Understanding Taxes for Online Sales: A Guide for Sellers
The IRS has implemented stricter reporting requirements for online sales income, affecting both casual sellers and small businesses. Whether you're selling old clothes on Poshmark or concert tickets on StubHub, understanding your tax obligations is crucial.
New Reporting Thresholds
- For 2024: $5,000 threshold for receiving Form 1099-K
- For 2025: Threshold drops to $2,500
- For 2026: Threshold drops to $600
This is a significant change from the previous $20,000 threshold that platforms like StubHub, Etsy, and eBay used to follow.
Different Types of Sellers and Tax Requirements
Hobby Sellers
If you're selling items without intending to make a profit (like cleaning out your closet):
- Must report income on Schedule 1 (Form 1040)
- Subject to income tax but not self-employment tax
- Cannot deduct losses if items sell for less than the purchase price
- Must still disclose sales reported on 1099-K, even if sold at a loss
Business Sellers
If you regularly resell items for profit:
- Must report earnings on Schedule C of tax return
- Subject to both income tax and self-employment tax
- Required to report all business-related income and expenses
Collectibles Sellers
For items like comic books, trading cards, or specialty sneakers:
- Short-term ownership (less than one year): Regular income tax rates apply
- Long-term ownership (more than one year): Capital gains tax rates apply, typically lower than personal tax rates
Tax Reporting Requirements
Documentation Needed
1. Form 1099-K: Provided by online platforms showing total transaction amounts
2. Schedule 1 (Form 1040): For hobby sales
3. Schedule C: For business income
4. Form 8949 and Schedule D: For capital gains reporting
Important Considerations
- Even if you didn't receive a 1099-K in previous years, you may get one now due to lower thresholds
- The IRS is increasing enforcement of unreported online sales income
- Consider consulting a tax professional if uncertain about your obligations
- Keep detailed records of purchase prices and selling prices
- Different tax rates apply based on the nature of sales and holding periods
Best Practices
1. Track all online sales throughout the year
2. Maintain documentation of original purchase prices
3. Separate hobby sales from business activities
4. Keep records of any relevant expenses
5. Consult with a tax professional when in doubt to avoid penalties
Remember: The key factor isn't whether you consider these sales your main income source, but rather meeting the reporting thresholds and accurately categorizing your selling activities.