How Reselling Could Affect Your Taxes

Reselling has become a popular way to earn extra income. 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 reselling is easier than ever, thanks to the internet. Popular resale sites like Poshmark, Shopify, Mercari, eBay, Amazon, and Craigslist make it easier than ever to reach potential consumers.  

But you may be wondering: Do I have to pay taxes on reselling items?  

The answer is generally yes, even if reselling is just a hobby or side gig for you. That’s because most types of income are taxable. 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 have to pay taxes on reselling items?

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). Any net profit (gross profit minus any expenses) is subject to federal, state, and local income taxes. 

But what about losses? If you sell an item for less than you originally paid, that loss typically isn’t tax-deductible. Personal losses, like reselling used clothing or electronics for less than you paid, won’t reduce your taxable income—but you also won’t owe taxes on that sale. That’s why it’s important to keep good records of what you paid for an item and what you sold it for. 

Example: Selling at a loss 

Say, for example, you purchase a washing machine for $1,200 but resell it for $1,000. You can report the $200 as a net loss. However, you won’t be able to deduct the loss from your taxes. 

Example: Selling at a profit Now, say you purchased concert tickets for $400 and resold them for $500. Just like with other resale options, there are tax implications for reselling event tickets for a profit. You’ll need to report—and possibly pay taxes—on that income.

Form 1099-K: What you need to know

If you receive payments for reselling items, the payment app, online marketplace, or payment card company involved may be required to send you Form 1099-K. You should receive this form by January 31 of the following year. Note that not all payments reported on Form 1099-K are automatically taxable. 

Not all resellers receive Form 1099-K. If you received more than $5,000 in gross payments for goods or services through a third-party platform in 2024, you should expect to receive a Form 1099-K. That threshold will drop to $2,500 for tax year 2025 and $600 in 2026. 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. That’s why it’s so important to keep clear records of all purchases, profits, and losses throughout the year. For the latest IRS guidance on 1099-K thresholds, visit the IRS website.

Do you need to file a tax return?

The IRS requires you to file a tax return if your net earnings from self-employment are $400 or more, even if you don’t receive a Form 1099-K. This rule applies if the IRS considers your resale activity a business rather than an occasional sale of personal items. 

However, even if you earn less than $400, you may still need to file a tax return if your total taxable income (including resale profits and other earnings) meets the IRS filing thresholds.

What about sales tax?

It’s also worth mentioning that depending on your situation, you may be able to purchase some items without paying sales tax. Sales tax is generally charged by retailers to an end consumer.  

So, if you are a reseller (which usually requires being registered with the state and/or the retailer in question) and can demonstrate that you’re not buying the item in question for your own use, you may be able to purchase it without paying sales tax.

Understanding taxes for different kinds of resellers

Taxes for resellers work a little differently for those who do it as a hobby vs. those who run a reselling business. Knowing the tax implications of each (and whether your activity counts as a hobby or business in the first place) can save you some serious headaches—and possibly penalties—come tax time.

Taxes for hobby resellers

The IRS defines a hobby as any activity you do out of enjoyment rather than a desire to make a profit. However, you may still owe taxes if your hobby earns money. 

Your reselling activity is likely considered a hobby rather than a business if: 

• You do it for personal reasons, such as enjoyment. 
• Your regular earnings (such as from a traditional job) fund the activity. 
• You only occasionally or sporadically resell items. 
• You don’t depend on the earnings to cover living expenses. 

For example, you might be a hobby reseller if you enjoy repurposing and selling vintage items on Etsy or eBay. The same goes for someone who takes old picture frames, paints them for fun, and resells them online. 

Even if you’re a hobby reseller, you may still have to pay taxes on your earnings (using Schedule 1, Form 1040). Unlike with business resellers, you may not be able to deduct related expenses from your taxes, meaning your total earnings could be fully taxable. 

Taxes for business resellers

The line between reselling items as a hobby vs. as a business isn’t always clear, but the IRS may consider your activity a business if: 

• You resell items with the goal of making a profit. 
• You keep clear, accurate books of all transactions, including profits and losses. 
• You rely on the income to support yourself. 
• You handle your activity as you would a business. 
• You regularly spend time trying to make your activity profitable. 
• You experience losses beyond your control (as is normal in the early days of running a business). 
• You switch up your operations to make more money. 
• You have turned a profit doing something similar in the past.

For example, you may be a business reseller if you set up an online shop where you regularly resell event or concert tickets for a profit. 

As a business reseller, you’re most likely to engage in one of the following: 

• Retail arbitrage: This strategy involves buying low-priced items at retail stores, garage sales, and online markets and reselling them for a higher price. You might be able to find loss leaders or other sales at large retailers. Note that most large retailers are aware of this concept—so they may limit how many items you can buy or even ban your account if you purchase too frequently. 
• Online arbitrage: With online arbitrage, you purchase goods from online retailers with the goal of reselling them on another online platform for a profit. Online arbitrage provides more potential places to find items but also opens you up to more competition. 
• Dropshipping: Dropshipping is similar to online arbitrage in that you find products online and then resell them. Whereas with online arbitrage you purchase an item and then resell it, dropshipping takes you out of the middle. You sell products without holding any inventory. You may advertise a particular item, but you only actually purchase the item from the manufacturer if someone buys it “from you.” This eliminates the need to have an actual inventory of items for sale. 

Reselling items as a business comes with its own tax implications. Generally, reselling income is taxed as self-employment. You’ll typically report any income and expenses using Schedule C (Form 1040). You’ll also pay federal and, if applicable, state income tax. Your income may qualify for certain tax deductions.

How to file taxes when you’re reselling items

If you’re a hobby reseller, you’ll need to file a personal tax return as you normally would. However, you’ll report your hobby income on Schedule 1 (Form 1040). If you sell certain items for more than you originally paid (e.g., collectibles, artwork, or valuable assets), you may need to report the capital gains on Form 8949 and Schedule D (Form 1040). 

If you’re a business reseller, you’ll typically report your earnings on Schedule C (Form 1040) of your personal tax return. Alternatively, you may need to complete a business tax return. Depending on your situation, you can report any Form 1099-K payments on Schedule C (Form 1040), Schedule E (Form 1040), Form 1120, or Form 1120S. 

Whether you’re reselling as a hobby or a business, be sure to keep clear, detailed records so you can accurately report any income and losses. Here’s what you’ll typically need when you file taxes: 

• Description of each item sold 
• Item’s original value and/or price 
• Item’s resell price 
• Dates when you purchased and sold the item 
• Receipts confirming purchase of the item (if applicable) 
• Other details about how you received the item (if not a personal purchase) 
• Form 1099-K (if applicable) 

You can use this information to calculate your estimated taxes as a reseller. Simply add up any gains (income) and subtract the losses (expenses). If you have a complicated tax situation, you can also use tax software like TurboTax to get a better idea of how much you owe and any deductions you might qualify for.

Tax help for resellers

In most cases, you’ll need to pay taxes on reselling items if you turn a profit. Even if you don’t end up paying taxes on reselling items, you’ll still need to report any income when you file taxes. 

It’s important to keep accurate—and comprehensive—records of any profits and losses throughout the year. This will help you stay compliant with the IRS while maximizing your resale profits. 

But filing taxes, especially when you earn income from reselling items, can be tricky. The IRS has certain filing thresholds, and if you fail to file your taxes (or miss a key form), you could get hit with a tax penalty. And as we’ve covered, filing as a hobby vs. a business reseller comes with different tax implications. Don’t worry about knowing these tax rules, though. Meet with a TurboTax Full Service expert who can prepare, sign, and file your taxes. That way, you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind.

Reselling and taxes FAQ

Do you have to pay taxes on flipping items?

If you earn money from flipping items, you must report your income on your tax return. The IRS taxes you differently based on whether flipping is a hobby or a business. Hobby resellers report income on Schedule 1 (Form 1040) but can’t deduct expenses. Business resellers report income and expenses on Schedule C (Form 1040) and may owe self-employment tax if net earnings exceed $400. Even if you don’t get a Form 1099-K, you’re still required to report your income.

Is reselling considered earned income?

The IRS defines “earned income” as money earned from working. This includes regular wages and any money earned through self-employment. If reselling is your business, it will typically be considered earned income and may be subject to self-employment tax. However, if reselling is a hobby, it is still taxable but generally not classified as earned income.

What can I write off on my taxes as a reseller?

If you’re a hobby reseller, you generally won’t be able to write off your expenses when filing taxes. But if you run a business, you may be able to deduct certain business expenses—including things like operational expenses, net operating losses (up to a certain amount), or home offices (which may include utilities, property depreciation, insurance, and other expenses). Keep accurate records so you have the proof needed in case of an IRS audit.