Introduction

Millions of people have sold items on platforms like eBay, Etsy, Poshmark, StockX, and Facebook Marketplace. But when it comes to taxes, do you need to report these sales? The answer is yes, if you sell goods online for a profit. Starting in 2023, online marketplaces and digital payment companies may report your business 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 rules for reporting online sales will vary depending on how regularly you sell and whether you intend to make a profit. There 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 won’t have to pay taxes on it either.

Hobby Sales

A hobby is something you do for fun and not primarily for profit, even if you make occasional sales. Income from a hobby is subject to income tax but not self-employment tax. However, through 2025, you can’t deduct hobby-related expenses to offset your income.

Collectibles and Investments

If you buy and sell items for profit but don’t run a full-fledged business, you should report any capital gains on Schedule D of your tax return. If you owned the item for less than a year, you’ll pay regular income tax on the gain. If you owned it for more than a year, you’ll pay capital gains taxes, which are typically lower than your personal tax rate.

Online Business

If you sell items regularly online, either as a standalone business or as part of a larger operation, your online sales must be reported as sales on your business tax return or on Schedule C of your personal tax return. You’ll pay regular income taxes on your profits, but you can deduct your business expenses and business losses if you don’t turn a profit. Additionally, you must pay self-employment taxes on your business income.

What Is a 1099-K?

Payment service entities (PSEs) like Etsy, Facebook Marketplace, and StubHub report online transactions to the IRS using Form 1099-K. A 1099-K form shows the total dollar amount of your online transactions for the year. Starting in 2023, the threshold for issuing 1099-Ks changes to $600, meaning many more online sellers will receive 1099-K forms going forward.

Regardless of whether a 1099-K is issued, you should report your taxable online sales to the IRS. When the IRS receives a 1099-K, they can see how much you transacted, giving you an added inducement to report your sales accurately.

Form 1099-K is intended to track business transactions. Personal transactions, such as those made using apps like Venmo and Cashapp between friends and family, aren’t included unless you use a designated business account.

How to Report Online Marketplace Sales on Your Taxes

How you report online sales on your taxes will depend on the type and amount of sales, and the nature of your business.

• Business owners: Include 1099-K sales in your revenue calculations. If you have an existing business, you may already be including these sales in your regular accounting.
• Hobby sellers: Report your sales on Schedule 1, Form 1040, line 21 of your personal income tax return. For more information, see IRS tips for hobbyists.
• Occasional sellers: Report your sales using Schedule D and Form 8949 on your personal tax return. Use these forms to report your income and show a profit or loss.

The Bottom Line

Although the rules surrounding 1099-Ks are not changing in time for the 2022 tax year, the $600 reporting threshold that begins in 2023 could have many taxpayers wondering what their tax obligation is at tax time. If in doubt, you may want to consult a tax professional. They can help you decide how to report your online marketplace sales correctly and avoid additional scrutiny from the IRS.

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