“How to Report Your Online Marketplace Sales on Taxes”

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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.

Types of Online Sales

Your reporting requirements will vary based on how often you sell and whether you aim to make a profit. Here are four common 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

Hobby sales are occasional sales made for fun rather than profit. For example, selling a painting every few years. Income from hobbies is subject to income tax but not self-employment tax. However, hobby-related expenses cannot be deducted 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, you should 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 gains from items held for more than a year are subject to capital gains taxes, which are typically lower.

Online Business

If you regularly sell items online as part of a business, you must report these sales 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?

Payment service entities (PSEs) like Etsy, Facebook Marketplace, and StubHub report online transactions to the IRS using Form 1099-K. This 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 more online sellers will receive these forms.

Even if you don’t receive a 1099-K, you should still report your taxable online sales to the IRS. The IRS uses 1099-K forms to track business transactions, so personal transactions on apps like Venmo and Cashapp are not included unless you use a designated business account.

How to Report Online Marketplace Sales on Your Taxes

How you report online sales depends on the type and amount of sales, and the nature of your business:

• Business owners should include 1099-K sales in their revenue calculations.
• Hobby sellers should report their sales on Schedule 1, Form 1040, line 21 of their personal income tax return.
• Occasional sellers, including investors, should use Schedule D and Form 8949 to report their income and show a profit or loss.

The Bottom Line

Although the rules surrounding 1099-Ks are not changing for the 2022 tax year, the $600 reporting threshold starting in 2023 may cause confusion. 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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