Why This Year Is Different
For years, eBay resellers operated in a grey zone: casual sellers didn't get 1099-Ks, and many didn't report their income. That's over. The IRS has been phasing in a new $600 threshold that treats your eBay store like a business — regardless of whether you think of it as a hobby.
In 2026, if you received more than $600 in payments through eBay's managed payments system, you'll get a 1099-K. That form goes to the IRS. If you don't report it, you'll get a notice. It's not a question of if but when.
The 1099-K: What It Is and What It Isn't
What it reports
Your 1099-K from eBay shows your total gross payments received for the year. This includes:
- Sale proceeds (before eBay fees)
- Shipping reimbursements from buyers
- Sales tax collected (passed through to states)
What it doesn't account for
- eBay selling fees (~13.25% FVF + payment processing)
- The cost you paid for the items (Cost of Goods Sold)
- Shipping supplies, packaging materials
- Your time, mileage, tools, or subscriptions
A $100,000 gross 1099-K doesn't mean you owe taxes on $100,000. But it does mean you need documentation for every deduction.
Your Tax Situation: Hobby vs. Business
The IRS draws a hard line between hobbies and businesses. This matters because:
- Hobby: Income is taxable, but most expenses are not deductible (post-2018 TCJA)
- Business: Income is taxable, but all ordinary and necessary business expenses are deductible
If you sell 50+ items a year, have a store name, and try to make a profit, the IRS will likely treat you as a business. This is actually good news — it means you can deduct a lot.
The Big One: Cost of Goods Sold (COGS)
COGS is the biggest deduction for resellers — and the one most people underestimate. Every item you bought to resell is COGS. That thrift store haul? COGS. The garage sale items? COGS. The pallet from a liquidator? COGS.
How to calculate COGS
For each item you sell, your COGS = what you paid for it + direct costs to acquire it.
You bought a vintage Nike jacket at Goodwill for $12.
You drove 8 miles round-trip to get it (IRS rate 2026: ~$0.67/mile = $5.36).
Your COGS: $17.36
You sold it for $85 on eBay. eBay fees: ~$11.25. Shipping: $8.
Profit: $85 − $11.25 − $8 − $17.36 = $48.39
You pay taxes on $48.39, not $85.
Track every purchase
You need a receipt or record for every item. Options:
- Keep receipts and log them in a spreadsheet (date, item, cost, where purchased)
- Use a reseller inventory app (InventoryLab, Vendoo, or a simple Google Sheet)
- Take a photo of receipts with a dedicated folder in Google Photos
- For thrift hauls with no receipt: log date, store, items, total paid immediately after
Every Deduction You're Probably Missing
Most resellers know COGS. Many miss these:
Quarterly Estimated Tax Payments
Here's where resellers get blindsided. When you work for an employer, they withhold taxes every paycheck. As a self-employed reseller, nobody withholds anything. The IRS expects you to pay quarterly.
When are they due?
How much should you pay?
The IRS safe-harbor rule: pay at least 100% of last year's tax liability (or 110% if income is over $150K). If you do that, you won't owe underpayment penalties — even if you owe more at filing.
Example: Expect $40,000 net profit → 40,000 × 0.28 = $11,200 → $2,800 per quarter.
How to pay
Use the IRS Direct Pay system at irs.gov/payments — it's free, instant, and gives you a confirmation number. Or use IRS Form 1040-ES by mail.
Self-Employment Tax: The Hidden Hit
Most resellers forget about self-employment (SE) tax. As a sole proprietor or Schedule C filer, you pay both sides of Social Security and Medicare:
- Social Security: 12.4% on net earnings (up to ~$175K cap in 2026)
- Medicare: 2.9% on all net earnings
- Total SE tax: 15.3% on your net profit
This is on top of your regular income tax. So if you're in the 22% bracket and have $40,000 net profit, you're paying roughly:
- SE tax: $40,000 × 15.3% = $6,120
- Income tax (after SE deduction): roughly $5,600–$7,800
- Total: ~$12,000–$14,000
The good news: you can deduct half your SE tax from your income — that saves you a bit.
The Spreadsheet Every Reseller Should Keep
Whether you use software or a spreadsheet, track these fields for every transaction:
10-Minute Tax Prep Checklist (Do This Now)
Before April 15:
What ResellerAI Tracks For You
Good recordkeeping is 80% of the tax battle. ResellerAI automatically logs every offer handled, message responded to, and action taken — with timestamps. This creates an audit trail for your business operations and a foundation for accurate deduction claims.
Future versions will include an exportable P&L summary, COGS tracking per listing, and automatic mileage log integration. Right now, the platform saves you time — and that time saved is itself a deduction.
The Bottom Line
Reselling is a real business. The IRS now treats it that way. The sellers who panic at tax time are the ones who didn't keep records. The ones who save thousands are the ones who tracked COGS and every deductible expense from day one.
Start this year. Even a basic spreadsheet beats nothing. And consult a CPA who works with e-commerce sellers — they'll find deductions you don't know exist.