Reseller Tax Guide 2025: 1099-K, Hobby vs Business, and What You Actually Owe

If the thought of taxes makes you want to close this tab and go back to sourcing, you're not alone. Most resellers dread tax season, and for good reason: the rules have changed dramatically in recent years, platform reporting has gotten stricter, and the internet is full of conflicting advice from people who don't actually know what they're talking about.

Here's the reality in 2025: if you're selling on eBay, Poshmark, Mercari, or any other marketplace, the IRS knows about your sales. The platforms are required to report them. The question isn't whether you'll deal with taxes—it's whether you'll deal with them properly and keep more of your hard-earned profit, or panic in April and overpay because you didn't track anything.

This guide breaks down exactly what you need to know about reseller taxes in 2025. No legal jargon, no unnecessary complexity—just the practical information you need to stay compliant and minimize what you owe. If you haven't been tracking your profits properly, now's the time to start.

The 1099-K Reality: What Gets Reported

The 1099-K is the tax form that platforms send to you (and the IRS) reporting your gross sales. Understanding this form is crucial because it's often the source of panic for new resellers who see a big number and assume they owe taxes on all of it.

In 2025, the reporting threshold is $600. That means if you sell more than $600 total across any platform—not per platform, but total on each platform individually—that platform will send you a 1099-K. This threshold used to be $20,000 and 200 transactions, but it dropped to $600 starting in 2024 after multiple delays.

Here's what happens in practice: you receive a 1099-K from eBay showing $8,000 in sales. The IRS also receives this form. If you report $0 in business income on your tax return, you'll get a letter. If you report $8,000 in income without deducting your expenses, you'll massively overpay. The correct approach is reporting the gross amount and then properly deducting your costs to arrive at your actual taxable profit.

Hobby vs Business: The IRS Distinction That Matters

One of the most misunderstood areas of reseller taxation is the hobby versus business classification. Some people think "hobby" means they don't have to pay taxes. Others think calling it a "business" will trigger an audit. Both assumptions are wrong.

The IRS looks at several factors to determine whether your activity is a hobby or a business. The most important factor is profit motive—are you genuinely trying to make money, or are you just having fun selling stuff occasionally? Other factors include the time and effort you put in, whether you keep proper records, your expertise in the field, and your history of income or losses.

Why the Classification Matters

If you're classified as a hobby, you must report all your income, but you cannot deduct your expenses against that income. Under current tax law, hobby expenses are not deductible at all. This means you'd pay taxes on your gross sales with no offset for what you spent acquiring items.

If you're classified as a business, you report your income and deduct all ordinary and necessary business expenses. You pay taxes only on your net profit. If you have a loss, you may even be able to use that loss to offset other income.

For most active resellers reading this site, you're running a business. You're sourcing strategically using guides like our BOLO brands list, you're learning the platforms, and you're trying to build something sustainable. The IRS classification isn't about paperwork or licenses—it's about intent and behavior.

What You Can Deduct: The Complete List

This is where proper record-keeping transforms your tax bill. Every legitimate business expense reduces your taxable income. Miss these deductions and you're literally giving money to the government that you don't owe.

Cost of Goods Sold (COGS)

Your biggest deduction is what you paid for the items you sold. This includes the purchase price at thrift stores, estate sales, and online sources. It also includes shipping costs to get items to you (like when you win an eBay auction and pay for shipping), and any cleaning or repair costs that are necessary before selling. Our detailed guide on tracking COGS covers exactly how to document these expenses.

Platform Fees

Every fee the platform charges you is deductible. On eBay, that's the final value fee (around 13% for most categories), any promoted listing fees, and store subscription costs. On Poshmark, it's the 20% commission. On Mercari, it's the 10% selling fee. These add up fast and significantly reduce your taxable income.

Shipping Supplies and Costs

Boxes, poly mailers, tape, bubble wrap, labels, ink—all deductible. If you're buying your own postage through Pirate Ship or similar services, those costs are deductible. Even if you offer "free shipping" to buyers, you're paying for it, and you can deduct it.

Mileage and Transportation

Every mile you drive to thrift stores, estate sales, the post office, or anywhere else for business purposes is deductible. The 2025 standard mileage rate is 70 cents per mile. If you drive 20 miles to a thrift store and back twice a week, that's 40 miles times 70 cents times 52 weeks—nearly $1,500 in deductions just from driving. You must keep a mileage log showing the date, destination, purpose, and miles driven.

Home Office Deduction

If you use a dedicated space in your home exclusively and regularly for your reselling business—photographing items, storing inventory, packing shipments—you can deduct a portion of your rent or mortgage, utilities, and internet based on the square footage used. The simplified method allows $5 per square foot up to 300 square feet ($1,500 maximum).

Equipment and Supplies

Your phone (business use percentage), camera equipment, lighting for photos, steamer for clothes, mannequin, garment rack, shelving, storage bins, scale, label printer—all deductible. For items over $2,500, you may need to depreciate over several years rather than deduct all at once, but most reseller equipment falls below this threshold.

Software and Subscriptions

Cross-listing tools like Vendoo or List Perfectly, inventory management software, accounting software, cloud storage for photos—deductible. Even a portion of your Spotify subscription is deductible if you listen while packing orders.

Self-Employment Tax: The Tax Nobody Warns You About

Here's the part that catches new resellers off guard. As a self-employed business owner, you don't just pay income tax on your profit. You also pay self-employment tax, which covers Social Security and Medicare contributions.

The self-employment tax rate is 15.3% on your net earnings. That's 12.4% for Social Security and 2.9% for Medicare. When you work a regular job, your employer pays half of this (7.65%), but as a self-employed person, you pay both halves.

So if your reselling profit for the year is $20,000, you'll owe approximately $3,060 in self-employment tax before even considering income tax. At a 12% income tax bracket, you'd owe another $2,400 in federal income tax, for a total of about $5,460. That's why understanding your true profit margin is so important—you need to price items knowing that roughly 25-30% of your profit will go to taxes.

Quarterly Estimated Taxes: Don't Wait Until April

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 are April 15, June 15, September 15, and January 15 of the following year.

Missing quarterly payments results in penalties and interest. The penalty isn't huge—currently around 8% annually—but it's money you don't need to waste. More importantly, setting aside money quarterly prevents the April shock of owing thousands you don't have.

A simple approach: set aside 25-30% of your profit each month in a separate savings account. When quarterly payments come due, you have the money ready. Whatever's left over after your annual return is filed becomes your reward for managing things properly.

Quarter	Period Covered	Payment Due
Q1	January - March	April 15
Q2	April - May	June 15
Q3	June - August	September 15
Q4	September - December	January 15 (next year)

Sales Tax: What Resellers Actually Need to Know

Sales tax used to be a nightmare for online sellers. You'd have to figure out nexus in different states, collect varying rates, and file returns in multiple jurisdictions. Thankfully, Marketplace Facilitator Laws have simplified this dramatically.

In 2025, platforms like eBay, Poshmark, and Mercari collect and remit sales tax on your behalf in most states. They calculate the correct rate based on the buyer's location, add it to the transaction, and handle all the filings. You don't need to do anything except understand that the sales tax shown isn't your income—it passes through to the state.

The exception is if you sell outside these major platforms—your own website, local cash sales, or platforms that don't collect sales tax. In those cases, you may need to collect and remit sales tax yourself. If most of your sales are on major marketplaces, this likely doesn't apply to you.

Record-Keeping: The System That Saves You

Taxes are only painful if you wait until tax time to figure everything out. With a basic system in place throughout the year, filing becomes straightforward.

At minimum, you need to track the date of purchase and date of sale for each item, purchase price and final sale price, all associated fees and shipping costs, and mileage for business-related driving. You can do this with a simple spreadsheet (we have templates at track your profits), dedicated software, or even a notebook if you're selling low volume.

Keep your receipts. A photo of the thrift store receipt on your phone, immediately uploaded to a cloud folder, takes five seconds and could save you thousands in disallowed deductions. The IRS allows you to keep digital records, so there's no excuse for shoebox accounting in 2025.

When to Hire a Professional

You don't necessarily need an accountant if you're doing $10,000 in sales with simple expenses. But as your business grows or if your situation is complicated, professional help becomes worth the cost.

Consider hiring a tax professional if you're making over $50,000 in gross sales, if you have multiple business activities or income sources, if you're considering forming an LLC or S-corp, if you've received a letter from the IRS, or if doing your own taxes causes you so much stress that you avoid thinking about it (which leads to missed deductions and overpayment).

A good accountant doesn't just file your return—they help you plan throughout the year to minimize your tax burden legally. They often pay for themselves in additional deductions found and penalties avoided. Look for someone experienced with e-commerce or small business, not just a general tax preparer.

Common Mistakes That Cost Resellers Money

After years of seeing resellers handle taxes poorly, certain patterns emerge. Avoid these mistakes and you'll keep more of your profit.

First, reporting gross sales as income without deductions. The 1099-K shows your gross—you're entitled to deduct every legitimate expense. Second, not tracking COGS. If you can't prove what you paid for an item, you can't deduct it. Third, ignoring mileage. Those thrift store runs add up to real deductions. Fourth, paying estimated taxes and then not accounting for them when filing. Keep records of what you've already paid. Fifth, assuming you're a hobby because you don't have an LLC. Business status is about how you operate, not corporate structure.

The theme here is simple: track everything, save documentation, and don't leave money on the table by failing to claim legitimate deductions.

The Big Picture

Taxes are part of running a real business. Reselling has incredible advantages—low startup costs, flexible schedule, unlimited upside—but the tradeoff is that you're responsible for your own taxes. Nobody withholds them for you. Nobody reminds you to pay quarterly.

The good news is that once you understand the basics covered here, taxes become just another business process. Set aside money regularly, track your expenses throughout the year, and filing becomes routine rather than terrifying. You'll actually look forward to seeing how much you saved by deducting everything properly.

If you're ready to take your business seriously, start by getting your COGS tracking in order and considering whether it's time to form an LLC. The investment in proper business structure pays dividends—both in tax savings and peace of mind.