Tax Basics for Casual Resellers in the US

A 1099-K and a tax bill are two different documents answering two different questions, and treating them as the same thing is the most expensive mistake a casual reseller makes. Not getting a 1099-K does not mean the IRS has forgotten about your income. The form is a reporting mechanism. It tells the IRS and the seller that a platform processed a certain amount of money, nothing more. Whether that money is taxable profit is a separate question entirely, and it gets answered whether or not paperwork shows up in your inbox.

The form also reports gross payments, not what you actually pocketed. Item price, any shipping the buyer paid, and handling fees all land on the 1099-K before fees, refunds, or the cost of the goods themselves get subtracted. So a seller can open a form expecting a modest number and instead see something that looks like a small windfall. Two mistakes tend to follow from that shock. One seller panics and reports the entire gross figure as taxable profit, overpaying. Another assumes that because no form arrived, no tax is owed, underpaying. Both are wrong, and both come from the same root confusion: mistaking a reporting threshold for a tax threshold.

The Federal 1099-K Threshold

The number that triggers a 1099-K has moved so often in recent years that it can make your head spin. The American Rescue Plan Act set a much lower threshold at first, but the IRS delayed the full rollout more than once, so separate transition figures applied to the 2024 and 2025 tax years. If three different people gave you three different numbers, this is why.

The One Big Beautiful Bill Act settled the matter by permanently restoring the threshold to $20,000 and 200 transactions a year, the figure that governs 2025 and beyond. If you've seen older, lower figures on reseller forums, know they belong to the past, not the current rule.

What that threshold change does not do is touch your tax liability. It only decides whether a platform has to mail you and the IRS a form. Whether you clear a small amount or a large one, you still owe income tax on resale profit. If a 1099-K does land in your account, you can usually find it in the platform's seller hub, under a payments or tax documents tab. But the absence of that document from your inbox has no bearing on what you owe.

The classification that determines everything: whether the activity is a business or a hobby

Once you know that every dollar of resale profit is reportable no matter what threshold applies, you have to ask how the IRS classifies the activity producing that profit. Everything else, how much tax you pay, what you can deduct, whether losses help you, flows from whether your selling counts as a business or a hobby.

A business reports income and expenses on Schedule C, with net profit flowing to Schedule SE for self-employment tax. Losses can offset other income on the return. A hobby reports all income on Schedule 1, and that's where things turn unpleasant. The Tax Cuts and Jobs Act suspended deductions for hobby expenses, and the One Big Beautiful Bill Act made that suspension permanent. So hobby sellers now owe income tax on their revenue, with only a limited offset for expenses, capped around 90% of hobby income. Hobby losses can never offset other income, full stop on that door.

Picture a seller who receives a 1099-K for an amount, most of which went toward acquiring the items they resold. If the IRS calls that activity a hobby, you owe tax on the full amount reported, no matter how thin the actual profit was. That's a permanent, structural difference in how much money leaves your pocket, not a technicality buried in fine print, and it's the hinge the rest of this article turns on. The OBBBA raised the threshold, so casual sellers get breathing room on reporting, but it made the hobby label far more expensive to wear. Knowing which side of that line you're on matters more now than it did before 2025.

Business or Hobby: How the IRS Decides

The IRS doesn't flip a coin or apply one clean rule. It weighs nine factors from Section 183 regulations against the whole picture of how an activity runs, and your own records shape which way that picture tilts. Treat the following as a checklist to run your own selling against.

• Whether you run things in a businesslike manner. Separate bank accounts, actual bookkeeping, and records that improve over time all count in your favor.
• Your expertise. Taking courses, researching pricing and categories, or consulting people who know resale signals intent to profit.
• Time and effort. Hours spent sourcing, listing, and shipping count in your favor, especially if you've scaled back other activities to make room.
• Whether you expect the items or the business itself to appreciate in value over time.
• Prior success in similar ventures, which the IRS treats as evidence you know what you're doing.
• Your history of income or losses. Early losses while you're building a system read differently than years of losses with no change in approach.
• How your occasional profits compare to what you've invested.
• Your financial status. Depending on this income for living expenses suggests business intent more than treating it as pocket money.
• Whether personal enjoyment or recreation is clearly the main point.

No single factor decides anything. The IRS looks at all of it together. Turning a profit in at least 3 of the last 5 consecutive tax years creates a presumption that you're running a business, and the IRS has to work to rebut that presumption. If you're still in your early, unprofitable years, you can file Form 5213 to ask the IRS to hold off on a determination. That filing also flags the activity for a later look, making it a tool worth discussing with a tax professional before using it.

Some sellers assume a hobby label is the better deal because it skips self-employment tax. In most cases that math doesn't hold up. A profitable side business paying self-employment tax on net income, after deductions and a potential 20% qualified business income deduction, usually beats a hobby paying full income tax on gross revenue with no deductions. The exceptions are narrow and depend on the specific numbers involved. Your own documentation, more than any single factor on the list, is what decides which way the IRS leans.

The three tax paths for casual sellers

Not all casual selling gets taxed the same way. The path that applies depends on what you were actually doing: clearing out your own closet at a loss, selling a personal item for more than you paid, or buying things specifically to resell for profit. Each path uses different forms and lands at a different tax bill.

Path 1, personal items sold at a loss, covers most casual selling. Think of used electronics, clothes your kids outgrew, household items you no longer need: all bought originally for personal use and sold for less than you paid. No taxable income exists here, and no tax is owed. Losses on personal items aren't deductible, and each item stands on its own; a loss on one can't cancel out a gain on another. If a 1099-K arrives anyway because your gross payments crossed the threshold, you report that gross amount on Schedule 1, then offset it with an equal negative adjustment on the same form, labeled to show personal items sold at a loss. The net taxable amount comes out to zero, giving the IRS a record that the form was acknowledged.

Path 2, personal items sold at a gain, applies when something you owned sells for more than you originally paid for it. You report the capital gain as the original price minus the sale price, on Form 8949 and Schedule D. Keep the receipt. The original purchase price, if you can substantiate it, directly reduces the taxable gain, and losses on other personal items can't be used to offset this one.

Path 3, buying to resell for profit, is the business path. Income and deductible expenses go on Schedule C, and net profit gets hit with both regular income tax and self-employment tax. Schedule SE becomes required once net self-employment earnings reach $400 for the year. That combined self-employment tax rate covers Social Security on earnings up to an annual cap and Medicare on all net earnings, and it applies to a set percentage of your net self-employment income. You can deduct half of that self-employment tax when you figure adjusted gross income, so it softens the blow somewhat. None of these three paths is a choice you make at tax time. The facts of what you were doing all year already decided it for you.

Deductions for Business Resellers and Cost of Goods Sold

For sellers who qualify as a business, deductions are the machinery that turns a scary gross number on a 1099-K into a much smaller taxable profit. The biggest piece of that machinery, and the one most commonly botched, is cost of goods sold.

COGS is a reduction of gross receipts to arrive at gross income in the first place, calculated on Schedule C Part III and flowing to Line 4, before any other deduction even enters the picture. The formula is simple: Beginning Inventory plus Purchases minus Ending Inventory equals COGS. The timing rule trips up more sellers than anything else on this list. COGS gets recognized when the item sells, not when you buy it. Stock up on inventory in December and it sits unsold at year-end, and that inventory gives you zero deduction for that tax year. It just waits on the shelf, tax-wise, until it finally sells.

Supplies work differently. Packaging, tape, labels, and the incidental stuff consumed running the operation get deducted in the year you buy them, on Schedule C Line 22, not folded into COGS.

Beyond COGS, the deduction list for a reseller business reads like a packing list for the whole operation:

• Platform fees: final value fees, listing fees, store subscription costs.
• Shipping costs and packaging materials.
• Mileage driven to thrift stores, estate sales, and the post office, calculated at the IRS standard mileage rate. A mileage log is required to back this up.
• Storage unit rental, if used exclusively for resale inventory.
• Photography equipment and supplies used for taking listing photos.
• Software and subscriptions that run the business, including pricing tools, inventory management systems, and AI-assisted listing tools like those offered by Reclaim, which can also track listed inventory and sales progress as it moves.
• A home office, if it's used regularly and exclusively for the business.

Qualifying business sellers also get access to the qualified business income deduction, which can be worth up to 20% of net business income. Hobby sellers get none of it. That gap alone is a strong argument for getting the business classification right.

Quarterly estimated taxes and the cost of skipping them

Getting the classification right and tracking every deduction still won't save a reseller who waits until April to pay. The IRS does not wait a full year to see self-employed income. It expects profitable sellers to pay as the money comes in, throughout the year, the same way a paycheck has taxes pulled out of it in real time.

No employer is withholding anything from a resale business, so that responsibility falls on the seller directly. If you expect to owe $1,000 or more for the year, you need to make quarterly estimated payments that cover both regular income tax and self-employment tax. Skip those payments, and April brings the tax bill itself plus penalties stacked on top of it, for money the IRS expected to see months earlier.