Tax Basics for Online Sellers

Do I Have to Pay Taxes on What I Sell?

Short answer: if you're selling for profit, yes — it's taxable income. If you're selling personal items at a loss (selling your old jacket for less than you paid), that's generally not taxable.

But: if you're regularly sourcing items to resell at a profit, that's business income — you must report it whether or not you get a Form 1099-K, and self-employment tax applies once your net earnings from self-employment reach $400 for the year.

The 1099-K Threshold

Payment platforms (the IRS calls them third-party settlement organizations) only have to file a Form 1099-K for you when your gross payments exceed $20,000 and the number of transactions exceeds 200. The One, Big, Beautiful Bill retroactively reinstated this threshold, which applied before the American Rescue Plan Act of 2021. It counts gross payments — total sales, not profit.

Source: IRS news release IR-2025-107 (Oct. 23, 2025).

Getting a 1099-K doesn't mean you owe taxes on the full amount. You only owe taxes on your profit after deducting expenses.

Sales Tax — Who Collects It?

In most US states, marketplace facilitator laws require the platform to collect and remit sales tax on your behalf. You don't need to collect sales tax separately. The buyer pays it at checkout, the platform sends it to the state. You never touch it.

However: if you sell on your own website or at craft fairs, you may need to collect and remit sales tax yourself.

What You Can Deduct

This is where sellers save money. Common deductible expenses:

• Cost of goods sold (what you paid for inventory)
• Shipping costs and supplies
• Packaging materials (mailers, boxes, tape, tissue)
• Marketplace fees and commissions
• Payment processing fees
• Mileage to source inventory (thrift stores, garage sales)
• Home office space (if dedicated)
• Photography equipment
• Crosslisting tools and subscriptions
• Internet and phone (portion used for selling)

Keep receipts for everything. A simple spreadsheet tracking expenses works fine for most sellers.

Tracking Your Sales and Expenses

FeePilot's CSV export can help — download your fee calculations for record keeping.

• Track every purchase (what you paid for each item)
• Track every sale (what it sold for, on which platform, fees paid)
• Track expenses (shipping, supplies, mileage)

At tax time, your profit = total sales − COGS − expenses. See how to calculate true profit.

Quarterly Estimated Taxes

If you expect to owe $1,000+ in taxes for the year, the IRS wants you to pay quarterly estimated taxes (April 15, June 15, Sept 15, Jan 15). If you don't, you may owe penalties at tax time.

Self-employment tax (Social Security + Medicare) is approximately 15.3% on top of your income tax rate.

When to Get Professional Help

• If your annual selling income exceeds $5,000–10,000
• If you're unsure whether your selling counts as a hobby or a business
• If you're selling across state lines or internationally
• If you want to set up an LLC or business entity

The cost of a CPA ($200–500/year for a simple filing) often pays for itself in deductions you'd miss.

Key Takeaways

• Track everything from day one — it's much harder to reconstruct records later
• A 1099-K is only required above $20,000 in gross payments and more than 200 transactions — but you must report your selling income whether or not you get one
• Fees, shipping, and supplies are all deductible — save those receipts
• When in doubt, consult a tax professional

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