eBay taxes: what sellers actually owe

Casual seller vs business seller — which are you?

The IRS draws a sharp line between two types of eBay sellers, and which side you fall on determines everything about how you're taxed.

Casual (hobby) sellers

A casual seller is someone clearing out personal belongings — garage sale stuff you already owned. Think old electronics, clothing, furniture, collectibles you've had for years. The tax rules here are simple but sometimes counterintuitive:

• Sold at a loss: No deduction available. Losses on personal property are not tax deductible. Nothing to report.
• Sold at a gain: Taxable as a capital gain. If you owned the item for more than a year, it's a long-term capital gain (0%, 15%, or 20% depending on income). Less than a year = short-term, taxed at your ordinary income rate.

Most casual sellers cleaning out a closet are selling things they paid more for than they're getting — which means no tax. But if you're offloading something that appreciated (a vintage guitar, a rare sneaker), the gain is taxable.

Business sellers

If you're buying items specifically to resell them — sourcing from thrift stores, liquidation pallets, wholesale, or retail arbitrage — the IRS considers you self-employed. The consequences:

• Self-employment tax: 15.3% on net profit (both employee and employer halves of Social Security/Medicare)
• Federal income tax: 10–22% on top of that for most sellers
• File Schedule C: Business income and expenses reported here, attached to your 1040

The 1099-K: when does eBay send one?

eBay is required to send you (and the IRS) a 1099-K once your sales exceed the federal reporting threshold. That threshold has been changing rapidly:

A critical point: eBay's 1099-K reports gross sales — not your profit. If you sold $10,000 worth of items that cost you $8,000 to acquire, the 1099-K will say $10,000. You then subtract your Cost of Goods Sold (COGS) on Schedule C to show the IRS your actual taxable profit.

Cost of Goods Sold (COGS) — your biggest deduction

COGS is what you originally paid for the items you sold. It's the most important deduction for eBay resellers and the one that separates competent sellers from ones who overpay at tax time.

To claim COGS correctly, you need per-item records. The IRS doesn't require any specific format, but you must be able to substantiate each item. What counts as valid documentation:

• Thrift store receipts — even handwritten totals work if dated and itemized
• Retail or wholesale invoices — best documentation available
• Bank and credit card statements — less ideal but usable in an audit
• Purchase records from apps — Whatnot, Facebook Marketplace, estate sale apps

If you buy items in bulk and can't match individual purchase prices to individual sales, you can use an average cost method or FIFO (first in, first out). A simple spreadsheet tracking purchase date, purchase price, sale date, and sale price per item is all you need.

Other deductions for eBay sellers

Beyond COGS, business sellers can deduct legitimate operating expenses on Schedule C. These reduce your taxable profit dollar for dollar:

• eBay Final Value Fees — approximately 13.25% of sale price; likely your second-largest deduction after COGS
• eBay Store subscription — $4.95 to $349.95/month depending on tier
• Promoted Listings fees — charged as a percentage of sale
• Shipping costs — postage, carrier fees, shipping labels
• Packing materials — boxes, bubble wrap, tape, poly mailers
• Photography equipment — lightbox, backdrop, camera or phone stand used for listing photos
• Home office — if you have a dedicated space used regularly and exclusively for your eBay business
• Mileage — drives to thrift stores, estate sales, the post office, and UPS/FedEx drop-offs (70¢/mile in 2025)
• PayPal/payment processing fees — any transaction fees beyond eBay's built-in fee

Do eBay sellers owe quarterly taxes?

If you're a business seller and expect to owe $1,000 or more in federal tax for the year, the IRS expects quarterly estimated payments. Missing them doesn't mean you can't pay at filing — but it does mean underpayment penalties, which compound through the year.

The 2025 quarterly payment deadlines are:

• April 15, 2025 — for Q1 (January–March)
• June 16, 2025 — for Q2 (April–May)
• September 15, 2025 — for Q3 (June–August)
• January 15, 2026 — for Q4 (September–December)

A practical rule of thumb: set aside 25–30% of your net profit (after COGS and expenses) as you go. Pay it in quarterly. Sellers who batch-save once a year often spend the money and face a surprise bill in April.

What about sales tax on eBay?

Here's some genuinely good news: eBay handles sales tax for you in all 50 states. eBay is a marketplace facilitator, which means under state laws, eBay is legally responsible for collecting and remitting sales tax on your behalf. You don't register for a sales tax permit, you don't file sales tax returns, and you don't send a check to the state revenue department — eBay does all of it automatically.

This is a major advantage over selling through your own Shopify store or directly through your own website, where you would be responsible for tracking nexus thresholds and filing in each state where you have sales.

The only exception: if you also sell through your own website or at in-person markets, those sales are your responsibility. eBay's marketplace facilitator status covers eBay sales only.

Frequently asked questions

The bottom line

eBay sellers owe tax on profit — not on what eBay deposited into your bank account. The difference between casual and business seller status determines whether you're paying capital gains rates or self-employment tax plus income tax. For resellers, COGS is everything: track what you paid for every item you sell, keep your receipts, and deduct your eBay fees and shipping costs on Schedule C.

eBay handles sales tax automatically in all 50 states, which removes a major compliance headache. Your job is to track purchase costs, log your mileage, keep expense receipts, and set aside 25–30% of net profit for taxes as you go.