Your 1099-K shows gross sales — not what you owe. For 2025 and beyond, you only get one if you passed $20,000 and 200 transactions on a single platform. Subtract your COGS, platform fees, mileage, and supplies on Schedule C. Most resellers owe tax on 30-40% of their gross sales number, not the full amount.
Tax season hits different when you sell online. One day you're happily shipping packages, the next you're staring at a 1099-K that says you made $47,000 and wondering if the IRS is coming for your entire thrift haul.
Take a breath. That number is gross sales — not profit. It includes every shipping label, platform fee, return, and item you sold at a loss because it sat in your closet for eight months. What you actually owe is almost certainly a fraction of what that form implies.
This guide covers the 1099-K rules (which keep changing), how to figure out what you actually owe, deductions you're probably missing, and when to call a professional.
The 1099-K Threshold: A Moving Target
Remember when you could sell $19,000 on Poshmark and never hear from the IRS? Those days are gone — but the new rules have been a mess to roll out.
Here's the short history. Before 2022, platforms only sent a 1099-K if you had more than 200 transactions AND more than $20,000 in gross payments. The American Rescue Plan Act of 2021 was supposed to drop that threshold to $600 — everyone panicked, and then the IRS delayed implementation twice. Then Congress reversed course entirely.
Where Things Stand Right Now
- Tax year 2023: The old $20,000 / 200 transaction threshold still applied.
- Tax year 2024: A transitional threshold of $5,000 applied — any platform that paid you more than $5,000 sent a 1099-K.
- Tax year 2025 and beyond: The "One Big Beautiful Bill Act," signed July 4, 2025, permanently reinstated the original $20,000 / 200 transaction threshold — retroactive to 2022. The phased-down approach is gone.
- The bottom line: For 2025 forward, you get a 1099-K only if you crossed $20,000 in gross payments AND 200 transactions on a single platform. Both conditions must be met.
Here's the thing: whether or not you receive a 1099-K, you are legally required to report your income. The form is information only — it tells the IRS what came in, not what you owe.
What Actually Triggers a 1099-K
A 1099-K is generated by the payment processor, not the marketplace. Poshmark's payment system creates yours; eBay's managed payments creates theirs. Each platform reports independently, so if three platforms cross the threshold, you get three separate forms.
The form reports gross payment volume — total transaction dollars with no deduction for fees, shipping, or refunds. Go through your annual sales reports on each platform to reconcile. The platform's annual summary is often more useful than the 1099-K itself.
What You Owe vs. What the 1099-K Says
This is the part that matters most. Your 1099-K shows gross sales. Your tax liability is based on net profit. The difference is usually enormous.
A reseller with $50,000 in gross sales might only owe around $4,690 in federal tax — roughly 9.4% of gross revenue, not the 30% nightmare people imagine. The exact amount depends on your filing status, other income, and how thoroughly you track deductions. But the principle holds: you're taxed on profit, not revenue.
If you received a 1099-K, the IRS received a copy too. If you do not report that income on your tax return (even to show it was offset by expenses), the IRS will send you a notice assuming you owe tax on the full amount. Always report it, always deduct your expenses, and you will be fine.
Cost of Goods Sold: Your Biggest Deduction
COGS is what you paid for the items you sold — and it's the single largest deduction most resellers have. Bought a jacket at Goodwill for $8 and sold it for $45? That $8 is COGS. Bought a liquidation pallet for $500 and sold items totaling $2,200? The $500 is COGS.
How to Track COGS
You need a record of what you paid for every item you sell. Every single one.
- Save every receipt from thrift stores, estate sales, garage sales, and wholesale purchases. Photograph receipts immediately — thermal paper fades.
- Log each item's cost when you list it. Most inventory apps have a cost field. Use it.
- For personal closet items, cost basis is what you originally paid — not current value. If you bought a dress for $120 five years ago and sold it for $40, your COGS is $120 and you have a loss.
- For gifts or items without a known original cost, estimate fair market value at the time you received the item. Be reasonable and document your reasoning.
A reseller doing $50,000 in gross sales typically has $15,000–$22,000 in COGS depending on sourcing methods and margins. That single line item can reduce taxable income by 30–40%.
Unsold Inventory Is Not a Deduction (Yet)
You can only deduct the cost of items you actually sold during the tax year. That $3,000 death pile? Not deductible until those items sell — or until you donate them and deduct fair market value as a charitable contribution. This is why COGS tracking needs to be per-item, not a lump sum.
Deductions You Might Be Missing
Beyond COGS, resellers have a long list of legitimate deductions. Most people catch the obvious ones and miss several others.
Platform Fees
Poshmark takes 20% on sales over $15. eBay charges final value fees around 13.6% plus $0.40 per order (eBay raised fees in early 2025). Depop takes 10%. On $50,000 in gross sales, platform fees alone could run $7,000–$10,000 — fully deductible.
Shipping Supplies
Poly mailers, boxes, tissue paper, tape, thank-you cards, printer ink, shipping labels, label printer — all deductible. A $200 thermal label printer is a business expense. The $15/month on poly mailers adds up to $180 a year.
Mileage
Every mile you drive for sourcing, post office runs, and supply pickups is deductible. The IRS standard mileage rate for 2026 is 72.5 cents per mile (up from 70 cents in 2025). Drive 50 miles round-trip to thrift stores twice a week? That's roughly $3,770 a year in mileage deductions.
Track mileage with an app like MileIQ or Everlance, or a simple spreadsheet. Log the date, destination, purpose, and miles as you go — reconstructing a year from memory in April is a recipe for underreporting.
Home Office
If you have a dedicated space used regularly and exclusively for reselling, you can deduct a portion of your rent or mortgage, utilities, and internet. The simplified method lets you deduct $5 per square foot up to 300 sq ft ($1,500 max). The regular method requires more math but can yield a larger deduction.
Tools and Subscriptions
Listing tools, cross-listing services, analytics platforms, inventory management, accounting software — if you pay for it and use it for reselling, it's deductible. A $30/month subscription is $360 a year. Stack a few and you're at $500–$1,000 in software deductions alone.
Other Commonly Missed Deductions
- Photography equipment: Ring lights, backdrops, phone stands, camera equipment. Deductible.
- Clothing care: Steamer, lint roller, iron, stain removal supplies, dry cleaning for items you sell. Deductible.
- Phone and internet: The business-use percentage of each bill. If 40% of your phone usage is reselling, 40% of the bill is deductible.
- Education: Courses, books, or conferences about reselling or e-commerce. Deductible.
- Business insurance: If you carry any, fully deductible.
- Bank and payment processing fees: PayPal fees, wire transfer costs. Deductible.
- Storage: Rent a unit for inventory? The cost is deductible.
Record Keeping: What to Save and For How Long
The IRS can audit you for up to three years from filing (six if they suspect significant underreporting). Keep records for at least three years, ideally longer.
What to Keep
- Every sourcing receipt (photographed or scanned — thermal receipts fade)
- Platform sales reports and annual summaries (download these; platforms don't keep them forever)
- Shipping receipts and supply purchases
- Mileage logs with dates, destinations, purposes, and miles
- Tool and subscription payment records
- Bank and payment platform statements
- Your 1099-K forms from every platform
- Any correspondence with the IRS
Apps vs. Spreadsheets
Either works. Spreadsheets are free and give you full control. Apps like QuickBooks Self-Employed, Wave, or Hurdlr automate categorization and connect to your bank accounts. If you process more than 200 sales a year, an app is probably worth the $10–20 monthly cost. What does not work: receipts in a shoebox, trusting your memory, or planning to figure it out in April.
Estimated Quarterly Taxes
If you expect to owe more than $1,000 in federal tax for the year, the IRS wants quarterly payments. Miss them and you'll owe a penalty on top of whatever tax is due.
Quarterly Due Dates
- Q1 (Jan-Mar): Due April 15
- Q2 (Apr-May): Due June 15
- Q3 (Jun-Aug): Due September 15
- Q4 (Sep-Dec): Due January 15 of the following year
Note that Q2 only covers two months — that uneven schedule trips people up every year.
How Much to Pay
The simplest safe harbor: pay 100% of last year's total tax liability divided by four (110% if your income exceeded $150,000). This guarantees no underpayment penalty even if you end up owing more.
Alternatively, estimate your quarterly profit and pay roughly 25–30% of that. Most resellers see lower income in Q1 and much higher income in Q4, so flat quarterly payments can mean overpaying early and scrambling late. Pay through IRS Direct Pay or EFTPS using Form 1040-ES. Set calendar reminders.
Self-Employment Tax: The One That Surprises People
But here's the problem: when you work a regular job, your employer pays half of your Social Security and Medicare taxes. When you're self-employed, you pay both halves. That's self-employment (SE) tax at 15.3% — on top of income tax.
The breakdown: 12.4% for Social Security (on the first $184,500 of net earnings for 2026; this limit adjusts annually) and 2.9% for Medicare (no cap). If your net self-employment income is $16,760, SE tax adds about $2,370 to your bill. The silver lining: you can deduct half of SE tax from your adjusted gross income, which reduces your income tax slightly.
State-Specific Considerations
Federal taxes are only part of the picture. If you live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming, you don't owe state income tax on reselling profits — a meaningful edge over sellers in California or New York.
On sales tax: most major platforms (Poshmark, eBay, Depop, Etsy) collect and remit sales tax as marketplace facilitators. You generally don't need to handle it separately for marketplace sales. If you sell through your own website or at in-person events, sales tax responsibility falls on you.
When to Get an Accountant vs. DIY
You don't necessarily need a CPA. But there are clear thresholds where professional help pays for itself.
DIY Is Probably Fine If...
- Your gross sales are under $10,000 and this is your only self-employment income
- You sell on one or two platforms with straightforward fee structures
- You're comfortable with tax software (TurboTax Self-Employed, FreeTaxUSA, etc.)
- Your deductions are simple: COGS, fees, basic supplies
- You keep clean records throughout the year
Consider an Accountant If...
- Your gross sales exceed $25,000 and you're not sure how to handle Schedule C
- You have inventory valuation questions (large liquidation purchases, consignment)
- You want to set up an LLC or S-Corp and need entity structure advice
- You have other self-employment income or complex tax situations
- You received an IRS notice and aren't sure how to respond
- The potential tax savings from professional help exceed the accountant's cost
A CPA specializing in small business or e-commerce typically charges $300–$800 for an annual return. If they find $2,000 in missed deductions, the math is obvious. Ask for referrals in reselling communities — an accountant who understands COGS, platform fees, and home office deductions for online sellers is worth far more than a generalist.
Common Mistakes That Cost Resellers Money
The same mistakes come up again and again.
- Not tracking COGS at all. This is the most expensive mistake. Without records, you can't deduct inventory costs and your taxable income balloons. A reseller with $50,000 in gross sales and no COGS deduction might owe $8,000+ more than they should.
- Forgetting self-employment tax. People calculate income tax, think it looks manageable, then get blindsided by an extra 15.3% for SE tax. Always factor it in.
- Mixing personal and business finances. One bank account for everything makes tracking nearly impossible. Open a separate checking account — most banks offer free or low-cost business accounts.
- Ignoring estimated quarterly payments. Owing $4,000 at tax time instead of paying quarterly also means paying a penalty. It's small but avoidable.
- Panicking at the 1099-K number. Gross sales is not taxable income. Take your deductions and the number becomes manageable.
- Throwing away receipts. Digital or physical, keep them all. Future you will be grateful.
- Deducting personal items sold at a loss. If you sold your personal coat for $30 that you paid $200 for, that's a personal loss — not deductible on Schedule C. Only items purchased for resale belong there.
- Not separating hobby from business. If the IRS reclassifies your activity as a hobby, you lose the ability to deduct expenses against income. Operate in a businesslike manner from day one.
The IRS looks at several factors: Do you keep accurate records? Do you operate in a businesslike manner? Do you depend on the income? Have you made a profit in at least 3 of the last 5 years? If your reselling is clearly a business, treat it that way from day one. Register it, track everything, and file Schedule C.
Frequently Asked Questions
What happens if you miss a quarterly estimated tax payment?
The IRS charges an underpayment penalty, currently calculated at the federal short-term rate plus 3% (roughly 7-8% annualized). On a $1,000 missed payment, that is typically $17-$20 in penalties per quarter — annoying but not catastrophic. Pay as soon as you realize you missed it to stop the penalty from accruing further.
Can you deduct a sourcing trip if you also stopped for lunch or personal errands on the same drive?
Yes, but only the business portion. If you drove 40 miles round-trip to visit three thrift stores and hit a grocery store on the way home, the 40 miles tied to sourcing are deductible at the 72.5-cent 2026 rate. Keep a log that notes each stop and its purpose so you can separate the deductible miles from the personal ones.
How does self-employment tax change your real effective tax rate on reselling income?
Self-employment tax (15.3%) applies to your net profit before income tax, so it hits your first dollar of net earnings. On $16,760 in net profit, SE tax alone adds about $2,370. Combined with federal income tax at the 12% bracket, your total federal burden is roughly $4,700 on that amount — closer to 28% of net profit, not 12%. Running those numbers before year-end helps you set aside the right amount.
What records do you need to back up mileage deductions in an audit?
The IRS requires a contemporaneous log that records the date, starting location, destination, business purpose, and miles for each trip. An app like MileIQ or Everlance creates an automatic time-stamped record. A written or spreadsheet log also qualifies as long as you fill it in at the time of the trip, not months later from memory.
If you received an item as a gift and then sold it, do you owe tax on the full sale price?
Your cost basis on a gifted item is the original purchase price the giver paid, not zero. If your grandmother bought a coat for $150 and gifted it to you, and you later sell it for $80, you have a personal loss on a personal item — not reportable income. If you received a gift with a low basis and sold it for more than the giver paid, the gain is taxable, and you should use the giver's basis as your own.
Is the cost of a storage unit for your inventory fully deductible?
Yes. If you rent a storage unit used exclusively for reselling inventory, the monthly rental cost is a deductible business expense on Schedule C. Keep your lease agreement and payment records. If the unit serves both personal and business storage, you can only deduct the proportional share used for inventory.