Tax Deductions for Online Resellers (2026)

Reselling is different from selling handmade goods on Etsy. You aren't manufacturing a product from raw materials. You're buying finished items (often used) and selling them for more than you paid. That distinction matters for taxes because it changes how Cost of Goods Sold works, how you establish cost basis, and what records you need to keep.

This guide covers the three biggest reselling platforms (eBay, Poshmark, and Mercari), but the tax rules apply to any marketplace: Depop, Facebook Marketplace, OfferUp, Whatnot, or your own website. If you sell handmade products on Etsy, see our Etsy seller tax deductions guide instead.

Your Tax Obligations as an Online Reseller

If you're reselling for profit (not just clearing out your own closet at a loss), the IRS considers you self-employed. That means:

• •You file Schedule C (Profit or Loss from Business) with your personal tax return. All reselling income goes on Line 1 as gross receipts.
• •You pay self-employment tax (15.3%) on your net profit, covering Social Security and Medicare. This is on top of your regular income tax.
• •You owe quarterly estimated payments if you expect to owe more than $1,000 in taxes for the year. The deadlines are April 15, June 15, September 15, and January 15.
• •Every legitimate business expense reduces both your income tax and your self-employment tax. That's why tracking deductions matters so much.

If you're selling personal items at a loss (you bought a jacket for $100 and sold it for $30), that's not taxable income and you don't need to report it as business activity. But if you're regularly buying items with the intent to resell at a profit, that's a business.

Cost of Goods Sold: The Biggest Deduction for Resellers

For resellers, COGS is typically your largest single expense category. It goes on Schedule C, Part III and represents the cost you paid to acquire the items you sold during the year. Unlike operating expenses (which you deduct when you pay them), COGS is only deducted when the item sells. Inventory sitting on a shelf at year-end isn't deductible yet.

For a deeper look at how Schedule C is structured and where every expense line belongs, see our Schedule C line-by-line guide.

Establishing Cost Basis for Used Goods

This is the hardest part of reseller taxes, and the part most people get wrong. When you buy a bag of clothes at a garage sale for $10, you need to assign a cost to each individual item. The IRS expects you to have documentation for your costs.

Platform Fees: What Each Marketplace Takes

Platform fees are 100% tax-deductible as operating expenses on Schedule C, Line 10 (Commissions and Fees) or Line 27a (Other Expenses). Here's what each marketplace charges.

How Payouts Appear on Your Bank Statements

When platforms deposit your earnings, the description on your bank statement can vary. Here are common descriptors you'll see:

Remember: your bank deposit is your payout after the platform has already deducted its fees. The amount hitting your bank is not your gross revenue. To find your actual gross sales and total fees, download your platform's sales reports or refer to your 1099-K.

Shipping Costs: Who Pays and How to Categorize

Shipping is handled differently on each platform, which affects your tax reporting.

Common Deductions Beyond COGS and Platform Fees

Inventory and platform fees are the big ones, but resellers have a long list of other deductible expenses. These add up quickly.

COGS vs. Operating Expenses: Where Everything Goes

Knowing the difference matters because COGS goes on Schedule C Part III while operating expenses go on Part II. For resellers, the line between them is usually clear.

Note: Some resellers prefer to deduct mileage for sourcing trips as part of their COGS (transportation costs to acquire inventory). Either approach is acceptable as long as you're consistent from year to year.

1099-K: When You'll Get One and How to Reconcile It

A 1099-K reports the gross payment volume processed through a platform. For resellers, this is one of the most misunderstood tax forms because the number on it is almost always higher than what you actually received.

For a deeper look at 1099-K rules and how to handle them, see our complete 1099-K guide for payment apps.

Real Example: Tax Math on a Year of Reselling

Let's say you resell clothing across eBay and Poshmark, sourcing primarily from thrift stores and garage sales. Here's a simplified annual snapshot:

Without deductions, you'd pay self-employment tax and income tax on the full $22,000. With proper tracking, you're only taxed on $7,690. At a combined tax rate of roughly 30% (income tax plus SE tax), that's roughly $4,290 saved by documenting your expenses.

Record-Keeping Tips for Resellers

Good records are your defense in an audit and the difference between guessing and knowing whether your business is profitable. Here's what to track and how.