If you sell on eBay, Poshmark, Mercari, or any other resale platform, you may have received a 1099-K form reporting your gross sales to the IRS. The number on that form often causes panic — it might show $25,000 or $40,000 in gross transactions, and people assume they owe income tax on the whole amount.
They don't. Here's how reseller taxes actually work.
What the 1099-K Actually Reports
The 1099-K reports gross payment volume — the total dollars that moved through the platform to you. It does not account for:
- What you paid for the items (your cost of goods)
- Platform fees (eBay's cut, typically 12–13.25%)
- Shipping costs you absorbed
- Packaging materials
- Returns and refunds
The IRS receives this form and matches it against your tax return. If you report less than the 1099-K amount without explanation, it can trigger a notice or audit. But that doesn't mean you owe tax on the full amount — it means you need to properly report your gross income and then deduct your actual costs.
The 1099-K Threshold: What Triggers Reporting
The threshold for receiving a 1099-K has changed significantly:
- Through 2022: $20,000 in gross payments AND 200+ transactions (per calendar year)
- 2023: $20,000 threshold (IRS delayed the new rule)
- 2024: $5,000 in gross payments (new threshold phased in)
- 2025 and beyond: $2,500 (then eventually $600 as originally planned)
Lower thresholds mean more casual sellers are getting forms for the first time. The form is not a tax bill — it's a reporting document. What matters is what you actually owe on your net profit.
The COGS Deduction: Your Most Important Tool
COGS stands for cost of goods sold — what you paid to acquire the items you sold. This is a direct deduction from gross revenue.
If you sold a jacket for $85 that you bought at Goodwill for $12:
- Gross revenue: $85
- COGS: $12
- Gross profit before other expenses: $73
Every item you sell has a cost basis. If you bought it at a garage sale, thrift store, estate sale, or retail clearance rack, that purchase price is your COGS. Tracking it is not optional — it's the difference between owing taxes on $85 and owing taxes on $73.
The documentation requirement: you need receipts or records. Bank statements, PayPal receipts, photos with price tags — whatever shows what you paid. The IRS can ask. Keep records for at least 3 years from the filing date.
The Reinvestment Trap
This is the most common mistake resellers make: buying more inventory does not reduce your current-year tax bill. COGS only counts when an item sells. Unsold inventory on December 31 is an asset on your balance sheet, not a deduction.
Example: You buy 50 items in November for $1,000, total. You sell 10 of them before year-end. Only the cost of those 10 items is deductible as COGS this year. The $800 you spent on the remaining 40 items rolls forward as inventory cost basis — you'll deduct it in the year those items sell.
This catches resellers who are growing inventory aggressively. You might buy $20,000 in inventory and sell $15,000 worth — your COGS this year is roughly $12,000–$13,000 (proportional cost of the sold items), not $20,000.
What Else You Can Deduct
Beyond COGS, these are legitimate deductions for resellers:
Platform fees: eBay's Final Value Fee (12.9–15%), payment processing (typically included in eBay's fees), Poshmark's 20% on sales over $15, etc. These are direct business expenses.
Shipping costs: Any shipping you paid that wasn't reimbursed by the buyer. Also: shipping supplies, poly mailers, boxes, tape, labels.
Mileage: Driving to thrift stores, garage sales, estate sales, and post offices is business mileage at the standard rate (67 cents/mile in 2024). Keep a mileage log.
Photography equipment: Cameras, lighting, backdrops used for listing photos.
Storage: If you rent a storage unit for inventory, that's deductible. A portion of your home if you use dedicated space exclusively for business storage (home office rules apply).
Subscriptions and software: Listing tools, inventory trackers, accounting software.
Personal Items Sold at a Loss
If you sold personal property — items you actually owned and used — for less than you originally paid, it's not taxable income. You don't report a loss either (personal losses aren't deductible), but you don't owe tax on proceeds below your original cost.
Example: You sell an old guitar on eBay for $300. You originally paid $600. No taxable income, no deductible loss. The 1099-K may show $300, but you can note that it represents a personal property sale below cost basis.
Keep records of original purchase price for items you're selling from personal use. This documentation protects you if the IRS questions why your 1099-K gross exceeds your reported income.
When Reselling Becomes a Business vs. a Hobby
If you're actively sourcing, listing, and selling with the intent to profit, the IRS treats this as a business — Schedule C, self-employment tax, and all the deductions that come with it. This is generally favorable: business losses can offset other income, and you get more deductions available to you.
If the IRS determines your reselling is a hobby (especially if you consistently lose money), they can disallow business deductions under the hobby loss rules. The general presumption: if you profit in 3 of any 5 consecutive years, it's a business. Keep records showing your profit motive — business plans, market research, operational changes you make to become profitable.
The Practical Bottom Line
Most casual-to-moderate resellers who track their COGS and expenses find that their actual taxable profit is 20–40% of their gross 1099-K amount — sometimes less. The 1099-K is a starting point, not a tax bill.
Track every purchase. Keep every receipt. Log every mile. The difference between disciplined record-keeping and guessing can easily be $2,000–5,000 in taxes on a $30,000 gross sales year.