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Understanding Tax Rules for Online Marketplace Sales

Millions of people have sold items on platforms like eBay, Etsy, Poshmark, StockX, and Facebook Marketplace. When you sell goods online, do you need to report these sales on your tax return? The answer is yes, if you sell goods for a profit. Starting in 2023, online marketplaces and digital payment companies may report your transactions to the IRS if you sell as little as $600 online. Here’s what you need to know about including online sales on your tax return.

Tax Rules for Online Marketplace Sales

Your reporting requirements will vary based on how often you sell and whether you intend to make a profit. Here are four typical types of online sales:

One-Off Sales

If you sell an item for less than what you paid, such as a $500 blender sold for $50, these sales are generally not taxable. The IRS considers these nondeductible losses, meaning you can’t deduct the loss, but you also don’t have to pay taxes on it.

Hobby Sales

Income from hobbies, like selling a painting occasionally, is subject to income tax but not self-employment tax. However, you can’t deduct hobby-related expenses to offset your income through 2025.

Collectibles and Investments

If you buy and sell items for profit but don’t run a full-fledged business, report any capital gains on Schedule D of your tax return. Gains from items held for less than a year are taxed as regular income, while those held for more than a year are subject to capital gains taxes, which are typically lower.

Online Business

If you sell items regularly, your sales must be reported on your business tax return or Schedule C of your personal tax return. You can deduct business expenses and losses, but you must also pay self-employment taxes on your business income.

What Is a 1099-K?

Online marketplaces like Etsy and Facebook Marketplace report transactions to the IRS using Form 1099-K. Starting in 2023, the threshold for issuing a 1099-K is $600, meaning more online sellers will receive these forms. Report your taxable online sales to the IRS, regardless of whether you receive a 1099-K.

How to Report Online Marketplace Sales on Your Taxes

How you report online sales depends on the type and amount of sales:

• Business owners: Include 1099-K sales in your revenue calculations.
• Hobby sellers: Report sales on Schedule 1, Form 1040, line 21.
• Occasional sellers: Use Schedule D and Form 8949 to report income and show profit or loss.

The Bottom Line

The $600 reporting threshold starting in 2023 may cause confusion about tax obligations. If in doubt, consult a tax professional to ensure you report your online marketplace sales correctly and avoid additional scrutiny from the IRS.

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