Nobody gets into reselling because they love tax season. You got into it because you spotted a vintage Pyrex set at a garage sale for $5 and sold it for $80 on eBay. But once those profits add up, the IRS takes notice. Understanding taxes for resellers is not optional -- it is the difference between a sustainable business and a financial headache.

This reseller tax guide covers everything you need to know for 2026: when you owe, what you can deduct, how to stay organized, and how to avoid the mistakes that trip up most flippers.

Disclaimer: This is general information, not tax advice. Tax law is complex and your situation is unique. Consult a tax professional for your specific situation.

Do I Need to Pay Taxes on Reselling?

The short answer: yes, if you are making a profit. The IRS considers reselling income to be taxable income regardless of whether it is your full-time gig or a weekend side hustle. This applies whether you sell on eBay, Poshmark, Mercari, Facebook Marketplace, or at local flea markets.

There is a common myth that you only owe taxes if you receive a 1099-K form. That is not true. You are legally required to report all income, even if no platform sends you a tax form. The 1099-K is simply a reporting mechanism -- it does not determine whether you owe taxes.

The Hobby vs. Business Distinction

The IRS distinguishes between a hobby and a business. Selling a few personal items at a loss is generally not taxable. But regularly buying items with the intent to resell at a profit is a business activity. Key factors that indicate a business:

You buy inventory specifically to resell
You operate with continuity and regularity
You track income and expenses
You depend on the income or intend to make a profit
You put significant time and effort into the activity

If reselling is your business (and for most readers of this guide, it is), you need to report that income.

Understanding the 1099-K Threshold for Resellers

The 1099-K reporting threshold is one of the most discussed topics in the reselling community. Starting with the 2024 tax year, third-party payment platforms are required to send a 1099-K to any seller who receives $600 or more in gross payments during the calendar year.

This is a dramatic change from the old threshold of $20,000 and 200 transactions. Here is what it means in practice:

eBay will send you a 1099-K if your gross sales hit $600
Poshmark, Mercari, and other platforms follow the same rule
PayPal and Venmo report payments received for goods and services at $600
The $600 figure is based on gross sales, not profit

What "Gross Sales" Means for Your 1099-K

Your 1099-K will show the total amount buyers paid, including shipping. If you sold $5,000 worth of items and collected $800 in shipping fees, your 1099-K will show $5,800. This does not mean you owe taxes on $5,800. You will offset that number with your cost of goods sold and deductible expenses on your tax return.

Do not panic when you see a large number on your 1099-K. It is a starting point, not a tax bill.

Self-Employment Tax Basics for Resellers

Here is where taxes for resellers differ from a regular W-2 job. When you are self-employed, you pay both the employer and employee portions of Social Security and Medicare taxes. This is called self-employment tax, and it currently sits at 15.3% on your net earnings.

That breaks down as:

12.4% for Social Security (on the first $168,600 of net earnings in 2026)
2.9% for Medicare (on all net earnings)
0.9% additional Medicare tax on net earnings above $200,000 (single) or $250,000 (married filing jointly)

Self-employment tax is in addition to your regular income tax. If you are in the 22% income tax bracket and owe 15.3% in self-employment tax, your effective rate on reselling profits is roughly 37%. The silver lining: you can deduct half of your self-employment tax when calculating your adjusted gross income.

Deductible Expenses: Where Resellers Save the Most

Deductions are your best friend. Every legitimate business expense reduces your taxable profit, which reduces both your income tax and self-employment tax. Here is a comprehensive breakdown of what resellers can typically deduct.

Cost of Goods Sold (COGS)

This is your largest deduction. Every dollar you spend acquiring inventory is subtracted from your revenue before calculating profit. This includes:

Purchase price of items you resell
Auction fees paid when buying inventory
Sales tax paid on inventory purchases

Tracking your purchase prices accurately is critical. If you cannot prove what you paid for an item, you may lose the deduction entirely. Tools like Underpriced AI can help here -- when you scan items to get pricing data, you are also building a record of what you sourced and what you paid, which becomes invaluable at tax time.

Shipping, Packaging, and Platform Fees

All shipping expenses and selling fees reduce your taxable income:

Postage, shipping labels, boxes, poly mailers, bubble wrap, and tape
Shipping scale, printer ink, and labels
eBay final value fees and promoted listing fees
Poshmark's 20% commission and Mercari's 10% selling fee
PayPal or payment processing fees
Store subscription fees (eBay Store, etc.)

Supplies, Equipment, and Software

Items and tools you use to run your business are deductible:

Photography equipment (camera, lightbox, tripod)
Steamer, iron, cleaning supplies, hangers, mannequins
Storage bins, shelving, and packaging supplies bought in bulk
Smartphone and computer (business-use percentage)
Listing and inventory management software
Pricing tools and accounting software (QuickBooks, Wave, etc.)
Shipping platform subscriptions (Pirate Ship, etc.)

Mileage and Transportation

If you drive to source inventory, those miles are deductible. For the 2026 tax year, the standard mileage rate is expected to be around 0.70 per mile (check the IRS announcement for the exact figure). This covers:

Driving to thrift stores, garage sales, and estate sales
Trips to the post office or shipping drop-off points
Driving to buy packaging supplies
Travel to reselling meetups or conferences

Most resellers use the standard mileage rate for simplicity. Either way, you must keep a mileage log noting the date, destination, purpose, and miles driven. Several free apps can automate this for you.

Home Office Deduction

If you have a dedicated space in your home used exclusively for your reselling business, you may qualify for the home office deduction. There are two methods:

Simplified method: $5 per square foot, up to 300 square feet (maximum $1,500 deduction)
Regular method: Calculate the actual percentage of your home used for business and deduct that percentage of rent/mortgage, utilities, insurance, and repairs

The key word is "exclusively." A spare bedroom that doubles as a guest room does not qualify. A dedicated room where you photograph, store inventory, and manage listings does.

Other Deductible Expenses

Do not overlook these additional deductions: books and courses about reselling, conference attendance fees, membership dues for reselling organizations, and business insurance premiums.

Record-Keeping Best Practices for Resellers

Good records are not just helpful -- they are your defense in an audit and the foundation for maximizing your deductions. Here is what every reseller should track.

What to Track for Every Item

For each item you sell, maintain a record of:

Date purchased and where
Purchase price (keep receipts)
Date sold and on which platform
Sale price and fees charged
Shipping cost (what you paid vs. what the buyer paid)
Net profit after all costs

Tools for Tracking

You do not need expensive software. A simple Google Sheets spreadsheet, a dedicated inventory app, or accounting software like QuickBooks Self-Employed all work. The critical habit is consistency -- record purchases and sales as they happen, not in a frantic scramble during tax season.

Keep your reselling records for at least seven years. The IRS generally has three years to audit your return, but this extends to six years if they suspect significant underreporting.

Quarterly Estimated Taxes: Avoid the Big Surprise

If you expect to owe $1,000 or more in taxes for the year, the IRS wants you to pay quarterly estimated taxes rather than one lump sum in April. The due dates for 2026 are:

Q1: April 15, 2026
Q2: June 15, 2026
Q3: September 15, 2026
Q4: January 15, 2027

How to Calculate Quarterly Payments

The simplest approach is the safe harbor method: pay at least 100% of last year's total tax liability divided into four equal payments (110% if your AGI was over $150,000). This protects you from underpayment penalties even if you earn more this year. Alternatively, estimate your current year income each quarter and pay accordingly.

How to Pay

Use IRS Direct Pay (irs.gov/payments) or the Electronic Federal Tax Payment System (EFTPS) to make quarterly payments. Do not forget state estimated taxes if your state has an income tax.

State Sales Tax for Online Resellers

Sales tax is separate from income tax and can be confusing for online sellers. The rules vary significantly by state, but here are the general principles.

When You Need to Collect Sales Tax

After the 2018 Supreme Court decision in South Dakota v. Wayfair, states can require online sellers to collect sales tax even without physical presence. Most states have economic nexus thresholds -- typically $100,000 in sales or 200 transactions.

The good news: major platforms like eBay, Poshmark, Mercari, and Amazon now collect and remit sales tax for you in all states that require it. If you sell exclusively on these platforms, sales tax collection is handled. However, if you sell at local events or through your own website, you may need to register for a sales tax permit and collect tax yourself.

Resale Certificates

If your state has sales tax, consider getting a resale certificate. This allows you to buy inventory without paying sales tax at the point of purchase since you will be reselling the items. You are not avoiding the tax -- the end buyer pays it. This improves your cash flow and simplifies accounting.

When Should a Reseller Get an LLC?

This is one of the most common questions in reselling communities. The answer depends on your situation, but here is a general framework.

Reasons to Consider an LLC

Liability protection: Separates your personal assets from business liabilities
Professional credibility: Looks more legitimate to suppliers and wholesale contacts
Tax flexibility: Can elect S-corp taxation, which may reduce self-employment tax once net income exceeds roughly $40,000 to $50,000 per year

When an LLC May Not Be Necessary

If you are just starting out, your revenue is under a few thousand dollars, or you sell only low-risk items, an LLC may be unnecessary overhead. You can operate as a sole proprietor and still deduct all the same business expenses. An LLC is about liability protection and structure, not tax deductions.

If you are still weighing whether reselling is the right path for you, our post on whether it is worth selling on eBay can help you run the numbers.

Common Tax Mistakes Resellers Make

Avoid these pitfalls that cost flippers money every year.

1. Not Tracking Cost of Goods Sold

If you cannot document what you paid for inventory, you cannot deduct it. That $3 thrift store receipt you tossed? It could have saved you money on your taxes. Save every receipt. Photograph them if they are on thermal paper that fades.

2. Confusing Gross Sales with Profit

Your 1099-K shows gross sales. You owe taxes on net profit -- gross sales minus cost of goods, fees, shipping, and other deductible expenses. Failing to deduct expenses means massively overpaying.

3. Ignoring Quarterly Estimated Taxes

Waiting until April to pay your full tax bill means an underpayment penalty on top of the taxes. Paying quarterly is not optional when you owe more than $1,000 for the year.

4. Missing Deductions

Many resellers forget to deduct legitimate expenses:

Mileage driven to source inventory
Home office space
Phone and internet costs (business percentage)
Software subscriptions and pricing tools
Packaging and shipping supplies bought in bulk

Every missed deduction increases your tax bill unnecessarily. Our pricing guide for resellers covers how understanding your true costs (including tax impact) leads to smarter pricing decisions.

5. Not Separating Business and Personal Finances

Open a dedicated bank account and credit card for your reselling business. Mixing personal and business expenses makes record-keeping a nightmare and raises red flags in an audit.

6. Forgetting About State Obligations

Do not overlook state requirements. Depending on where you live, you may owe state income tax, need a business license, or be required to register for a sales tax permit.

Filing Your Taxes as a Reseller

As a sole proprietor or single-member LLC, you will file Schedule C (business income and expenses) and Schedule SE (self-employment tax) with your Form 1040. If you claim the regular home office deduction, you will also need Form 8829.

If your reselling business is straightforward, quality tax software like TurboTax Self-Employed or FreeTaxUSA can handle your return. If your situation involves multiple platforms, significant revenue, or you are considering an S-corp election, a tax professional who understands e-commerce is worth the investment. Their fee is deductible too.

Building Good Tax Habits Year-Round

Taxes do not have to be painful if you stay organized throughout the year:

Weekly: Log all purchases and sales, save receipts
Monthly: Reconcile your sales records with bank and platform statements
Quarterly: Calculate estimated taxes and make payments by the due date
Annually: Compile your records, review deductions, and file your return

The resellers who dread tax season are the ones who wait until April to think about it. The resellers who find it painless spend 15 minutes a week keeping their records current.

Final Thoughts

Taxes are unavoidable, but they do not have to be overwhelming. The 1099-K threshold at $600 means most active resellers will receive tax forms from the platforms they sell on. That is not a reason to panic -- it is a reason to get organized.

Track your cost of goods. Save your receipts. Log your mileage. Deduct every legitimate expense. Pay quarterly. And when in doubt, spend a few hundred dollars on a tax professional -- that consultation fee is deductible too.

Remember: This is general information, not tax advice. Tax laws change, and your specific situation may have nuances that require professional guidance. Consult a qualified tax professional for advice tailored to your circumstances.

With the right systems in place, tax season becomes just another part of the routine -- not a source of stress.

Reseller Tax Guide 2026: What Every Flipper Needs to Know