction can cover a portion of expenses like rent or mortgage interest, utilities, and insurance, based on the percentage of your home used for business.

In contrast, if your eBay sales are categorized as a hobby, the ability to deduct expenses is limited. For tax years 2018 through 2025, hobby expenses are not deductible. This means that while you must report all hobby income, you cannot offset that income with related expenses, which can result in a higher taxable amount compared to a business. Regardless of whether your activity is a business or a hobby, maintaining accurate and organized records is important for tax purposes. Detailed records, including sales receipts, purchase invoices, mileage logs, and documentation for all expenses, are important for preparing accurate tax returns and supporting your reported income and deductions in case of an IRS inquiry or audit.