Taxes are the part of reselling nobody wants to talk about—but ignoring them can cost you thousands. With the 1099-K threshold now at $600, nearly every active reseller will receive tax forms. Here's everything you need to know to stay compliant and keep more of your profits.

Disclaimer:

This guide provides general educational information. It is not tax advice. Consult a qualified tax professional for advice specific to your situation. Tax laws vary by state and individual circumstances.

The 1099-K Threshold: What Changed

The IRS has implemented the $600 reporting threshold for third-party payment platforms. Here's what this means:

eBay, Poshmark, Mercari, Depop will all send you a 1099-K if you receive $600+ in gross payments
Gross payments means total sales before fees, shipping, and returns—not your profit
You still only owe tax on profit—the 1099-K just triggers IRS awareness
This applies to most active resellers—even part-timers often exceed $600/year

Don't Panic:

Receiving a 1099-K doesn't mean you owe taxes on the full amount. It simply reports gross sales. Your actual taxable income is gross sales minus all deductible expenses (cost of goods, shipping, supplies, platform fees, etc.).

How Reselling Income Is Taxed

Hobby vs. Business

The IRS distinguishes between hobby sellers and business sellers:

Factor	Hobby	Business
Profit intent	Casual, not primary goal	Intentional profit-seeking
Deductions	Cannot deduct expenses	Full expense deductions
Self-employment tax	No	Yes (15.3%)
Tax form	Schedule 1	Schedule C

For most active resellers, filing as a business (Schedule C) is better because you can deduct expenses, even though you'll owe self-employment tax. The deductions typically more than offset the SE tax.

Every Deduction Resellers Can Claim

This is where you save money. Track and deduct everything legitimate:

Cost of Goods Sold (COGS)

Purchase price of all inventory (keep every receipt)
Shipping costs to receive inventory (liquidation pallet shipping, etc.)
Alterations and repairs to items before selling

Platform & Selling Fees

eBay seller fees (final value fees, promoted listings, store subscription)
Poshmark 20% commission
Mercari selling fees
PayPal/payment processing fees

Shipping Expenses

Postage and carrier costs
Packaging materials (poly mailers, boxes, tape, tissue paper)
Shipping scale
Label printer and labels

Business Operations

Reselling tools/software (ResellIQ, cross-listing tools, etc.)
Phone/internet (business-use percentage)
Home office deduction (if you have dedicated space for storage/shipping)
Photography equipment (camera, lighting, backdrop)
Storage unit rental
Vehicle mileage for sourcing trips (67 cents/mile in 2026)

Mileage Adds Up Fast:

If you drive 20 miles round-trip to thrift stores 3x per week, that's 3,120 miles/year = roughly $2,090 in deductions at the 2026 rate. Track every sourcing trip with an app like MileIQ or Everlance.

Record-Keeping Essentials

Good records are the difference between a smooth tax season and a nightmare:

Keep every receipt: Photo-scan thrift store receipts immediately (they fade)
Track mileage daily: Use an app—the IRS won't accept guesses
Separate bank account: Mix personal and business funds and you're asking for trouble
Monthly bookkeeping: Don't wait until April—reconcile monthly
Save records for 7 years: The IRS can audit up to 6 years back in some cases

Sales Tax for Resellers

Sales tax is separate from income tax and varies by state:

Marketplace facilitator laws: In most states, eBay, Poshmark, and Mercari collect and remit sales tax automatically
Your own website: If you sell on your own site, you may need to collect sales tax based on your state's laws
Resale certificates: Get one from your state to avoid paying sales tax on inventory purchases at wholesale/retail
5 states have no sales tax: Oregon, Montana, New Hampshire, Delaware, Alaska

Quarterly Estimated Taxes

If you expect to owe $1,000+ in taxes, the IRS requires quarterly estimated payments:

Q1: Due April 15
Q2: Due June 15
Q3: Due September 15
Q4: Due January 15 (next year)

Rule of thumb: Set aside 25-30% of your net profit each month in a separate savings account for taxes. This covers both income tax and self-employment tax for most resellers.

When to Form an LLC

An LLC doesn't change your tax obligations by default (single-member LLCs are "disregarded entities"), but it provides:

Liability protection: Separates personal assets from business debts
Professional credibility: Some wholesale suppliers require a business entity
Tax flexibility: Option to elect S-Corp status at higher income levels for SE tax savings

When to consider it: Once you're consistently earning $20K+/year in reselling profit, an LLC starts making sense. Below that, the filing fees and paperwork may not be worth it.

Tax-Saving Strategy: The S-Corp Election

Once your net reselling income exceeds roughly $40K-50K/year, electing S-Corp tax status can save thousands in self-employment tax:

Example: $60K Net Profit

As sole proprietor: $60K x 15.3% SE tax = $9,180
As S-Corp (paying yourself $35K salary): $35K x 15.3% = $5,355
Annual savings: ~$3,825

Caveat: S-Corp status adds complexity (payroll, additional filings). Only worthwhile at higher income levels. Consult a CPA before making this election.

Reseller Tax Guide 2026: What You Owe & How to Save