If you regularly sell clothing or merchandise through a platform like Poshmark, Etsy, Facebook Marketplace, Mercari, and others, any net profit you make from selling those items may need to be reported to the IRS for tax purposes – even if it’s only a side hustle. Keep reading to learn more about the implications of online reselling.
Do you have to pay taxes when reselling items?
If you resell items regularly and for a profit on Facebook Marketplace or another similar platform, you’ll need to report those earnings on Schedule C of your tax return. The money you make will be subject to federal (and possibly state) income tax.
You may receive a 1099-K if you earn over $20,000 and have more than 200 transactions through third party networks like PayPal or Venmo – but even if you don’t get a form, you’re still required to report your income.
If you typically own the items you’re reselling for a short time (less than a year), your profit most likely will be taxed as ordinary income. The tax brackets for the current tax year determine the rate at which your income is taxed.
But, if you’ve owned items for more than a year, or you resell certain collectibles – like vintage cars, art, and antiques – your profits will be taxed as capital gains.
Are you simply reselling an item you no longer use? Oftentimes when people resell used items, they get less than they originally paid, so they take a loss on the sale. Note that you would not need to report or pay taxes on this kind of one-off sale, but you can’t deduct the loss, either.
How much can you sell online without paying taxes?
You may receive a Form 1099-K from platforms like PayPal, Venmo, Etsy, or eBay if you earn over $20,000 and complete more than 200 transactions in a year through your online sales activity. However, even if you don’t receive a 1099-K, you’re still required to report any profit from reselling items as taxable income.
Your net profit — the amount you report — is calculated by subtracting your expenses from your total earnings. For example, if you made $30,000 in revenue and had $5,000 in expenses, your net profit would be $25,000.
Whether or not you owe taxes depends on your filing status, age, and income level. If you meet the IRS requirements for your situation, you must file and pay federal income taxes. State tax rules vary, so check with your state’s Department of Revenue to understand local requirements.
If you’re selling personal items just to recover their original value — not to make a profit — the IRS may consider this a hobby rather than a business. Hobby income is still subject to income tax, but not self-employment tax.
When do you need to file taxes for resold items?
Whether you’re selling items casually or as a business, you must file taxes by the tax filing deadline – generally April 15. If you sell with the intent to make money, the IRS will likely treat you as self-employed and require you to make estimated tax payments throughout the year.
How does online reselling work?
You may do a variety of things and be considered an online reseller. For example, you might shop second-hand stores and resell your finds through Facebook Marketplace; you might buy products from wholesalers and sell them via a marketplace like Amazon; or maybe you have used merchandise that you put up for sale using a third-party platform like Mercado. All of these are examples of online reselling.
If you’re selling items through a third-party platform like Poshmark, you aren’t responsible for calculating or collecting sales tax. But if you run an online retail business (including Etsy shops), you may have to charge sales tax.
The amount of sales tax you should charge depends on the location you’re shipping to. Many states have created standards based on the total value of sales being delivered to that state. If you meet the threshold, you’ll be required to register, collect, and remit sales tax to that state.
Dropshippers are different from other online retailers. For one, dropshippers don’t hold inventory. Instead, they purchase items from third-party suppliers who ship orders directly to customers. Because the dropship business model is so unique, the tax requirements for dropshippers are significantly different than other online retailers.
How to file taxes as a reseller
If you’re running a business as an online reseller, your sales must be reported on your business tax return or on Schedule C of your personal tax return. TaxSlayer Self-Employed is designed with tools and personalized support to help you file your unique situation with confidence.
If you’re only reselling items as a hobby or very occasionally, you’ll file a personal tax return and report your profit and loss on Schedule 1 (Form 1040) Additional Income and Adjustments to Income. To report capital gains, you’ll need to file Form 8949 and Schedule D. You can file with TaxSlayer Classic and get all the forms you need, plus step-by-step guidance, and 100% accuracy guaranteed.
Keeping good, detailed records of your profits and losses is very important as an online reseller. For the items you sell, make note of these details:
- a description of the item
- approximate date you acquired the item
- how you got the item (purchased, gifted, inherited)
- original price/value (to the best of your ability)
- date sold
- selling price
If you receive a Form 1099-K from third-party transaction platforms (Venmo, CashApp, etc.) you’ll want to have that handy, as well as other important wage, income, and expense-related tax forms. Refer to a tax filing checklist to make sure you’ve got everything in order.
Is there a reseller tax exemption?
Yes, but it’s an exemption from paying sales tax – it doesn’t apply to income tax. A resale certificate is a document that allows a reseller to buy goods without paying sales tax, if those goods are intended to be resold to customers. Instead of being taxed at the time of purchase, sales tax is collected when the item is sold to the final consumer.
Reseller taxes FAQs
Do you resell new or used goods online on platforms like Depop, Mercari, or Poshmark? We’ve got the answers you need when it comes to filing your taxes.
Is online reselling considered a business?
Any activity that operates with the intention of making money could be considered a business – including online reselling.
If you’re not trying to earn a profit and you only resell items on occasion, the IRS will likely consider your reselling activity a hobby. Taxpayers who make money from a hobby must also report that income on their tax return, but they won’t be required to pay self-employment tax, and they can’t deduct losses related to their hobby.
Does selling personal items count as income?
Anytime you sell something for more than you paid for it, the difference is considered income.
Do you have to report income from selling used items?
The same rule applies whether the items you resell are new or used: if you are selling items at a profit, you’ll need to report your net income from those sales on your tax return.
Note that when you sell an item for less than you paid for it, you aren’t required to report it. But if you routinely resell goods as a business, you’ll want to report both gains and losses.
Can I take advantage of any tax deductions for resellers?
Yes, if you are an online reseller, you may be able to take advantage of several tax deductions. If you’re actively buying and selling items with the intent to make a profit, the IRS typically considers your activity a business. In that case, you may be eligible to deduct a wide range of business expenses that directly support your business. Common deductible expenses for resellers include:
- Cost of goods sold (COGS)
- Shipping costs
- Platform fees
- Home office expenses
- Marketing and advertising
- Software and tools
- Professional services
