If you are selling items online as a small business owner, you may end up having to pay taxes on the amount you earn. But what if the selling you do is more informal, like a handful of postings on Poshmark after a closet cleanout or a pair of tickets on Stubhub for a concert you can no longer attend? Do you have to pay taxes on those things?
The answer really depends. But while you may not consider these profits to be your main source of income, you shouldn’t assume they don’t have to be reported come tax-time — even if you never encountered any issues in past tax seasons. The Internal Revenue Service (IRS) is now “cracking down on those who fail to report the added income” — and it “may know a lot more about your side hustle this tax season,” said The Wall Street Journal.
When do you owe taxes on income from online sales?
“Anyone who earned more than $5,000 in 2024 selling tickets, musical instruments or other goods and services online should expect to get a 1099-K tax form,” said the Journal. This form is how selling platforms “report online transactions to the IRS,” and it “shows the total dollar amount of your online transactions for the year,” said Experian.
The 2024 threshold for receiving a 1099-K is significantly lower than it used to be, as “online platforms such as StubHub, Etsy and eBay previously only had to send these forms to users who earned more than $20,000 in most cases,” said the outlet. It will get even lower in coming years, dropping to “$2,500 for 2025 and $600 for 2026.”
If you have any uncertainties, it may be worth hiring a tax professional to offer some guidance. Otherwise, you may end up on the hook for penalties.
Do the rules differ for businesses vs. hobby or occasional sellers?
There are certainly nuances in the tax treatment for full-on businesses as opposed to individuals who sell the occasional item online or who are hobby sellers, which is how the IRS will classify you “if you’re not reselling items with the goal of making a profit,” said TaxSlayer.
“If you get a 1099-K for something you sold for less than you originally paid, you wouldn’t owe tax, but you would need to disclose it to the IRS,” said the Journal. (Note that you also could not deduct the loss.) Meanwhile, “if you resell items regularly and for a profit, you’ll need to report those earnings on Schedule C of your tax return,” said TaxSlayer.
How are different types of online sales taxed?
The rate at which you are taxed will vary depending on what you are selling, and in some cases, how long you owned the item you sold.
“Income you make from a hobby is subject to income tax but not self-employment tax,” said Experian. But if what you are selling is considered a collectible item — think comic books, trading cards or specialty sneakers — then you may end up paying capital gains tax. “If you owned the item for less than a year, you’ll pay regular income tax on the gain,” whereas “if you owned it for more than a year, you’ll pay capital gains taxes, which are typically lower than your personal tax rate.”
These categories are distinct from online businesses, which must pay “pay regular income taxes” on any profits, as well as self-employment taxes on business income, Experian added.
How should you report online sales on your taxes?
Again, this depends on the nature of your online selling activities. Just a hobby seller or only making a sale every so often? In this case, “you’ll file a personal tax return and report your profit and loss on Schedule 1 (Form 1040) Additional Income and Adjustments to Income,” said TaxSlayer. If you have “capital gains, you’ll need to file Form 8949 and Schedule D.”
For more official online sellers regularly raking in earnings, “your sales must be reported on your business tax return or on Schedule C of your personal tax return,” said TaxSlayer.