When Do You Have to Pay Taxes on eBay Sales?

Selling items online through platforms like eBay has become common for many individuals. While online sales offer a convenient way to clear unwanted items or earn extra income, many mistakenly believe small sales are tax-exempt. Understanding tax responsibilities is important, as income from online sales is subject to federal and state taxes. Proper reporting ensures compliance, whether selling occasionally or operating a regular business.

Determining Your Tax Obligation

Understanding when you owe taxes on eBay sales begins with recognizing federal reporting thresholds and the nature of your selling activity. For the 2023 tax year, third-party payment networks like eBay were generally required to report payments to the IRS using Form 1099-K if gross payments exceeded $20,000 and there were more than 200 transactions. This threshold changed for the 2024 tax year, becoming $5,000, regardless of the number of transactions, and is planned to decrease further to $600 for the 2025 tax year. Even if you do not receive a Form 1099-K, it is important to remember that all income derived from sales, unless specifically excluded, remains taxable.

The Internal Revenue Service (IRS) distinguishes between a hobby and a business, which significantly impacts how your income is taxed and what expenses you can deduct. A business generally intends to make a profit, operating with regularity and continuity, and dedicating time and effort to the activity. Factors considered by the IRS include whether the activity is conducted in a businesslike manner, the time and effort spent, the dependence of income on the activity, and whether the taxpayer has experience or knowledge in the activity.

Selling items as a hobby, without a profit motive, means you report the income but cannot deduct related expenses like a business. If you sell personal items for less than their original purchase price, the sale does not result in taxable income. This is because you are selling at a loss, and losses on personal-use property are not deductible. However, if you sell a personal item for more than its original purchase price, the difference between the selling price and your original cost is a capital gain, which is taxable income.

Calculating Your Net Taxable Income

Once your eBay sales activity results in taxable income, the next step involves calculating your net taxable amount. Gross sales represent the total money received from buyers for items sold on eBay, including any shipping charges collected. This figure is the starting point for your income calculation.

For business operators, the cost of goods sold (COGS) is a significant deduction. COGS includes the original purchase price of items sold and any direct acquisition costs, such as shipping to acquire inventory. Maintaining accurate records of inventory purchases and sales is important for correctly determining COGS.

Business sellers can deduct various ordinary and necessary expenses incurred in operating their eBay business. Common deductible expenses include eBay listing and final value fees, payment processing fees, shipping costs to buyers, and packaging supplies. Advertising costs, business-related internet and phone expenses, and qualified home office expenses may also be deductible if specific IRS criteria are met. Thorough record-keeping, including receipts and detailed logs, is important for substantiating these deductions.

Hobby sellers, conversely, cannot deduct expenses related to their hobby income after changes introduced by the Tax Cuts and Jobs Act (TCJA). While hobby income must still be reported, the ability to offset that income with associated expenses has been eliminated.

Reporting Your Sales on Federal Tax Forms

Reporting eBay sales accurately on federal tax forms ensures IRS compliance. If you receive a Form 1099-K from eBay or its payment processor, it reports your gross payment volume. Remember, the 1099-K reflects gross sales, not net profit; you must report your actual taxable income, accounting for costs and expenses.

For individuals operating an eBay business with a profit intent, income and expenses are reported on Schedule C (Form 1040), Profit or Loss from Business. On Schedule C, enter gross sales on Line 1 and cost of goods sold on Line 4. Deductible business expenses, such as advertising, commissions, fees, and shipping, are itemized in Part II. The net profit or loss from your eBay business is then carried over to your main Form 1040.

If your eBay selling activity is considered a hobby, the income is reported on Schedule 1 (Form 1040), Additional Income and Adjustments to Income. Hobby income is entered on Line 8z, designated for “Other income.” Hobby expenses are not deductible against this income.

When you sell personal items for more than their original purchase price, resulting in a capital gain, this gain is reported on Schedule D (Form 1040), Capital Gains and Losses. You will list the item sold, its acquisition and sale dates, the sales price, and your cost or other basis. Schedule D calculates your net capital gain or loss, which then transfers to your Form 1040.

Navigating State Tax Requirements

Beyond federal obligations, income from eBay sales may also be subject to state tax requirements. Many states have their own income tax laws; if your eBay sales generate federal taxable income, it will likely be included in your state’s taxable income calculation. State income tax reporting thresholds can differ from federal ones, so understand your state’s specific requirements.

Sales tax is another consideration for online sales, though for most small eBay sellers, the platform itself handles this obligation. This is due to “marketplace facilitator” laws enacted in most states. Under these laws, online marketplaces like eBay are responsible for calculating, collecting, and remitting sales tax on behalf of their third-party sellers. This simplifies the process for individual sellers.

eBay automatically adds the appropriate sales tax to buyer purchases in states with marketplace facilitator laws. The platform then remits collected taxes to the respective state tax departments. This means the responsibility for sales tax compliance largely falls on the marketplace.