How Reselling Could Affect Your Taxes

Reselling has become a popular way to earn extra income. From turning a knack for nabbing coveted concert tickets or the latest sneakers into a lucrative venture, some resellers even earn enough to turn side gigs into full-time businesses. 

Whether you’re reselling clothing, antiques, books, sporting equipment, or other vintage goods, you could make good money on your own terms. And popular resale sites like Poshmark, Shopify, Mercari, eBay, Amazon, and Craigslist make it easier than ever to reach potential consumers.  

Want to learn more about how taxes for resellers work and how to report your resale profits at tax time? We’ve got you covered.

Do I need to pay taxes on reselling items?

The short answer is: Yes, if you make a profit from reselling items. It doesn’t matter if you’re selling a single item or doing this as a business, the extra money is considered income and that often means taxable.

By law, you must report any income from selling services or goods. If you turn a profit by reselling an item, you may have to pay taxes on those earnings (whether you sell that item online or in person). 

Profit vs. Loss

• Profit: This is when you sell something for more than you paid for it. If you purchased an item for $150 and sold it for $450, and you had $50 in fees, your profit is $250. That $250 is considered your net profit. Any net profit (gross profit minus any expenses) is subject to federal, state, and local income taxes. 

• Loss: This is when you sell something for less than you paid for it. If you bought an item for $150 and sold it for $175 plus $50 fees, you had a $25 loss. 

Losses from reselling items, like used clothing or electronics, for less than you paid are typically not tax-deductible and won’t reduce your taxable income. That’s why it’s important to keep good records of what you paid for an item and what you sold it for.

The Cost of Goods Sold (COGS) represent the direct costs related to the production or purchase of the items a business sells. For someone reselling, this is primarily the cost of the item itself. In the examples above, the $200 ($50 in fees and $150 item price) represents the COGS in those specific profit vs. loss scenarios. 

Reporting Your Sales

Form 1099-K

If you use a third-party payment platform (like PayPal, Venmo, CashApp, Etsy, or eBay) and hit a certain income threshold, you may receive Form 1099-K. You should receive this form by January 31 of the following year. Here are the reporting thresholds: 

• For tax year 2024: You should have received a 1099-K if you earned over $5,000 in gross payments. 
• For tax year 2025: The threshold drops to $2,500. 
• By 2026: It will fall to $600. 

These phased reductions are part of the IRS’s plan to gradually implement lower reporting thresholds for third-party settlement organizations. 

Even if you don’t meet those thresholds or receive a 1099-K, you’ll still need to report any income for tax purposes and, if applicable, pay income tax on the taxable portion. Keep clear records of all purchases, profits, and losses throughout the year to be better prepared for tax time.

Sales Tax 

Generally, if you have a business reselling you are required to collect sales tax on items you sell to the final customer. Depending on your state and whether you are considered and registered as a reseller, you might qualify to purchase items without paying sales tax. If you’re buying inventory with the intent to resell and not for personal use, check with your state agency to see if you qualify for a reseller certificate or exemption. If not, you or sometimes the selling platform you use will collect and remit sales tax to your state and local governments. 

Reselling Methods and Their Tax Implications

Online Marketplaces (eBay, Etsy, etc.)
You’re responsible for tracking your sales, COGs, and expenses. Depending on your total revenue you may receive a 1099-K. But always report your income, even if you don’t receive a tax form for it. 

Social Media Sales (Facebook Marketplace, etc.)
Sales through social media still count as income. If you collect payments through platforms like PayPal or Zelle, those might trigger a 1099-K if thresholds are reached. Always track your sales and expenses regardless as the 1099-K will have gross totals received on the platform.  

In-Person Sales
If you’re selling at in person events like at farmers markets or garage sales, those profits are also taxable. Keep records of the purchase price, sales price and any related costs. 

Event Tickets (Concerts, sports, festivals): Popular concert tickets are often resold at a high markup, so profits can be significant even on just one sale. Track the original cost (including fees) and your final sale price to make sure you are preparing for the tax implications for selling an event ticket for profit. 

Dropshipping: Is a method where an online store sells products without keeping any inventory in stock. Since you don’t handle the inventory yourself, your profit margin is what you’ll be taxed on. Make sure to track all costs including service fees, fulfillment, and shipping to get a clear picture of your true earnings. 

Calculating Your Income Subject to Taxes When Reselling Items

To figure out what income you make that is subject to taxes (the money you will have to pay tax on), follow this basic formula: 

1. Total Sales Revenue – Cost of Goods Solds (COGS) = Gross Profit 
2. Gross Profit – Expenses (think platform fees, shipping, packaging) = Net Profit 
3. Report net profit on your tax return. 

Recording keeping will be essential. If you are not reselling often then a simple spreadsheet may work, but if you are in the business of reselling you can use Quickbooks to run and grow your business with confidence. 

When to Seek Tax Help 

• Low Sales Volume: If you’ve only sold a few things and kept good records, you can likely file your taxes with just a little assistance. 
• High Sales Volume or Complex Situations: If you’re reselling consistently, dropshipping, or running a more robust reselling business, consider speaking to a tax expert. TurboTax experts can help navigate specific regulations and maximize your deductions.

Reselling and Taxes FAQ

• Do you have to pay taxes on flipping items?
  • Yes. Generally speaking, if you made a profit, that income is taxable – even if it was just one item. 
• Is reselling considered earned income?
  • Typically, the money earned from reselling is considered self-employment income – especially when done regularly. If you net $400 or more in a year, you must pay self-employment taxes (like Social Security and Medicare) on that income. 
• What can I write off on my taxes as a reseller?
  • If you are in the business of reselling, you may be able to deduct:
    • Cost of inventory (COGS) 
    • Selling platform fees 
    • Shipping and packing 
    • Phone and Internet expenses (if used for business)
    • Marketing and advertising

Reselling can be a fun and profitable way to earn extra income or have a full-blown business. But once you’re earning money, you’ll need to report that income as part of your tax return. Always consult a tax expert to make sure you’re maximizing your deductions. Staying organized and using the right tools like TurboTax can help you keep more of what you earn and avoid any surprises at tax time.