The 1099-K change everyone is confused about
For years, the 1099-K threshold was $20,000 in sales and 200 transactions — meaning most casual resellers never received one. That changed:
| Tax year | Federal 1099-K threshold |
|---|---|
| 2023 and earlier | $20,000 + 200 transactions |
| 2024 | $5,000 (no transaction minimum) |
| 2025 (current) | $2,500 (no transaction minimum) |
| 2025 | $2,500 (planned) |
| 2026+ | $600 (planned, may shift) |
The IRS keeps changing this and Congress keeps debating it. The trend is clear: the threshold is going down, and more resellers will receive 1099-Ks. The federal threshold dropped to $2,500 for 2025. Some states (Massachusetts, Vermont, Virginia) already apply $600.
Important: Receiving a 1099-K does not by itself mean you owe tax. It just means the platform reported your gross sales to the IRS. Whether you owe tax depends on whether the sales were profitable — and whether they were business activity or personal-item sales.
- →The 1099-K change everyone is confused about
- →Hobby vs business — which one are you?
- →The COGS deduction — the entire game
- →Other deductions for resellers
- →What about selling personal items at a loss?
- →Sales tax — handled by the platform
- →Quarterly estimated taxes
- →Common mistakes resellers make
- →Frequently asked questions
- →The bottom line
Hobby vs business — which one are you?
This is the first question to answer because it changes how everything else works.
| Hobby | Business | |
|---|---|---|
| Examples | Cleaning out closet, occasional sales | Regular sourcing, sales weekly+ |
| Income reporting | Required (line 8z, Schedule 1) | Required (Schedule C) |
| Expense deductions | Not allowed | Fully deductible |
| SE tax (15.3%) | No | Yes (on net profit $400+) |
The IRS uses a 9-factor test, but the practical version is: are you actively trying to make money? If you source inventory, list regularly, track sales, and treat it as a profit-making activity, you're a business. If you're decluttering and occasionally selling stuff, you're a hobbyist.
Counterintuitively, being a business is usually better than being a hobbyist because hobbyists must report all income but can't deduct any expenses. A reseller who buys a $50 item and sells it for $100 reports $100 as a hobby (taxed on $100) or $100 minus $50 cost as a business (taxed on $50).
The COGS deduction — the entire game
Cost of Goods Sold (COGS) is what you paid to acquire the items you sold. For resellers, COGS is the single biggest deduction — often wiping out 50–80% of gross sales.
COGS includes:
- Purchase price of the item
- Sales tax you paid when buying it
- Shipping cost to receive it (if you bought online)
- Cost to prepare for sale — cleaning supplies, repair parts, dry cleaning
Real example: You source clothing at thrift stores for $4,000 over the year and sell it for $15,000 on Poshmark. Your COGS is $4,000. After listing fees, shipping supplies, and other expenses (~$1,500), your taxable profit is $9,500 — not $15,000. That difference saves roughly $1,400 in combined taxes.
How to track COGS
This is the hardest part of reselling for taxes. You need to know what you paid for each item you sell. Three approaches:
- Per-item tracking — best if you have inventory. Spreadsheet listing each SKU with cost, sale price, fees, profit.
- Tools — apps like My Reseller Genie, ResellerHub, GoDaddy Bookkeeping handle this automatically.
- Aggregate tracking — total purchases and total sales for the year. Less precise but acceptable if you can't reconstruct per-item costs.
Other deductions for resellers
Beyond COGS, common deductions:
- Platform fees — eBay's 13%, Poshmark's 20%, Mercari's 10% (as of 2024). Fully deductible.
- Payment processing fees — built into platform fees usually, but standalone (e.g., PayPal direct) is deductible
- Shipping supplies — boxes, mailers, tape, labels, tissue paper
- Postage if you pay yourself (rather than buyer-paid)
- Mileage to source items — thrift store runs, garage sales, estate sales (70¢/mile in 2025)
- Photography equipment — lighting, mannequins, backdrops for listings
- Software / subscriptions — Vendoo, Posherva, Mercari listing tools
- Storage — shelving, bins, dedicated room (home office deduction)
- Phone — business-use percentage
- Internet — business-use percentage
What about selling personal items at a loss?
If you're selling personal items for less than you paid (most closet-clearing situations), you don't owe tax. But if you receive a 1099-K, the IRS still has the gross number and expects you to do something with it.
The fix: report the 1099-K income on Schedule 1, Line 8z, then on Line 24z claim an offsetting adjustment for "Form 1099-K personal items sold at a loss." Net effect: $0 taxable income, but the IRS sees you addressed it. Without this, you'll get a CP2000 notice with a tax bill.
Mixed personal + business: If your account has a mix of personal items (sold at a loss) and resold inventory (sold for profit), you'll need to separate them. Track which items came from your closet vs which were sourced for resale.
Sales tax — handled by the platform
Good news: under marketplace facilitator laws, eBay, Poshmark, Mercari, Etsy, Depop, and similar platforms collect and remit sales tax on your behalf in all states that require it. You don't need to register for a sales tax permit or file returns for those sales. This is one fewer thing to worry about.
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Check my reseller hustle — free →Quarterly estimated taxes
If your reseller business will have you owing more than $1,000 in federal tax for the year, the IRS expects quarterly payments. Four deadlines:
- April 15 — for income earned Jan–Mar
- June 15 — for income earned Apr–May
- September 15 — for income earned Jun–Aug
- January 15 — for income earned Sep–Dec
Most casual resellers (under $5,000 net profit) won't owe enough to need quarterlies. Above that, set aside 25–30% of your net profit each month and pay quarterly to avoid penalties.
Common mistakes resellers make
1. Treating the 1099-K number as taxable income
The 1099-K reports gross sales — including platform fees, shipping costs, refunds, and the cost of items you sold. It is not your taxable profit. If you report the full 1099-K amount as income without subtracting COGS and expenses, you'll dramatically overpay.
2. Not tracking what items cost
Without records of what you paid for items, the IRS could (in an audit) deny your COGS deduction entirely. Save receipts. Take photos of price tags. Use an app or spreadsheet from day one.
3. Mixing personal sales and business inventory
If you started by selling old stuff from your closet and gradually moved into reselling for profit, the IRS treats those differently. Keep them separated mentally and in your records — preferably in different listings or accounts.
4. Forgetting mileage to sourcing
Drives to thrift stores, estate sales, and garage sales count as business mileage. At 70¢/mile, even 500 sourcing miles is a $350 deduction.
5. Not separating business and personal money
Free business checking accounts (Found, Relay, Mercury) take 30 minutes to open. Run all reselling income and expenses through that account. Tax time becomes 80% easier.
Frequently asked questions
Do I have to pay taxes on eBay, Poshmark, or Mercari sales?
Yes, in most cases. If you're reselling for profit, you owe income tax and self-employment tax on the profit (sales minus cost of goods sold and other expenses). The exception is selling personal items at a loss — those sales are not taxable, but the platform may still issue a 1099-K reporting the gross.
What is the 1099-K threshold for resellers?
The federal 1099-K threshold is $2,500 in gross sales for 2025 (down from $5,000 in 2024). The long-term target is $600. Some states have lower thresholds. The 1099-K is sent to you and the IRS — you must report the income whether or not you receive one.
Do I owe tax if I sold personal items at a loss?
No. Selling personal items for less than you paid is considered a personal loss, not a taxable gain. However, you can't deduct the loss either. If you receive a 1099-K for these sales, you'll need to report the income and offset it on Schedule 1 to show no taxable profit.
What is COGS for resellers?
Cost of Goods Sold (COGS) is what you paid to acquire the items you sold. For resellers, this includes the purchase price, sales tax paid at acquisition, and any costs to prepare the item for sale (cleaning, repairs). COGS reduces your taxable profit — if you bought a jacket for $20 and sold it for $50, your taxable profit is $30, not $50.
Is reselling a hobby or a business?
The IRS uses several factors: do you operate in a businesslike manner, expect to make a profit, and devote time to the activity? Most active resellers (regular sales, sourcing inventory, tracking expenses) are businesses. Occasional sellers clearing out a closet are hobbyists. Hobbies report income but cannot deduct expenses; businesses can do both.
The bottom line
Reseller taxes come down to one number: profit, not gross. The 1099-K showing on your screen is gross sales — your real taxable income is profit after COGS, fees, shipping, and other expenses, and that number is usually 30–60% of the gross. Resellers who don't track COGS or mix personal sales with business inventory always overpay.
Open a separate business account. Track every item's cost. Save platform fee statements. If you're selling personal items at a loss and got a 1099-K, file the offsetting adjustment on Schedule 1 — don't ignore the 1099 hoping it goes away.
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