1099-K Tax Guide for Resellers 2026: What the $600 Threshold Means for Your Business

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If you’re selling items on eBay, Poshmark, Mercari, or any other online marketplace in 2026, you need to understand one critical tax form: the 1099-K. With the $600 reporting threshold now fully in effect, millions of casual sellers and full-time resellers are receiving these forms for the first time—and many are confused about what it means for their taxes.

Here’s the good news: receiving a 1099-K doesn’t automatically mean you owe more taxes. It simply means the IRS now knows about your sales. The key to minimizing your tax burden legally lies in understanding how cost basis works, tracking your expenses properly, and knowing which deductions you can claim.

This comprehensive guide breaks down everything resellers need to know about 1099-K forms in 2026, written in plain English for people who’d rather source inventory than study tax code.

Disclaimer: This article provides general educational information about tax concepts for resellers. It is not tax advice. Tax laws are complex and vary by individual circumstances. Always consult with a qualified tax professional, CPA, or enrolled agent for advice specific to your situation.

What Is a 1099-K and Why Are You Getting One?

A 1099-K is an IRS information return that payment settlement entities (PSEs) send to report payment card and third-party network transactions. In plain English, it’s a form that companies like PayPal, eBay, Etsy, and Venmo send to both you and the IRS showing how much money you received through their platforms.

The Old Rules vs. The New $600 Threshold

Before 2022, you only received a 1099-K if you had:

• More than 200 transactions, AND
• More than $20,000 in gross payments

Those thresholds were dramatically lowered by the American Rescue Plan Act of 2021. After a phased implementation period, the current rule requires platforms to issue a 1099-K if you receive:

• More than $600 in gross payments (no transaction minimum)

This means that someone who sold $700 worth of used clothing on Poshmark in 2025 will receive a 1099-K in early 2026—something that wouldn’t have happened under the old rules.

What the 1099-K Shows

Your 1099-K reports gross payment volume, not profit. This is a crucial distinction. The form shows:

• Box 1a: Gross amount of payment card/third-party network transactions
• Box 1b: Card not present transactions (online sales)
• The months in which transactions occurred
• Your taxpayer identification number (usually your SSN or EIN)

The amount in Box 1a includes:

• The total amount buyers paid you
• Shipping fees paid by buyers
• Sales tax collected (in some cases)
• Returns and refunds (these are still included in the gross amount)

This is why the number on your 1099-K often looks higher than what actually landed in your bank account—and much higher than your actual profit.

Understanding Cost Basis: Your Most Important Tax Concept

Here’s where many new resellers make expensive mistakes. The 1099-K reports your gross sales, but you’re only taxed on your net profit. The difference between these two numbers is primarily determined by your cost basis.

What Is Cost Basis?

Cost basis is what you originally paid for an item plus any costs directly related to acquiring it. For resellers, this typically includes:

• Purchase price: What you paid at the thrift store, estate sale, wholesale supplier, or retail store
• Acquisition costs: Gas to drive to the source, parking fees, admission fees to estate sales
• Restoration costs: Cleaning supplies, repair materials, replacement parts

A Simple Example

Let’s say you bought a vintage leather jacket at Goodwill for $15, spent $3 on leather conditioner to restore it, and sold it on eBay for $150.

• Gross sale (what’s on your 1099-K): $150
• Cost basis: $15 (purchase) + $3 (restoration) = $18
• Gross profit before other deductions: $150 - $18 = $132

You’re taxed on the $132 profit, not the $150 sale price. But we’re not done yet—you also have selling expenses to deduct.

Selling Expenses That Reduce Your Taxable Income

Beyond cost basis, you can deduct the expenses directly related to selling the item:

• Platform fees: eBay final value fees, PayPal/payment processing fees, Poshmark’s commission
• Shipping supplies: Boxes, poly mailers, tape, bubble wrap, labels
• Shipping costs: If you paid for shipping out of your proceeds

Continuing our jacket example:

• eBay final value fee (13.25%): ~$20
• Shipping supplies: $2
• Total selling expenses: $22

Your actual taxable profit: $132 - $22 = $110

From a $150 sale reported on your 1099-K, your taxable income is $110. This is why proper record-keeping is essential—without documenting your costs, you might end up paying taxes on the full $150.

Record-Keeping Best Practices for Resellers

The IRS operates on a simple principle: if you can’t prove it, you can’t deduct it. Developing good record-keeping habits from day one will save you money at tax time and protect you in case of an audit.

What Records to Keep

For every item you purchase with intent to resell, document:

1. Date of purchase
2. Location/source (store name, estate sale address, online supplier)
3. Item description (detailed enough to match with your sale later)
4. Purchase price
5. Receipt or proof of purchase

For every sale, track:

1. Date sold
2. Platform used
3. Sale price
4. Fees charged by platform
5. Shipping cost (if applicable)
6. Link the sale to your original purchase record

Practical Systems That Work

Option 1: Spreadsheet Tracking

A simple spreadsheet is the most common method for small to medium resellers. Create columns for:

Update it every time you source or sell. The key is consistency—a system only works if you actually use it.

Option 2: Inventory Management Apps

Several apps are designed specifically for reseller inventory tracking:

• Underpriced: Helps you research prices and track your flips with profit calculations
• Inventory Lab (primarily for Amazon sellers)
• vendoo (cross-listing with basic tracking)
• Sortly (general inventory management)

The advantage of apps is that they’re always with you when sourcing, making it easier to log purchases in real-time.

Option 3: The Receipt Envelope Method

Not tech-savvy? Keep a dedicated envelope or folder for each month. Every receipt goes in the envelope. At the end of the month (or quarter), enter everything into a spreadsheet or give the receipts directly to your accountant.

This works, but it’s prone to lost receipts and requires disciplined catch-up sessions.

What If You Don’t Have Receipts?

This is a common problem, especially for thrift store purchases where receipts fade or get lost. Here are backup documentation methods:

• Bank or credit card statements: Show you made a purchase at a location on a specific date
• Photos of price tags: Take a picture of the item with its price tag before purchase
• Contemporaneous logs: A log created at the time of purchase (even a note in your phone) carries more weight than records created later
• Reasonable estimates: For very small purchases, the IRS may accept reasonable estimates if you can demonstrate a consistent pattern of buying at that price point

The IRS prefers receipts, but they understand that’s not always possible. The key is having some documentation created at or near the time of purchase.

How Long to Keep Records

The IRS generally has three years to audit a return, but this extends to six years if they suspect substantial underreporting (more than 25% of gross income). To be safe, keep all reselling records for seven years.

Digital records are acceptable—scan or photograph paper receipts before they fade.

Common Deductible Expenses for Resellers

Beyond your cost of goods sold (cost basis), you can deduct ordinary and necessary business expenses. Here’s what most resellers can legitimately deduct:

Direct Selling Expenses

• Platform fees: eBay, Mercari, Poshmark commissions and fees
• Payment processing fees: PayPal, Stripe, or marketplace payment fees
• Shipping supplies: Boxes, mailers, tape, labels, tissue paper, thank-you cards
• Shipping costs: Postage you paid out of pocket (not reimbursed by buyers)
• Photography equipment: Camera, lights, backdrop, mannequin (may need to be depreciated if expensive)

Operating Expenses

• Home office deduction: If you have a dedicated space for reselling (must be used exclusively and regularly for business)
• Storage unit rental: If you rent a unit for inventory
• Vehicle expenses: Mileage to sourcing locations, post office, supply stores (keep a mileage log!)
• Internet and phone: Business-use percentage
• Software subscriptions: Inventory management, photo editing, cross-listing tools
• Shipping scale: Essential for accurate postage
• Printer and ink: For shipping labels

Professional Services

• Accounting/bookkeeping: Tax preparation fees, bookkeeping services
• Legal fees: Business formation, contract review
• Business insurance: If you carry liability insurance

Education and Research

• Books and courses: About reselling, business management, or tax strategy
• Conference attendance: Reseller conventions, trade shows
• Subscription services: Price lookup tools, market research

Inventory Losses

• Damaged inventory: Items destroyed or damaged beyond sellable condition
• Theft: Documented inventory theft
• Obsolete inventory: Items that become worthless (with documentation)

The Home Office Deduction Explained

The home office deduction is one of the most valuable—and most misunderstood—deductions for resellers.

Requirements:

1. Regular and exclusive use: The space must be used only for your reselling business, not as a guest room that doubles as a shipping station
2. Principal place of business: This must be where you regularly conduct business activities

Two calculation methods:

1. Simplified method: $5 per square foot, up to 300 square feet maximum ($1,500 max deduction)

2. Regular method: Calculate the percentage of your home used for business, then deduct that percentage of:

   • Mortgage interest or rent
   • Utilities
   • Insurance
   • Repairs and maintenance
   • Depreciation (if you own)

The simplified method is easier but may result in a smaller deduction. Run the numbers both ways to see which benefits you more.

Understanding Self-Employment Tax

If reselling is more than a hobby, you’re considered self-employed, which means you owe self-employment tax in addition to regular income tax.

What Is Self-Employment Tax?

Self-employment tax covers Social Security and Medicare taxes that employers normally withhold from W-2 wages. The current rate is 15.3% of net self-employment income:

• 12.4% for Social Security (on income up to $168,600 in 2026)
• 2.9% for Medicare (no income limit)

When you work for an employer, you pay half (7.65%) and your employer pays half. When you’re self-employed, you pay both halves.

The Silver Lining

You can deduct the employer-equivalent portion (half) of your self-employment tax when calculating your adjusted gross income. This reduces your overall income tax.

When Self-Employment Tax Applies

You owe self-employment tax if your net earnings from self-employment are $400 or more for the year. This is a much lower threshold than the 1099-K reporting threshold.

Quarterly Estimated Taxes: Staying Ahead of Your Bill

When you’re self-employed, there’s no employer withholding taxes from your paycheck. Instead, you’re expected to pay estimated taxes quarterly to avoid penalties.

Who Needs to Pay Quarterly?

You should pay quarterly estimated taxes if you expect to owe $1,000 or more in taxes when you file your return (after subtracting withholding and credits).

The Due Dates

Estimated tax payments are due:

• Q1: April 15, 2026 (for Jan-Mar income)
• Q2: June 15, 2026 (for Apr-May income)
• Q3: September 15, 2026 (for Jun-Aug income)
• Q4: January 15, 2027 (for Sep-Dec income)

How to Calculate Your Quarterly Payment

Simple method (Safe Harbor): Pay 100% of last year’s total tax liability, divided by four. As long as you pay at least this amount, you won’t owe underpayment penalties—even if you end up owing more.

If your adjusted gross income was over $150,000 last year, you need to pay 110% of last year’s tax liability to qualify for safe harbor.

Income-based method: Estimate your quarterly income and expenses, calculate the tax owed, and pay that amount. This requires more work but might result in lower payments if your income varies.

How to Pay

• IRS Direct Pay: Free online payment at irs.gov/payments
• EFTPS: Electronic Federal Tax Payment System
• Credit/debit card: Through approved processors (fees apply)
• Check: Mail with Form 1040-ES voucher

Many resellers set aside 25-30% of each sale’s profit in a separate savings account specifically for taxes. This prevents the quarterly scramble to find money for estimated payments.

Should You Form an LLC?

“Should I form an LLC?” is one of the most common questions new resellers ask. The answer depends on your specific situation.

What an LLC Does (and Doesn’t) Do

What an LLC provides:

• Limited liability protection: Separates your personal assets from business debts and lawsuits
• Professional appearance: Some wholesalers and suppliers prefer working with LLCs
• Flexible tax treatment: Can elect to be taxed as a sole proprietorship, partnership, S-corp, or C-corp

What an LLC does NOT provide:

• Tax savings by itself: A single-member LLC is a “disregarded entity” for tax purposes—you still report income on Schedule C just like a sole proprietorship
• Protection from your own negligence: If you personally cause harm, an LLC won’t protect you
• Simplicity: LLCs require annual filings, fees, and additional record-keeping

When to Consider an LLC

An LLC might make sense if:

1. You have significant personal assets to protect: A home, savings, or investments you don’t want at risk if someone sues your business

2. Your reselling income exceeds $50,000-$75,000 annually: At higher income levels, S-corp election can potentially save on self-employment taxes

3. You’re taking on business debt: Loans, credit lines, or significant accounts payable

4. You’re working with partners: Multi-member LLCs provide a formal structure

5. You want to establish business credit: Separate from your personal credit

When an LLC Is Probably Overkill

• You’re just starting out with low volume
• Your annual gross sales are under $10,000
• You have minimal personal assets to protect
• You’re risk-averse about complexity and filing requirements

State-Specific Considerations

LLC costs and requirements vary dramatically by state:

• Formation fees: $40 (Kentucky) to $500+ (Massachusetts)
• Annual fees: $0 (some states) to $800+ (California)
• Annual reporting: Required in most states

California, for example, charges an $800 minimum franchise tax annually, making LLCs expensive for small resellers in that state.

A Word on S-Corp Election

If your net self-employment income exceeds roughly $40,000-$50,000 (the exact number depends on your situation), electing S-corp taxation might save you money.

With an S-corp, you pay yourself a “reasonable salary” (subject to payroll taxes), and take remaining profits as distributions (not subject to self-employment tax).

Example:

• Net business income: $80,000
• Reasonable salary: $50,000 (subject to 15.3% SE tax)
• Distribution: $30,000 (not subject to SE tax)
• Potential savings: ~$4,600 in self-employment taxes

However, S-corps require payroll processing, additional tax filings (Form 1120-S), and more stringent record-keeping. The savings need to outweigh these costs.

Consult a tax professional before making S-corp election—the “reasonable salary” requirement is strictly enforced, and getting it wrong triggers penalties.

Hobby vs. Business: Why It Matters

The IRS distinguishes between hobbies and businesses. This distinction significantly impacts how you report income and what deductions you can claim.

The Key Difference

Business: You can deduct all ordinary and necessary expenses, even if they create a loss that offsets other income.

Hobby: Under current tax law, you must report all hobby income, but you cannot deduct hobby expenses. This creates a situation where you might owe taxes on “sales” even if you spent more than you made.

How the IRS Determines Business vs. Hobby

The IRS considers multiple factors:

1. Profit motive: Do you intend to make a profit?
2. Time and effort: Do you put in regular, substantial time?
3. Dependence on income: Do you depend on this income for living expenses?
4. Business-like operation: Do you keep records, have a separate bank account, and operate systematically?
5. Expertise: Have you gained knowledge about the activity?
6. History of income/losses: Have you profited in past years?
7. Occasional profits: Does the activity sometimes generate significant profit?
8. Financial status: Is this your main income source?
9. Personal pleasure: Is the activity primarily recreational?

The general rule of thumb: if you show a profit in three of the last five years, you’re presumed to have profit intent. But this isn’t absolute—you can be a business even with consistent losses if other factors support business intent.

What Most Resellers Should Know

If you’re regularly sourcing inventory, maintaining listings across multiple platforms, researching prices, and treating reselling as more than occasional closet cleanout, you’re likely operating a business in the IRS’s eyes—which is actually beneficial because it means you can deduct your expenses.

What to Do When You Receive Your 1099-K

Tax forms typically arrive in January for the previous year’s transactions. Here’s your action plan:

Step 1: Verify the Information

Check that:

• Your name and TIN (Tax Identification Number) are correct
• The gross amount approximately matches your records

If the amount seems wrong, request a corrected form from the platform. Remember that the gross amount includes refunds, shipping, and sometimes sales tax—it will be higher than your deposits.

Step 2: Gather Supporting Documentation

Collect:

• Your inventory purchase records
• Platform fee statements (most platforms provide annual summaries)
• Shipping expense receipts
• Other business expense receipts
• Mileage logs

Step 3: Calculate Your Actual Profit

Using your records:

Gross Sales (from 1099-K) Minus: Returns and refunds Minus: Sales tax collected and remitted Minus: Cost of goods sold (your cost basis) Equals: Gross Profit

Gross Profit Minus: Selling expenses (fees, shipping, supplies) Minus: Operating expenses (home office, mileage, etc.) Equals: Net Profit (your taxable self-employment income)

Step 4: Report on Your Tax Return

Self-employment income goes on:

• Schedule C (Form 1040): Profit or Loss from Business
• Schedule SE: Self-Employment Tax

The 1099-K amount goes in gross receipts. Your deductions reduce this to your taxable profit.

Getting Help

If your reselling income is significant or your tax situation is complex, consider hiring a professional:

• Tax software: TurboTax Self-Employed, H&R Block Self-Employed, or FreeTaxUSA handle Schedule C
• CPA or Enrolled Agent: Recommended if you made over $10,000 profit, are considering LLC/S-corp, or have complicated situations
• Tax preparation services: H&R Block, Jackson Hewitt for moderate complexity

Common Mistakes to Avoid

Mistake 1: Ignoring the 1099-K

The IRS receives a copy of every 1099-K. If you don’t report this income, their computers will flag the discrepancy and you’ll receive a notice—possibly with penalties and interest.

Mistake 2: Reporting the Full 1099-K Amount as Profit

Your 1099-K shows gross sales, not profit. Always deduct your cost basis and expenses. Paying tax on gross sales can cost you thousands of dollars needlessly.

Mistake 3: Not Keeping Records

Without documentation, you can’t prove your deductions. Start tracking from day one, even if you think you’re “too small” to matter.

Mistake 4: Mixing Personal and Business Finances

Use a dedicated bank account and credit card for reselling. Commingling funds makes accounting harder and looks unprofessional in an audit.

Mistake 5: Forgetting State Taxes

Most states also tax self-employment income. Some have separate business taxes or gross receipts taxes. Research your state’s requirements.

Mistake 6: Missing Quarterly Payments

Waiting until April to pay all your taxes can trigger underpayment penalties. Estimate and pay quarterly if you expect to owe more than $1,000.

Mistake 7: Claiming Personal Sales as Business Expenses

Selling your personal items at a loss isn’t a business deduction. Personal items sold for less than you paid for personal use aren’t deductible—they’re just not taxable.

Frequently Asked Questions

Do I owe taxes on everything shown on my 1099-K?

No. The 1099-K shows gross payment volume, not profit. You only owe taxes on your net profit after subtracting your cost basis and deductible business expenses.

I sold my personal items at a loss—do I still owe taxes?

If you sold personal items for less than you originally paid for them (for personal use, not resale), you don’t owe taxes on those sales. However, you also can’t deduct the loss. Keep records showing your original purchase price to prove these weren’t profitable sales.

What if I sold both personal items and inventory?

Separate them in your records. Personal items sold at a loss: report the sale but no profit. Inventory purchased for resale: report actual profit (sale price minus cost basis minus expenses).

The amount on my 1099-K includes sales tax—what do I do?

If the platform collected and remitted sales tax on your behalf, that amount may be included in your 1099-K gross. You can deduct this as it wasn’t actually your income. Check the platform’s tax summary for details.

I sell on multiple platforms and got multiple 1099-Ks—how do I report this?

Add all the 1099-K amounts together for your gross receipts on Schedule C. Your deductions (cost basis, expenses) reduce the total.

What if I didn’t receive a 1099-K but made over $600?

You’re still required to report all income, regardless of whether you receive a 1099-K. Some platforms may have errors or exemptions. Report your actual sales per your own records.

Can I deduct inventory I haven’t sold yet?

No. Unsold inventory is an asset, not an expense. You deduct the cost when you sell the item. However, if inventory becomes worthless (damaged, obsolete), you can potentially deduct that as a loss.

Do I need a business license to resell?

This depends on your local and state requirements, not federal tax law. Many jurisdictions require business licenses for ongoing selling activities. Check with your city and state.

Is there a minimum income before I need to file taxes on reselling?

You must report self-employment income on your tax return if you have net earnings of $400 or more. However, you might need to file anyway depending on your total income from all sources.

What’s the penalty for not paying estimated taxes?

The underpayment penalty is calculated based on the federal short-term interest rate plus 3%. For 2026, this is approximately 8% annually on the underpaid amount. The penalty is relatively small but adds up if you consistently underpay.

Final Thoughts

The $600 1099-K threshold has brought many resellers into the tax reporting system for the first time. While it might feel intimidating, remember that the 1099-K reports gross sales—not what you actually owe.

By keeping solid records of your cost basis and business expenses, you’ll only pay taxes on your true profit. Develop good habits now: log every purchase, save every receipt, and track your mileage. These small actions pay off significantly when tax time arrives.

If your reselling business is growing, don’t hesitate to invest in professional tax advice. A good CPA familiar with reselling can often save you far more than their fee through strategic deductions and proper business structure.

Reselling is a legitimate business, and like any business, it comes with tax obligations. Meet those obligations properly, and you can focus on what you actually enjoy: finding great items and turning them into profit.

Ready to track your reselling profits more accurately? Try Underpriced to research prices and monitor your flip inventory with built-in profit tracking.

This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently. Consult a qualified tax professional for advice specific to your situation.