Selling on eBay can be an excellent way to earn extra income, whether as a hobby or a full-fledged business. However, many sellers are unsure about their tax obligations.
The question is: Should you report your eBay earnings to the IRS? And if so, how do you do it?
This guide will walk you through the process of reporting eBay income on your taxes, including updated IRS rules for 2025.
Classification of Sellers on eBay
Under IRS guidelines, eBay sellers are divided into two broad categories for tax purposes:
- Hobby Sellers: If your intent is not to earn a profit from your selling activity, the IRS considers it a hobby. While you must still report any income earned, you cannot deduct expenses related to your hobby.
- Business Sellers: If you operate with the intent to make a profit, your eBay activity is classified as a business. Business sellers can deduct ordinary and necessary expenses related to their sales.
The IRS uses several factors to determine whether your activity is a hobby or a business, including:
- Whether you depend on the income for your livelihood.
- The time and effort you invest in your eBay activities.
- Whether you’ve made a profit in the past.
Who Needs to Report eBay Income?
Technically, not all eBay sellers are required to pay taxes on their income. The IRS considers several factors to determine whether a seller must report their earnings. However, it’s important to understand that all income earned through eBay sales is technically taxable, regardless of the amount.
While the IRS expects you to report even small amounts of income (yes, even $1), the reality is that many small-scale sellers may not report minimal earnings. That said, it’s always better to comply with tax laws to avoid potential issues with the IRS.
Updated IRS Reporting Requirements
Previously, sellers only received a Form 1099-K if they had over 200 transactions and earned more than $20,000 in gross income annually. However, the IRS has changed the reporting threshold:
- For Tax Year 2024: eBay will issue a 1099-K form if you earn $5,000 or more in gross sales.
- For Tax Year 2025: The threshold will drop to $2,500.
- For Tax Year 2026 and Beyond: The threshold will further decrease to $600.
If you meet or exceed these thresholds, eBay will send you Form 1099-K, which reports your gross sales to both you and the IRS. However, even if you don’t receive a 1099-K, you are still required to report all eBay earnings on your tax return.
How to Report eBay Income on Taxes
Step 1: Determine Your Tax Obligations
- If your eBay sales qualify as a business, you must report income and expenses.
- If you are a hobby seller, report your earnings as “Other Income” on Form 1040, but you cannot deduct expenses.
Step 2: Gather Your Documents
- If you earn over the threshold, eBay will send you Form 1099-K.
- Keep records of all income, even if you don’t receive a 1099-K.
- Compare your 1099-K form with your records to ensure accuracy.
Step 3: File the Appropriate Forms
The forms you need to file depend on your business structure:
- Hobby sellers: Report income on Form 1040, Schedule 1 (Other Income).
- Sole proprietors (business sellers): Report income and expenses on Schedule C (Form 1040).
- LLCs and corporations: File business tax returns (e.g., Form 1120 for corporations).
Deductible Expenses for eBay Sellers
If your eBay activity is classified as a business, you can deduct ordinary and necessary expenses related to your sales. Here’s a list of common deductible expenses:
- Cost of inventory: The price you pay for items you resell.
- Shipping supplies: Boxes, tape, labels, and other packaging materials.
- eBay fees: Listing fees, final value fees, and other selling platform fees.
- Advertising and marketing: Costs for promoted listings, social media ads, or business cards.
- Home office expenses: If you use a dedicated space for your business.
- Travel expenses: For business purposes, such as attending trade shows or sourcing inventory.
- Professional services: Fees for accountants, lawyers, or tax preparers.
- Utilities and internet: If used for your business.
Remember, deductions must be ordinary (common and accepted in your industry) and necessary (helpful and appropriate for your business). Keep detailed records and receipts to support your deductions in case of an IRS audit.
Recordkeeping Tips for eBay Sellers
Maintaining accurate and organized records is essential for eBay sellers. The IRS recommends keeping records for at least seven years, as this is the period during which they can audit your tax returns. Here are some tips for effective recordkeeping:
- Use digital tools like QuickBooks, FreshBooks, or eBay’s sales reports to track income and expenses.
- Store receipts, invoices, and bank statements in a secure digital format.
- Separate personal and business expenses by using a dedicated business bank account and credit card.
- Regularly reconcile your records with your 1099-K form and other financial statements.
Proper recordkeeping not only helps you file accurate tax returns but also protects you in case of an IRS audit.
State Tax Obligations
In addition to federal taxes, eBay sellers may also need to report their income to their state tax agency. Some states have their thresholds for reporting income, so it’s important to check your state’s guidelines. Additionally, many states require sellers to collect sales tax on transactions, depending on the buyer’s location. eBay’s managed payments system can help automate sales tax collection for eligible transactions.
Increased IRS Scrutiny on Digital Platform Earnings
With the rise of online selling platforms, the IRS is closely monitoring income from eBay and other digital platforms. Failing to report your earnings can result in penalties, interest, or audits. To avoid problems:
- Report all eBay income, even if it’s small.
- Keep detailed records of sales, expenses, and tax forms.
- If unsure, consult a tax professional.
Selling on eBay can be a great source of income, but understanding your tax responsibilities is crucial. The IRS is phasing in new reporting thresholds, meaning more sellers will receive 1099-K forms in the coming years. Whether you earn $1 or $10,000, all eBay income is taxable.
By properly classifying your selling activity, tracking expenses, and keeping accurate records, you can ensure compliance with tax laws and avoid IRS issues. If you’re unsure about your tax obligations, consider seeking professional tax advice.
