If you’re an online seller, you may have heard about the new 2023 IRS’ reporting thresholds for Form 1099-K and be wondering how they apply to you. Here’s a complete guide to taxes for eBay sellers.
How do I calculate taxable income from an eBay sale?
If you’re a casual eBay seller who sells something for more than you paid for it, you’ve made a profit, and for tax purposes, that profit is considered a capital gain. That means it’s taxable and needs to be reported as income on Schedule D of your tax return.
Here’s how to determine your taxable gains on personal items:
Sale Price (how much you sold it for) - cost basis (how much you paid + any sale fees) = capital gain (which you then report on Schedule D)
Capital gains get taxed differently depending on how long you had the item for. Short-term means a year or less, while anything longer is long-term and gets taxed at capital gains tax rates.
How do I calculate cost basis?
Figure out what you paid originally for the item you’re now selling. The easiest way is via a receipt, and you’ll want to hang on to this receipt in case the IRS asks for proof. If you don’t have a receipt, you can look at invoices, bank statements, and payment history in apps like Venmo or PayPal. Of course, you can always guess, but that should be a last-resort option, since you want to be able to prove that the item cost as much as you say it did.
Example #1: profitable sale
Let’s say you bought a used table at a thrift store for $100. You then took it home, painted it, and sold it on eBay for $700. The buyer paid for shipping, and eBay charged you $90 in seller fees.
To calculate your taxable gain, subtract the cost basis from your final sale price, as follows:
$700 - $190 (original price + seller fees) = $510
In this case, you’d report $510 on Schedule D.
What can I deduct?
So, if you can deduct seller fees, what else can you deduct? Here’s what you can and can’t deduct.
What you can deduct:
Seller fees
Shipping fees
What you can’t deduct:
The cost of restoring or improving the item
If you’re selling the item as a business, you can usually deduct more expenses. Business profits should be reported on Schedule C.
When is a sale taxable?
Some sales aren’t taxable. If you sold an item but didn’t make any money, you don’t have any income to report, and so you don’t get taxed on that sale.
Example #2: unprofitable sale
Let’s say you’re selling a bunch of stuff on eBay that you don’t want anymore. There’s probably going to be a lot of stuff in there that you won’t make a profit on: old game consoles that are now outdated, books you bought new that have since been used, furniture that’s a little worn out, etc.
If you bought something for $200 and ended up selling it for $25, obviously you’re not making any money off that sale. In that case, you’ll still report the income ($25) on Schedule D, but you won’t have any taxable gain.
What about inherited items?
Inherited items don’t cost you anything, but you might still sell them at a profit. In that case, you still need to find the cost basis, which is usually the item’s fair market value (FMV) at the time you inherited it. In other words, it’s just the current value of your item.
To find this, you can look at similar items on eBay or another online sales platform. If you can’t get an idea of the cost just by looking at similar items, you might want to get the item appraised. Remember, the IRS likes proof, so get a record of your appraisal or screenshot similar items.
When you calculate the cost basis, keep in mind the item’s condition. Obviously, an item in mint condition is going to be more valuable than one that’s been heavily used.
Example #3: inherited item sale
Let’s say you inherit an antique rug from your great-aunt when she dies. You get an appraisal and find out that the rug’s value at the time of your great-aunt’s death was $3000.
You then manage to sell the rug on eBay for $3800 (nice work!). Unfortunately, shipping costs ($50) and seller fees ($500) take out a hefty chunk.
In that case, you’d find your taxable income as follows:
$3800 - $3000 - $500 - $50 = $250
When filing your taxes, you’d report $250 as your taxable income on Schedule D.