How Reselling Affects Your Taxes (and What to Report)
There’s more to reselling than just turning a profit—you need to understand how your sales impact your taxes. Whether you sell occasionally or run a full-time reselling business, the money you earn is typically considered taxable income. Knowing how to track your costs, report your earnings, and handle forms like the 1099-K can help you stay compliant and avoid surprises at tax time. This guide will walk you through the vital tax considerations you need to manage your reselling income confidently.
Key Takeaways:
- Profits from reselling items are considered taxable income and must be reported, regardless of whether you sell one item or operate a full-time business.
- Keep detailed records of purchase prices, selling costs, and related expenses like platform fees and shipping to accurately calculate net profit and report taxes.
- Depending on your sales volume and platform used, you may receive a Form 1099-K, and you might also need to collect and remit sales tax based on your state’s requirements.
The Taxability of Reselling: What You Need to Know
Any profit you make from reselling items is taxable income, whether you sell one item or operate a full-fledged business. The IRS treats income from sales as taxable because it counts as payment for goods or services provided. Even occasional sales or selling personal items at a gain can trigger tax obligations. Keeping detailed records of purchase prices, sale prices, and associated costs helps you determine your taxable income accurately and ensures compliance with federal, state, and local tax laws.
Defining Profit and Loss in Reselling
Profit occurs when you sell an item for more than you paid for it, factoring in any fees or expenses. For example, if you bought sneakers for $150, sold them for $450, and paid $50 in fees, your net profit would be $250. Loss happens when the resale price plus any fees received is less than your original cost, a situation generally not deductible against other taxable income. Tracking these details helps clarify what portion of your sales is actually taxable.
Income Reporting Requirements
Third-party payment platforms issue Form 1099-K if your gross payments exceed certain thresholds: $5,000 for 2024, dropping to $2,500 in 2025, and $600 by 2026. Even without receiving a 1099-K, you must report all income from reselling on your tax return. Proper record-keeping of every sale, purchase, and expense through spreadsheets or accounting software ensures you accurately report your net profit and meet IRS requirements.
The 1099-K form reports your gross payment amounts, not your net profit, so you still need to calculate your expenses and COGS separately to determine taxable income. If you sell across multiple platforms, combining records is imperative to avoid underreporting income. As these reporting thresholds drop over the next few years, more small resellers will receive 1099-Ks, making diligent tracking indispensable to prevent surprises during tax filing and to identify deductible business expenses efficiently.
1099-K Reporting Thresholds by Year
| Tax Year | Threshold Amount | Transactions Required |
|---|---|---|
| 2024 | $5,000 | Any number |
| 2025 | $2,500 | Any number |
| 2026 and beyond | $600 | Any number |
Understanding 1099-K and Its Implications
The 1099-K details gross payments processed through third-party platforms, often including sales volume before subtracting fees or returns. Receiving this form means the IRS is alerted to your income, but the amounts listed may be higher than your actual profit. You’ll need to deduct your Cost of Goods Sold and selling expenses to accurately report net income. Ignoring discrepancies on the 1099-K could lead to discrepancies or audits, so use it as a guide rather than an exact taxable figure.
How to Properly Fill Out Your Tax Forms
When completing your tax return, report your net profit from reselling on Schedule C if you’re self-employed. Start with total sales revenue, subtract COGS and expenses like fees and shipping to arrive at your net income. Attach Schedule SE for self-employment tax if net profit exceeds $400. Form 1099-K amounts help verify your earnings, but don’t rely solely on those numbers. Maintaining detailed records eases this process and supports claims if you’re audited.
Use bookkeeping tools or spreadsheets to track every item’s purchase price, sale price, and associated costs throughout the year—this streamlines filling out Schedule C. Your gross sales from 1099-K go on line 1, then you subtract COGS reported on line 4, followed by expenses like platform fees and shipping on subsequent lines to find net profit on line 31. Report this net profit on Schedule SE for self-employment taxation. Filing accurately reduces tax liabilities and helps you stay compliant with IRS rules governing reselling businesses.
Sales Tax: Obligations and Exemptions
Operating as a reseller means navigating sales tax obligations that vary by state and locality. Typically, you must collect sales tax on items sold directly to consumers, but rules differ depending on your registration status and business model. Some states offer reseller exemptions that allow you to buy inventory without paying sales tax upfront, provided you sell those items later and collect tax from your customers. Being familiar with your local requirements helps you manage sales tax compliance smoothly and avoid penalties.
Collecting Sales Tax as a Reseller
If your reselling qualifies as a business, you’re generally required to collect sales tax from buyers on taxable goods. Depending on where you operate, this might include digital platforms or in-person sales. Platforms like Shopify or Amazon may handle remittance for you, but on sites like eBay or direct sales, you’re responsible for calculating, collecting, and remitting the correct amount. State tax rates and exemption rules vary widely, so aligning your procedures with local regulations prevents costly mistakes.
Securing a Reseller Certificate
Many states offer reseller certificates (or resale licenses) that let you purchase inventory tax-free when you intend to resell those items. Obtaining this certificate requires registering with your state’s tax agency and providing your business details. Using a reseller certificate, you avoid upfront sales tax on goods for resale, shifting the tax collection to the end consumer instead. Without one, you might pay sales tax when stocking your inventory, which can reduce your profit margins.
Applying for a reseller certificate typically involves completing a simple state form online or by mail and complying with specific resale regulations. Some states require periodic renewals or reporting to maintain your exempt status. Keep copies of your certificates and resale-related purchase invoices as they may be requested during tax audits. In states with marketplace facilitator laws, platforms may collect sales tax directly, but having your certificate keeps your business compliant for direct purchases from wholesalers or manufacturers.
Expense Tracking: Maximizing Deductions for Resellers
Tracking every expense related to your reselling activities can lower your taxable income substantially. Deductible expenses reduce your net profit, meaning you owe taxes on less money. From platform fees to shipping costs, keeping detailed records lets you claim legitimate deductions that directly impact your bottom line. Staying organized throughout the year avoids last-minute scrambles and ensures you don’t miss out on valuable write-offs when tax time arrives.
Key Expenses You Can Deduct
Deductible costs typically include the price you paid for inventory (COGS), listing and selling fees on marketplaces like eBay or Poshmark, packaging and shipping supplies, and advertising expenses. If you use your phone and internet for business communication or marketing, a portion of those bills may also qualify. Even software subscriptions for bookkeeping or design tools that support your reselling business can count as deductible expenses.
Tools for Efficient Record-Keeping
Using tools like QuickBooks, Excel spreadsheets, or specialized apps tailored to resellers helps keep your income and expenses organized. Automated tracking of sales, fees, and costs not only saves time but also reduces errors. Many platforms now integrate with bookkeeping software to streamline your financial data, making tax calculations more straightforward.
QuickBooks stands out as a popular choice for resellers managing multiple sales channels. It automatically imports transactions from payment gateways and platforms, categorizes expenses, and generates detailed profit-and-loss reports. If you prefer a budget-friendly option, free or low-cost spreadsheet templates can provide basic tracking, though they require more manual input. Using dedicated tools ensures you capture all deductible expenses, simplifying tax filings and offering clearer insights into your business’s financial health.
When to Seek Professional Tax Help
Handling taxes as a reseller can get complicated quickly, especially as your sales grow, you manage inventory, or begin navigating deductions and credits. Situations like receiving a 1099-K, dealing with dropshipping, or operating across multiple states often require professional guidance. Consulting a tax expert can help you accurately report income, maximize deductions, and avoid costly mistakes, freeing you to focus on growing your reselling business.
Identifying Your Need for Tax Assistance
If your reselling activity involves more than occasional sales—particularly if you earn over $400 annually—you likely need tax help. Complexities multiply with frequent transactions, inventory management, or multi-channel sales. Receiving 1099-K forms, handling sales tax across states, or navigating self-employment tax are signs that professional assistance will benefit you in filing correctly and minimizing your tax burden.
Choosing the Right Tax Expert for Resellers
Select a tax professional experienced in self-employment and small business taxes, especially one familiar with e-commerce and resale platforms like eBay, Poshmark, or Shopify. They should understand inventory accounting, 1099 reporting, and relevant deductions such as COGS and business expenses. Look for credentials like CPA or EA, positive client reviews, and clear communication about their familiarity with reselling tax intricacies.
Beyond standard tax preparation expertise, the ideal tax expert understands the nuances of marketplace seller rules and state-by-state sales tax obligations, which can vary significantly. They should be proficient in managing deductions specific to reselling — from platform fees and shipping costs to marketing expenses — ensuring you don’t miss opportunities to reduce your taxable income. Some specialize in dropshipping or event-ticket reselling, providing tailored advice for your niche. Choosing an expert who can proactively advise on tax planning will help you optimize your profits year-round, not just at filing time.
Conclusion
Drawing together the key points, reselling can impact your taxes significantly as any profits you make are generally considered taxable income. Whether you resell occasionally or run a full-fledged business, tracking your sales, expenses, and cost of goods sold is necessary for accurate reporting. You’ll need to report net profits on your tax return and may be subject to self-employment taxes if your income reaches certain thresholds. Understanding these tax implications helps you manage your financial obligations and take advantage of potential deductions that support your reselling efforts.
Need Help With Back Taxes?
Explore how to REDUCE, RESOLVE, or even ELIMINATE your back taxes through the IRS Fresh Start Program.
If you owe back taxes or have IRS issues, click here or call us directly at (877) 542-0412.
Ask for a FREE CONSULTATION.
Frequently Asked Questions About Taxes and Reselling
Q. Do I have to pay taxes if I only resell a few items?
Yes. Even if you sell just a few items for a profit, the IRS considers that taxable income. Casual resellers must report earnings and may owe taxes depending on the amount of profit made.
Q. What is a 1099-K, and why did I receive one?
A 1099-K is a tax form issued by third-party payment platforms like PayPal or eBay. It reports your total payment transactions. You’ll receive it if your sales exceed the IRS threshold for the year—even if you’re just an occasional seller.
Q. How can I legally reduce the taxes I owe from reselling?
You can reduce your taxable income by deducting legitimate business expenses. These include inventory costs, shipping, platform fees, internet usage, and bookkeeping tools. Keeping detailed records is key to maximizing your deductions.
Q. Do I need to collect sales tax as a reseller?
Yes, in most states. If you’re running a reselling business, you may be required to collect sales tax from customers. Rules vary by state, so it’s important to register properly and understand your local tax laws.
Q. Can I ignore a 1099-K if I think the income is incorrect?
No. You must report all income shown on a 1099-K, but you can deduct business-related expenses to reflect your actual net profit. Failing to address a 1099-K could trigger an IRS audit or penalties.
Q. What records should I keep for tax time?
Keep receipts for inventory purchases, sales records, shipping costs, and fees from platforms. A spreadsheet or bookkeeping software like QuickBooks helps organize this data and simplifies your tax filing.
Q. When should I hire a tax professional for my reselling income?
If you earn over $400 annually, receive 1099-K forms, or sell across multiple states or platforms, it’s wise to consult a tax expert. They can help ensure you’re compliant, maximize deductions, and avoid costly mistakes.
