Reseller Tax Deductions: Complete Guide to What You Can Write Off (2026)

DISCLAIMER: This article provides educational information only and does not constitute professional tax, legal, or accounting advice. Tax laws are complex and change frequently. Always consult with a qualified CPA or tax professional regarding your specific situation before making tax decisions.

Why Reseller Tax Deductions Matter in 2026

If you’re selling items online and received a 1099-K form this year, you’re probably wondering how to avoid getting crushed by taxes. Here’s the reality: you’re not taxed on your gross revenue—you’re taxed on your profit after legitimate business deductions.

The 1099-K threshold has been a moving target. For 2024 tax returns, the IRS set it at $5,000, but the ultimate goal is $600 in gross payments. Whether you made $10,000 or $100,000 in sales, understanding deductions is the difference between owing thousands in taxes and paying only what you legitimately owe.

Let’s look at a real example: You sell $50,000 worth of items on eBay this year. Without tracking deductions, the IRS might assume that’s all profit, putting you in the 22% federal tax bracket plus 15.3% self-employment tax—a potential tax bill of $18,650. But if you properly deduct your $30,000 in COGS, $5,000 in shipping, $2,000 in platform fees, and another $3,000 in legitimate business expenses, your taxable income drops to just $10,000. Your actual tax? Around $3,730—a savings of nearly $15,000.

The cost of not tracking deductions isn’t just paying more than you owe. It’s also the opportunity cost of cash you could reinvest in inventory, the stress of facing an unexpected tax bill, and potentially underpaying quarterly estimates that trigger penalties.

Every receipt you save, every mile you track, every fee you document—it all adds up to real money staying in your pocket instead of going to the IRS.

Am I a Business? Hobby vs Business IRS Rules

Before you start deducting everything, you need to understand whether the IRS considers you a business or a hobbyist. This distinction is crucial because businesses can deduct expenses against revenue, while hobbies cannot (under current tax law, hobby expenses are generally not deductible).

The IRS uses a “profit motive test” with nine factors:

1. Do you operate in a businesslike manner? (recordkeeping, separate bank account, business plan)
2. Do you put in the time and effort? (regular sourcing, listing, shipping activities)
3. Do you depend on income from the activity? (not required, but helps)
4. Are your losses due to circumstances beyond your control? (market downturns vs poor planning)
5. Do you change methods to improve profitability? (adjusting sourcing strategies, testing new platforms)
6. Do you have the knowledge to succeed? (learning the business, understanding markets)
7. Have you made profit in the past? (3 profitable years out of 5 generally proves business intent)
8. Do you expect to make profit from appreciation? (buying items to resell at higher value)
9. Do you have substantial income from other sources? (having a day job doesn’t disqualify you)

You don’t need to meet all nine factors. The IRS looks at the overall picture. If you’re regularly sourcing inventory, maintaining records, trying to improve profits, and treating it seriously, you’re likely running a business—even if you work full-time elsewhere.

The hobby loss rules mean that if you’re classified as a hobby, you can only report income—no offsetting deductions. That’s why treating your reselling as a business from day one matters. You don’t need an LLC or formal business structure to be considered a business for tax purposes, but you do need to demonstrate business intent through your actions.

Cost of Goods Sold (COGS) - Your Biggest Deduction

Cost of Goods Sold is typically the largest deduction for resellers, and it’s fundamentally different from business expenses. COGS includes what you paid to acquire your inventory, but you can only deduct it in the year you sell the item—not when you buy it.

What Qualifies as COGS for Resellers

For resellers, COGS includes:

• Purchase price of items you resell (the $3 you paid for that shirt at Goodwill)
• Shipping costs to acquire inventory (shipping fees when buying from online sources)
• Sales tax paid on inventory purchases (tax you paid at retail stores when sourcing)
• Your share of bulk lot purchases (more on allocation below)

Tracking Purchase Prices: Methods That Work

Method 1: Receipt-per-item (Best for high-value items) For designer bags, electronics, collectibles—keep individual receipts. Take photos immediately and store digitally with item notes.

Method 2: Batch receipts with item counts (For thrift/estate hauls) Receipt shows “$47.50 for 25 items at Goodwill.” Divide: $1.90 COGS per item. Track which items came from that batch.

Method 3: Mileage + lot purchases (Estate sales, auctions) You buy a box of 30 vintage cameras for $150 at an estate sale. Allocate COGS based on relative value. If one camera is clearly worth $500 and another $50, allocate proportionally.

COGS Calculation Examples

Example 1: Thrift Store Item

• Purchased vintage jacket at Goodwill: $6.99
• Sales tax: $0.53
• COGS when sold: $7.52

Example 2: Bulk Lot Allocation

• Bought 50-item lot on Facebook Marketplace: $200
• 20 items were quality enough to list
• Baseline allocation: $10 COGS per item
• OR value-based: High-value items get proportionally more COGS

Example 3: Online Arbitrage

• Item cost: $25.00
• Shipping to you: $8.50
• Sales tax: $2.13
• Total COGS: $35.63

Documentation Requirements

The IRS wants proof. Best practices:

• Digital receipt storage: Use apps like Expensify, Shoeboxed, or even Google Drive with organized folders
• Note inventory source on spreadsheet: “GW Main St 1/15/26 - 14 items - $28.47”
• For cash purchases: Write details on receipt immediately, photograph
• Bulk lots: Note allocation method and items included

One critical point: unsold inventory stays in your inventory account—you haven’t realized the expense yet. If you bought $10,000 in inventory this year but only sold $6,000 worth, you only deduct $6,000 in COGS this year. The remaining $4,000 carries forward to future years when those items sell.

💡 Pro Tip: Underpriced’s fee calculator helps you track all platform fees and selling costs in one place, making deduction reporting at tax time dramatically easier. When every fee is automatically documented, you never leave money on the table.

Vehicle & Mileage Deductions

Every trip to the thrift store, post office, or shipping supply store is potentially deductible—and these miles add up faster than you think. Most resellers underestimate this deduction by 50% or more simply because they don’t track consistently.

Standard Mileage Rate vs Actual Expense Method

For 2026, the IRS standard mileage rate is 67 cents per mile (as of 2024; check current rates). You have two options:

Standard Mileage Method:

• Track miles driven for business
• Multiply by IRS standard rate
• Simpler, works for most resellers
• Can’t switch if you’ve used actual expense method previously on this vehicle

Actual Expense Method:

• Track total vehicle expenses (gas, repairs, insurance, registration, depreciation)
• Calculate business use percentage
• Deduct that percentage of total expenses
• More complex, potentially higher deduction for expensive vehicles

Which Method Saves More?

Standard mileage usually wins for resellers unless you drive a vehicle with very high operating costs. Let’s compare:

What Trips Are Deductible?

✅ Deductible:

• Driving to thrift stores, estate sales, auctions to source inventory
• Post office trips to ship items
• Packing supply runs (boxes, tape, poly mailers)
• Bank deposits for business
• Meeting with accountant or attorney about business
• Picking up inventory purchases from local sellers
• Delivering items to consignment or retail partners

❌ NOT Deductible:

• Commuting from home to a regular workplace (but most resellers work from home)
• Personal errands, even if you “check” a thrift store while there
• Trips where business purpose is incidental to personal purpose

Mileage Tracking Methods

Mobile Apps (Easiest):

• MileIQ: Auto-detects trips, swipe to classify
• Everlance: Automatic tracking with manual review
• QuickBooks Online: Integrated with expense tracking
• Stride: Free option popular with gig workers

Manual Log (IRS Compliant): Record: Date, destination, business purpose, starting odometer, ending odometer, total miles. Example: “1/15/26 | Home to Goodwill Main St (sourcing) | 32,451 - 32,467 | 16 miles”

Real Impact: The Math

Part-time reseller averaging 200 miles/month:

• Annual business miles: 2,400
• Standard rate deduction: 2,400 × $0.67 = $1,608
• Many resellers miss this entirely

Full-time reseller averaging 800 miles/month:

• Annual business miles: 9,600
• Standard rate deduction: 9,600 × $0.67 = $6,432
• At 30% tax burden, that’s $1,930 real tax savings

The key is consistency: Set up automatic tracking today, not in December when you’re trying to remember where you drove 11 months ago.

Home Office Deduction for Resellers

Working from home means you’re using part of your residence for business, and the IRS allows you to deduct associated costs. Many resellers avoid this deduction thinking it’s complicated or risky, but it’s legitimate and valuable when properly claimed.

Two Calculation Methods

Simplified Method:

• $5 per square foot of home office space
• Maximum 300 square feet
• Maximum deduction: $1,500
• No depreciation recapture when you sell your home
• Easier recordkeeping

Actual Expense Method:

• Calculate percentage of home used for business
• Deduct that percentage of: mortgage interest, property taxes, utilities, insurance, repairs, depreciation
• More complex but potentially larger deduction
• Requires detailed recordkeeping

The Exclusive Use Requirement

The IRS requires “exclusive and regular use” for business. This means:

✅ Qualifies:

• Separate room used only for photographing, listing, and packing items
• Corner of bedroom with desk, shelving, and inventory that’s only for business
• Basement area partitioned off for business activities

❌ Doesn’t Qualify:

• Dining room table where you sometimes work but family also eats
• Living room couch where you list items while watching TV
• Guest bedroom that visitors use, even if you store inventory there

Exception: Storage Space Inventory storage doesn’t require exclusive use! If you store inventory in your garage, basement, or spare closet, you can deduct the storage space even if the area has other uses. This is huge for resellers with significant inventory.

Calculation Examples

Simplified Method Example:

• Home office/photo area: 120 square feet
• Inventory storage (garage): 180 square feet
• Total business space: 300 square feet (hitting the max)
• Deduction: 300 × $5 = $1,500

Actual Expense Example:

• Home: 2,000 square feet
• Business space: 250 square feet (12.5% of home)
• Annual home expenses: $24,000 (mortgage interest, property tax, insurance, utilities, repairs)
• Business deduction: $24,000 × 12.5% = $3,000

For most part-time resellers, the simplified method makes sense. Full-time resellers with significant space dedicated to business should calculate both methods and use whichever provides a larger deduction.

Storage Space: The Often-Forgotten Deduction

If you have 400 square feet of basement storing inventory, that’s deductible even under the simplified method as storage space (separate from the 300 sq ft office limit for the simplified method when combined with actual expense calculation for storage).

Many resellers store thousands of dollars in inventory at home. If you have:

• Shelving units dedicated to inventory
• Bins of items to be listed
• Seasonal storage of merchandise
• Organized inventory management space

…you can measure and deduct that square footage.

Shipping & Packaging Deductions

Every label you print, every box you fold, every strip of tape you seal—it’s all deductible. Shipping and packaging represent a substantial expense category that’s fortunately very straightforward to deduct.

100% Deductible Shipping Costs

Postage and Labels:

• USPS, UPS, FedEx shipping labels (purchased through eBay, Pirate Ship, PayPal, etc.)
• Extra services (signature confirmation, insurance, tracking)
• International customs forms and fees
• Return labels (even if buyer never uses them)

All shipping costs for items you sell are fully deductible as business expenses. Platform-purchased labels are automatically documented, making this one of the easiest deductions to track.

Packaging Supplies

Everything You Use to Package Items:

• Cardboard boxes (new or purchased used)
• Poly mailers and bubble mailers
• Bubble wrap and packing paper
• Packing peanuts and air pillows
• Tissue paper for delicate items
• Branded thank-you cards or stickers
• Fragile/handle with care stickers
• Packing tape (and tape dispensers)
• Address labels and printer labels

Where You Buy Matters for Documentation:

• Online purchases: Auto-documented with digital receipts
• Retail stores: Keep receipts, categorize as “packaging supplies”
• Bulk purchases: Allocate across the year or deduct when purchased (consult your accountant on their preference)

Equipment for Shipping

One-Time Equipment Purchases:

• Shipping scale: Essential tool, 100% deductible ($25-$400 depending on capacity)
• Label printer: Dymo, Rollo, Brother ($100-$300)
• Tape gun/dispenser: Industrial dispensers for high-volume sellers
• Heat-free label printer paper: Ongoing supply expense

These items can be immediately expensed if under Section 179 limits (see Equipment section) or depreciated over their useful life.

Tracking Methods

Best Practices:

1. Separate business credit card: Use one card for all shipping and packing supplies
2. Digital receipt collection: Photo every receipt immediately, organize by month
3. Spreadsheet tracking: Monthly totals by category makes tax prep easier
4. Platform reports: eBay, Poshmark, etc. provide shipping cost reports—download annually

Real Numbers

Part-time reseller (50 sales/month):

• Average shipping cost: $5 per sale
• Monthly shipping: $250
• Annual deduction: $3,000

Full-time reseller (500 sales/month):

• Average shipping cost: $6 per sale
• Monthly shipping: $3,000
• Annual deduction: $36,000

Don’t forget packaging supplies add another 10-20% on top of postage costs for most resellers.

Equipment & Tools Deductions

The phone you use to list items, the computer where you manage inventory, the mannequin you photograph clothing on—these are all legitimate business tools that can be deducted.

Section 179 Expensing vs Depreciation

The IRS gives you two options for deducting equipment:

Section 179 Immediate Expensing:

• Deduct the full cost in the year you purchase it
• 2026 limit: Up to $1,220,000 (indexed annually)
• Perfect for resellers who want immediate tax benefit
• Applies to equipment, furniture, computers, vehicles

Depreciation Over Time:

• Spread deduction over the “useful life” of the asset (typically 5-7 years)
• Smaller annual deduction but lasts multiple years
• Makes sense if you want to smooth out deductions or expect higher income in future years

For most resellers, Section 179 is the way to go. Why wait 5 years to deduct a $1,000 computer when you can deduct it all this year?

Computers and Phones

Computer Deduction: If you use a computer 100% for business, deduct 100% of the cost. Mixed use? Deduct the business percentage.

• Desktop or laptop: $500-$2,500 (typical)
• Business use percentage: Track honestly (e.g., 80% business, 20% personal)
• Deductible amount: Cost × business percentage

Phone and Service:

• Phone hardware: Deductible at business use percentage
• Monthly service: Deduct business percentage of monthly bills
• Second business-only line: 100% deductible

Photography Equipment

Quality photos sell items faster and for more money, making photography equipment essential:

Deductible Photography Gear:

• Camera or smartphone used for product photos (business use %)
• Ring lights or photo lighting kits ($30-$300)
• Light box or photo tent ($40-$150)
• Backdrop stands and backdrops
• Photo editing software (see Software section)
• Tripod or phone mounts

Reseller-Specific Tools

Listing and Fulfillment Equipment:

• Shipping scale: $25-$400 (capacity-dependent)
• Thermal label printer (Rollo, etc.): $150-$300
• Mannequin for clothing: $50-$200
• Steamer for clothing prep: $30-$100
• Tailor measuring tape: $5
• Jewelry scale for precious metals: $20-$50
• Barcode scanner for inventory: $50-$300

Storage and Organization:

• Shelving units (wall-mounted or freestanding): $100-$500
• Storage bins and containers: $50-$300
• Clothing racks: $30-$150
• Label makers for inventory organization: $30-$100
• Filing cabinets for records: $100-$300

Furniture for Workspace

If you maintain a dedicated home office or workspace:

• Desk: $100-$1,000
• Office chair: $100-$500
• Storage cabinets: $100-$400
• Packing table: $50-$300

These items are deductible under Section 179 or can be depreciated. If you use simplified home office deduction, you can’t also deduct furniture separately—it’s already factored in.

When to Expense vs Depreciate

Expense immediately (Section 179) when:

• You have significant profit this year and want to offset it
• You prefer simplicity in recordkeeping
• The item costs under $2,500 (de minimis safe harbor threshold)

Depreciate when:

• You want to spread deductions across multiple years
• You expect higher income in future years
• Your accountant recommends it for your situation

Real Impact Example

New reseller startup equipment:

• Computer (80% business use): $1,200 × 80% = $960
• Phone (50% business use): $800 × 50% = $400
• Shipping scale: $80
• Label printer: $200
• Ring light and backdrop: $120
• Mannequin: $75
• Shelving: $300
• Total first-year equipment deduction: $2,135

Software & Subscription Deductions

Modern reselling relies on software and digital tools. Every subscription you pay for to run your business is fully deductible, and these add up quickly.

Crosslisting and Automation Tools

These platforms save hours of manual listing work:

• List Perfectly: $30-$60/month
• Vendoo: $30-$50/month
• Crosslist: $20-$40/month
• PrimeLister: Various pricing tiers

Annual cost range: $360-$720 per platform Many resellers use multiple tools, stacking deductions to $1,500+ annually.

Inventory and Business Management

Inventory Tracking:

• Vendoo: Also includes inventory features
• My Reseller Genie: $15-$20/month
• List Perfectly: Includes inventory tracking
• SellerUp: Specialized inventory management

Market Research and Pricing Tools:

• Underpriced.app: Market research, worth tracking, fee calculations (plans vary)
• Terapeak (eBay): Included with eBay Store, or standalone
• WatchCount: eBay watching tracking
• ZIK Analytics: Product research

These tools help you source smarter and price competitively—making them not just deductible expenses but profit-generating investments.

Accounting and Tax Software

Bookkeeping Software:

• QuickBooks Online: $30-$90/month ($360-$1,080/year)
• Wave Accounting: Free tier available, paid features $20-$35/month
• FreshBooks: $15-$50/month
• Xero: $13-$70/month

Tax Preparation:

• TurboTax Self-Employed: ~$119-$179/year
• H&R Block Premium & Business: ~$115/year
• TaxAct Self-Employed: ~$65-$90/year

Platform Subscriptions

Store Subscriptions:

• eBay Store: $4.95-$2,999.95/month (Starter to Enterprise)
• Poshmark Pro Tools: Included in platform fees
• Mercari promotion packages: Varies

Many platforms offer analytics, promotional tools, and lower fees with paid subscriptions—making the subscription cost tax-deductible while improving profitability.

Cloud Storage and File Management

Storage Services:

• Google Drive: $1.99-$9.99/month for 100GB-2TB
• Dropbox: $11.99-$19.99/month
• Microsoft OneDrive: $1.99-$6.99/month

Use for storing receipt photos, inventory images, tax documents—100% deductible for business storage.

Photo Editing and Design

Software for Product Images:

• Adobe Creative Cloud Photography: $9.99/month
• Canva Pro: $12.99/month ($119.99/year)
• Pixlr Premium: $4.90-$14.99/month
• Snapseed: Free (but if you pay for premium features, deductible)

Better photos = faster sales at higher prices. Photo editing software is essential for many resellers.

Communication and Collaboration

• Zoom (for meetings with accountant, attorney): $14.99-$19.99/month
• Slack (for reseller groups or team): $7.25-$12.50/user/month
• Google Workspace: $6-$18/user/month

The Underpriced Advantage

💡 Pro Tip: Your Underpriced.app subscription is a fully deductible business expense. As a market research and analytical tool that helps you identify profitable inventory and track fees, it directly supports your reselling business while reducing your tax burden. When software pays for itself in better sourcing decisions and then provides a tax deduction, it’s a double win.

Annual Software Deduction Example

Typical full-time reseller software stack:

• Crosslisting tool: $500/year
• Underpriced.app: $200/year (example pricing)
• QuickBooks: $600/year
• eBay Store: $300/year
• Cloud storage: $120/year
• Tax software: $150/year
• Photo editing: $120/year
• Total annual software deductions: $1,990

For part-time resellers, even a modest software stack of $500-$800 annually provides meaningful tax savings.

Platform Fees & Transaction Costs

Every fee deducted from your sales by eBay, Poshmark, Mercari, or payment processors is 100% deductible. These fees often represent 13-20% of your gross sales, making them one of your largest expense categories.

Marketplace Final Value Fees

eBay:

• Final value fees: 12.9% (average for most categories) + $0.30 per order
• International fees: Additional 1.65%
• Below standard seller fees: Extra 4% surcharge
• All fully deductible

Poshmark:

• Sales under $15: Flat $2.95 fee
• Sales $15+: 20% commission
• Both fully deductible

Mercari:

• 12.9% selling fee (as of recent updates)
• Additional processing fees
• Fully deductible

Depop:

• 10% selling fee
• PayPal or Depop Payments processing fees
• Fully deductible

Payment Processing Fees

PayPal:

• 3.49% + $0.49 domestic transactions (goods/services)
• 4.49% + fixed fee for international
• Deductible as transaction fees

Stripe:

• 2.9% + $0.30 per transaction (if selling through your own site)
• Fully deductible

Shopify Payments:

• 2.9% + $0.30 (Shopify Basic plan)
• Lower rates on higher-tier plans
• Deductible as processing fees

Promoted Listings and Advertising

Platform Advertising:

• eBay Promoted Listings: 2-20% ad rate (you choose)
• Poshmark closet promotions
• Mercari Smart Pricing features (optional)
• All advertising spend is deductible

Many sellers spend 3-8% of revenue on promoted listings. On $60,000 in sales, that’s $1,800-$4,800 in advertising deductions.

Monthly Subscription Costs

Don’t forget monthly platform fees:

• eBay Store subscription: $4.95-$299.95/month
• Shopify plan: $29-$299/month (if you run your own site)
• Etsy Plus: $10/month
• Fully deductible

Tracking Platform Fees

Easy Documentation: Most platforms provide detailed fee reports:

• eBay: Seller Hub > Performance > Download transaction report
• Poshmark: Account > Sales Report
• Mercari: Sold > Export transaction data
• PayPal: Activity > Statements & Reports

Download annual summaries in January for tax prep. Your accountant will thank you.

Real Fee Deduction Example

Full-time reseller with $80,000 in gross sales across platforms:

• eBay final value fees (50% of sales): $5,160
• Poshmark fees (30% of sales): $4,800
• Mercari fees (20% of sales): $2,064
• PayPal processing: $1,200
• eBay Store subscription: $360
• Promoted listings: $2,400
• Total platform fee deductions: $15,984

At a 30% effective tax rate, that’s $4,795 in tax savings from properly deducting platform fees.

Often-Missed Deductions for Resellers

These deductions fly under the radar for most resellers, but they’re completely legitimate and can add hundreds or thousands to your annual deductions.

Internet and Phone (Business Percentage)

You need internet to list items, research comps, communicate with buyers, and manage your business. The business-use percentage is deductible.

Calculation:

• Monthly internet cost: $80
• Business use: 60% (conservative estimate for someone who works from home)
• Monthly deduction: $48
• Annual deduction: $576

Phone works similarly:

• Monthly phone bill: $100
• Business use: 40% (calls with buyers, photo uploads, mobile listing)
• Monthly deduction: $40
• Annual deduction: $480

Just track honestly and be prepared to explain your percentage if asked.

Bank Fees and Credit Card Processing

Business-Related Banking Costs:

• Monthly account fees on business checking account: $15/month = $180/year
• Wire transfer fees
• Overdraft fees (if business-related)
• Business credit card annual fees: $0-$550 depending on card
• Foreign transaction fees when sourcing internationally

Credit Card Interest: This is controversial and depends on whether the expense is business-related. Interest on purchases of inventory and supplies is generally deductible. Personal expenses charged to business cards are not. Consult your CPA.

PO Box or Shipping Address

Many resellers use PO Boxes or private mailbox services (like UPS Store) to avoid using their home address publicly:

• USPS PO Box: $40-$300/year (size and location dependent)
• Private mailbox (UPS Store, etc.): $200-$400/year
• 100% deductible as business expense

Business Insurance

Specialized reseller insurance policies protect inventory, provide liability coverage, and may be required by some platforms:

• Reseller insurance policies: $300-$1,200/year
• Business liability insurance: $400-$1,000/year
• Inventory insurance (for high-value items): Varies widely
• 100% deductible

While not required, insurance protects against catastrophic losses (fire, theft, liability claims) and the premiums are fully deductible.

Professional Development

Improving your reselling skills through education is deductible:

• Online courses: Reselling courses, eBay training, photography classes ($50-$500)
• Books: Reselling strategy books, tax guides, business books ($15-$50 each)
• Memberships: Reseller associations, professional groups ($100-$500/year)
• Webinars and workshops: Virtual or in-person training
• Coaching or consulting: One-on-one business coaching

If it improves your business knowledge or skills, it’s likely deductible.

Conferences and Trade Shows

Attending reselling conferences or trade shows:

• Conference registration: $200-$1,500
• Travel expenses: Airfare, hotel, ground transportation (taxi/Uber)
• Meals during travel: 50% deductible (business meal deduction)
• Booth fees: If you rent space to sell

Must be primarily for business (not a personal vacation disguised as business).

Legal and Professional Fees

Accountant and Tax Preparation:

• CPA fees for tax preparation: $300-$1,500/year
• Quarterly tax planning consultations: $150-$500 each
• Year-end tax strategy sessions
• 100% deductible

Legal Fees:

• Attorney consultation for business structure: $200-$1,000
• Trademark or business name registration: $50-$500
• Contract review (consignment agreements, partnership): $150-$500/hour
• Deductible when business-related

Business Licenses and Permits

Many cities and states require business licenses for resellers:

• City business license: $25-$200/year
• State resale certificate: Often free, but renewal fees vary
• Sales tax permits: Usually free
• Professional licenses: If required in your area

All registration and renewal fees are deductible.

Website, Hosting, and Domain

If you maintain a website for your reselling business:

• Domain registration: $10-$50/year
• Web hosting: $5-$50/month ($60-$600/year)
• Website builder (Squarespace, Wix): $16-$49/month
• SSL certificate: $0-$200/year (often included with hosting)

Even a simple single-page site with contact info and links to your selling platforms justifies these deductions.

Real Impact: Often-Missed Deductions

If you track these overlooked deductions, you might find:

• Internet/phone (business %): $1,000
• Banking and credit card fees: $250
• PO Box: $200
• Insurance: $500
• Professional development: $300
• Legal/accounting: $800
• Business licenses: $100
• Website: $200
• Total often-missed deductions: $3,350

At 30% tax burden, that’s over $1,000 in tax savings that most resellers leave on the table.

Inventory & Storage Costs

If you’re storing inventory anywhere other than your home, those costs are fully deductible. Even at-home storage qualifies under home office deduction rules covered earlier.

Storage Unit Rental

Commercial Storage Facilities:

• Climate-controlled units: $75-$300/month
• Standard units: $40-$150/month
• 100% deductible when used exclusively for business inventory

Example: You rent a 10×10 climate-controlled unit for $125/month to store seasonal inventory and high-value items.

• Monthly cost: $125
• Annual deduction: $1,500

Many growing resellers reach a point where home storage is insufficient. The storage rental becomes both a necessary business expense and a valuable deduction.

Warehouse or Commercial Space

Full-time resellers sometimes lease commercial space:

• Small warehouse space: $500-$2,000/month
• Shared warehouse/co-working space: $200-$800/month
• Retail storefront with inventory storage: $1,000-$5,000/month

100% of rent is deductible when space is used exclusively for business. This is more advantageous than home office deduction in many cases because there’s no exclusive-use ambiguity.

Climate-Controlled Storage for Specific Inventory

Certain reselling niches require special storage:

• Electronics: Humidity control to prevent damage
• Vintage clothing: Climate control to prevent mildew
• Collectibles: Temperature stability to preserve value
• Wine/spirits (if licensed): Temperature-controlled storage

Premium climate-controlled storage costs more ($150-$400/month) but is justified by inventory protection and fully deductible.

Inventory Management Supplies

Beyond packaging supplies, you need organizational systems:

• Bin labels and tag supplies: $50-$200/year
• Inventory tracking labels: $30-$100/year
• Shelving labels and signage: $20-$100
• Barcode labels: $50-$200/year

These small costs add up and are often forgotten at tax time.

Security Systems for Inventory

If you maintain significant inventory value:

• Home security system (business %): Deduct percentage protecting inventory storage area
• Storage unit locks and security: $20-$100
• Warehouse security systems: $50-$300/month
• Cameras monitoring inventory space: $100-$500 equipment cost

Real Storage Cost Example

Part-time reseller (home storage only):

• Home office/storage deduction: $1,500 (simplified method)

Growing full-time reseller:

• 10×10 storage unit: $1,800/year
• Home storage area (actual expense method portion): $600/year
• Shelving and organization supplies: $300/year
• Inventory security (percentage of home system): $120/year
• Total storage deductions: $2,820/year

High-volume reseller:

• Commercial warehouse space: $12,000/year
• Climate control add-on: $1,200/year
• Security system: $1,800/year
• Shelving and racking systems: $2,000 (Section 179)
• Inventory management supplies: $500/year
• Total storage deductions: $17,500/year

Record-Keeping Best Practices

Having deductible expenses means nothing if you can’t prove them. The IRS has specific documentation requirements, and good records are your protection in case of an audit.

What Documentation the IRS Requires

For each deduction, you need to prove:

• Amount: How much you spent
• Date: When the expense occurred
• Business purpose: Why it was necessary for your business
• Recipient: Who you paid (vendor/service provider)

This means:

• Receipts: Physical or digital copies showing amount, date, vendor
• Bank/credit card statements: Supporting proof of payment
• Invoice or bill: For services or large purchases
• Mileage logs: Date, miles, destination, business purpose
• Explanation notes: For unclear expenses

Digitizing Receipts: Apps That Work

Paper receipts fade and get lost. Digital is better:

Receipt Scanning Apps:

• Expensify: Photo receipts, auto-categorizes, integrates with accounting software ($5-$18/month)
• Shoeboxed: Mail receipts to them for scanning, or use app ($18-$60/month)
• QuickBooks Online: Built-in receipt capture
• Wave Receipts: Free with Wave accounting
• Evernote Scannable: Free, basic receipt storage
• Google Drive/Photos: Free DIY option—create organized folders

Best Practice: Photo receipt immediately after purchase. Don’t let them pile up.

Organizing by Expense Category

Group expenses to match tax Schedule C categories:

1. Advertising: Promoted listings, business cards
2. Car and Truck: Mileage or actual expenses
3. Commissions and Fees: Platform fees, payment processing
4. Supplies: Packaging, shipping supplies
5. Office Expense: Software, subscriptions, small equipment
6. Rent or Lease: Storage units, commercial space
7. Utilities: Business percentage of internet, phone
8. Cost of Goods Sold: (separate from expenses)

Organize digital folders or physical files by these categories. Tax prep becomes 10× easier.

Tracking COGS Separately from Expenses

Critical distinction:

• COGS = what you paid to acquire items you sold
• Expenses = costs to run your business

Maintain separate tracking:

• COGS spreadsheet: Item, date purchased, cost, date sold, selling price
• Expense spreadsheet: Date, vendor, category, amount, business purpose

Don’t commingle them or you’ll confuse your accountant (and IRS).

Mileage Log Requirements

IRS wants:

• Date of trip
• Starting location and ending destination
• Business purpose
• Miles driven

Acceptable formats:

• Mobile app logs (MileIQ, Everlance, Stride)
• Spreadsheet with above info
• Written log in notebook (old school but valid)

Not acceptable:

• Estimated mileage calculated in December
• “Approximately 100 miles per month” without details

Apps win because they GPS-track automatically and timestamp everything.

How Long to Keep Records

IRS Guidelines:

• 3 years: Standard statute of limitations for audits
• 6 years: If you underreported income by 25%+ (intentional or not)
• 7 years: Conservative best practice recommended by most CPAs
• Indefinitely: Records related to property (for depreciation recapture when sold)

Practical Recommendation:

• Keep 7 years of tax returns, supporting documents, receipts
• Keep forever: Business formation documents, asset purchase records, property records

Digital storage makes this easy—no boxes of fading receipts.

Software Solutions for Resellers

All-in-One Options:

• QuickBooks Online: Expense tracking, mileage, receipt capture, invoicing, tax reports ($30-$90/month)
• FreshBooks: Similar features, strong invoicing ($15-$50/month)
• Wave Accounting: Free core features, paid add-ons for receipts and payroll

Reseller-Specific:

• Vendoo: Includes expense and mileage tracking alongside crosslisting
• List Perfectly: Inventory tracking helps calculate COGS
• Godly: Profit/expense dashboard for resellers

DIY Budget Option:

• Google Sheets: Manual entry but free and customizable
• Templates available online for reseller expense tracking

Monthly Reconciliation Habit

Don’t wait until tax season:

• Weekly: Upload receipts, log mileage
• Monthly: Categorize all expenses, review totals, ensure nothing is missing
• Quarterly: Review with accountant (if you have one) or self-audit

Spending 2 hours per month organizing saves 20 hours of chaos in March.

What You CANNOT Deduct

Not everything is deductible, and claiming impermissible deductions is the fastest way to trigger an audit or owe penalties. Know where the IRS draws the line.

Personal Expenses

Not Deductible:

• Clothing you buy “to potentially resell” but wear personally first
• Items you list but never actually sell and then keep
• Personal use of business equipment (deduct only business percentage)
• Groceries during sourcing trips (unless overnight business travel)

The IRS is wise to resellers who try to deduct personal wardrobes or household items. Only items purchased with intent to resell and actually listed for sale qualify.

Meals (Mostly)

Generally Not Deductible:

• Lunch while you’re out sourcing for the day
• Coffee during a Goodwill run
• Snacks while working from home

Exception - 50% Deductible:

• Meals during overnight business travel (conferences, buying trips requiring hotel stay)
• Business meals with genuine business purpose (meeting a wholesale supplier, consulting with accountant over lunch)

The Tax Cuts and Jobs Act eliminated most meal deductions for day-to-day business. Don’t try to deduct your daily Starbucks run.

Commuting

Not Deductible:

• Driving from home to a “regular workplace”

For most resellers working from home, this doesn’t apply—home is your workplace. But if you lease warehouse space and drive there daily, that’s commuting, not business mileage.

Deductible:

• Travel from home (your tax home/principal place of business) to temporary work locations
• Sourcing trips, post office runs, supply errands

Unsold Inventory

Common Mistake: You buy $10,000 in inventory in 2025 but only sell $6,000 worth by year-end. You cannot deduct the full $10,000 as COGS.

Correct Treatment:

• Deduct only $6,000 (COGS of items actually sold)
• Remaining $4,000 stays as “inventory on hand” (asset on your balance sheet)
• Deduct that $4,000 in future years when those items sell

Startup Costs Before Business Began

If you spent money before formally starting your business, the rules differ:

• First $5,000 in startup costs: Can be deducted in first year
• Amounts above $5,000: Must be amortized over 15 years

Define when your business “began”—usually when you made your first sale or held yourself out as open for business. Pre-business research and education may fall under startup costs rather than operating expenses.

Fines and Penalties

Not Deductible:

• IRS penalties for underpayment or late filing
• State tax penalties
• Traffic tickets (even if driving for business)
• Late fees on personal obligations

Business-related fines (e.g., late payment to a supplier) may have different treatment—consult your CPA.

Capital Improvements vs Repairs

If you own your home and deduct home office:

• Repairs: Deductible (fixing broken window, patching roof leak)
• Improvements: Must be depreciated (new roof, adding square footage)

Don’t accidentally deduct a major capital improvement as a current-year expense.

What Happens If You Deduct Impermissible Expenses?

IRS Audit Outcomes:

• Disallowed deductions
• Owe back taxes plus interest
• Accuracy-related penalties (20% of underpayment if negligent)
• Potential fraud penalties if willful (75% of underpayment)

Best Practice: When in doubt, ask your CPA. Aggressive but legitimate deductions are smart. Fraudulent deductions are costly.

Quarterly Estimated Tax Payments

Deductions reduce what you owe, but you still need to pay taxes throughout the year. The IRS expects quarterly payments from self-employed individuals.

Who Needs to Pay Quarterly

You must pay estimated taxes if:

• You expect to owe $1,000 or more in federal tax for the year
• Your withholding and credits won’t cover at least 90% of current year tax or 100% of prior year tax

Translation for resellers: If you’re profitable and don’t have another job withholding taxes, you’ll almost certainly need to make quarterly payments.

How to Calculate Estimates

Method 1: Safe Harbor (Easiest) Pay 100% of last year’s total tax divided by 4. (110% if AGI was >$150K)

Example: Last year total tax = $8,000 Quarterly payment = $2,000

Method 2: Current Year Projection (More Accurate) Estimate this year’s profit, calculate expected tax, divide by 4.

Example:

• Projected revenue: $60,000
• Projected COGS and expenses: $40,000
• Taxable income: $20,000
• Estimated tax (including SE tax): ~$5,400
• Quarterly payment: $1,350

Most resellers use Method 1 to avoid underpayment penalties, then reconcile at year-end.

Due Dates

2026 Quarterly Deadlines:

• Q1: April 15, 2026 (for income Jan 1 - Mar 31)
• Q2: June 16, 2026 (for income Apr 1 - May 31)
• Q3: September 15, 2026 (for income Jun 1 - Aug 31)
• Q4: January 15, 2027 (for income Sep 1 - Dec 31)

Note: Q2 and Q3 are NOT 3-month periods—they’re shorter. Plan accordingly.

How to Pay:

• IRS Direct Pay (free, online)
• IRS2Go mobile app
• Electronic Federal Tax Payment System (EFTPS)
• Mail with Form 1040-ES voucher (slow, not recommended)
• Through tax software (QuickBooks, etc.)

Underpayment Penalties

If you don’t pay enough throughout the year, IRS charges underpayment penalties (currently around 8% annually, calculated quarterly).

How to Avoid:

• Pay at least 90% of current year tax, OR
• Pay 100% of prior year tax (110% if high income)

Safe Harbor Strategy: If your income fluctuates wildly year to year, paying 100% of last year’s tax guarantees no penalties, even if you owe more on April 15.

Should You Estimate High or Low?

Conservative approach: Slightly overestimate

• You’ll get a refund at tax time
• No risk of penalties
• Downside: IRS holds your money interest-free

Aggressive approach: Estimate conservatively low

• Keep cash for inventory
• Risk underpayment penalties if you’re off
• Only do this if you’re confident in calculations

Most CPAs recommend slight overestimation for peace of mind.

Using Tax Software vs Accountant

Tax Software (DIY):

• Pros: Cheaper ($120-$200/year), you control timing, learn your taxes
• Cons: Easy to miss deductions, risk of errors, no personalized strategy
• Best for: Part-time resellers with simple situations

CPA/Tax Professional:

• Pros: Catches deductions you’d miss, handles complexity, audit support, strategic planning
• Cons: $500-$2,000+ annually
• Best for: Full-time resellers, complex situations, high income, multiple entities

Hybrid Approach: Use software for quarterly estimates, hire CPA for year-end return and strategy planning.

Real Deduction Examples: Full-Time vs Part-Time

Let’s see how deductions work in practice with two realistic case studies.

Case Study 1: Part-Time Reseller

Profile:

• Works full-time job (W-2 income: $55,000)
• Resells evenings and weekends
• Primarily thrift store sourcing, sells on eBay and Poshmark

Income:

• Gross sales: $22,000
• Platform fees (already deducted from payouts): -$2,800
• Net payments received: $19,200

Cost of Goods Sold:

• Thrift store purchases: $6,500
• Estate sale lots: $1,200
• Shipping costs buying online inventory: $300
• Total COGS: $8,000

Business Expenses:

• Shipping supplies (boxes, tape, mailers): $1,200
• Postage (not included in platform fees): $800
• eBay Store subscription: $60
• List Perfectly subscription: $400
• Underpriced.app: $180
• Home office (simplified method): $750
• Mileage (2,400 miles × $0.67): $1,608
• Phone (30% business use): $360
• Internet (40% business use): $384
• Tax software: $150
• Total Expenses: $5,892

Tax Calculation:

• Gross sales: $22,000
• Minus COGS: -$8,000
• Minus expenses: -$5,892
• Net profit: $8,108

Taxes Owed on Reselling:

• Self-employment tax (15.3% of 92.35% of profit): ~$1,150
• Federal income tax (marginal rate ~12%, but stacks with W-2): ~$973
• Total tax on reselling: ~$2,123

Impact of deductions: Without tracking deductions, they might have assumed $14,000 profit (gross minus COGS only), owing an extra ~$890 in taxes.

Case Study 2: Full-Time Reseller

Profile:

• No other job, reselling is sole income
• Sources from thrifts, estate sales, wholesale, and retail arbitrage
• Sells on eBay, Poshmark, Mercari, own website

Income:

• Gross sales: $95,000
• Platform fees (deducted from proceeds): -$12,000
• Net payments received: $83,000

Cost of Goods Sold:

• Retail/thrift inventory purchases: $28,000
• Wholesale lots: $12,000
• Online arbitrage (item cost + shipping): $8,500
• Estate sale purchases: $4,500
• Total COGS: $53,000

Business Expenses:

• Shipping supplies: $5,200
• Postage (direct purchases): $2,800
• Platform subscriptions (eBay, Shopify): $960
• Crosslisting tools (List Perfectly, Vendoo): $720
• Underpriced.app + research tools: $400
• QuickBooks Online: $600
• Home office (actual expense method): $3,600
• Storage unit rental: $1,800
• Mileage (9,600 miles × $0.67): $6,432
• Phone (60% business): $720
• Internet (70% business): $672
• Equipment (computer, scale, printer - Section 179): $1,800
• Insurance (inventory + liability): $900
• Professional development (course): $300
• Tax preparation (CPA): $800
• Business license: $75
• Promoted listings/ads: $2,400
• Office supplies: $300
• Total Expenses: $29,479

Tax Calculation:

• Gross sales: $95,000
• Minus COGS: -$53,000
• Minus expenses: -$29,479
• Net profit: $12,521

Taxes Owed:

• Self-employment tax: ~$1,774
• Federal income tax (12% bracket, married filing jointly): ~$1,502
• Total tax: ~$3,276

Impact of deductions: Without tracking all these deductions (if they only deducted COGS + shipping):

• Taxable income would be ~$34,000
• Tax owed would be ~$9,100
• Proper deductions saved ~$5,824 in taxes

Key Takeaways from Examples

1. Part-time resellers often miss mileage and home office deductions—those two alone saved $2,358 in the example
2. Full-time resellers with thorough recordkeeping can deduct 30-40% of gross profit in legitimate expenses
3. Proper COGS tracking is essential for both—it’s typically the largest deduction
4. Every category matters—lots of small deductions ($300 here, $500 there) add up to thousands

💡 Pro Tip: Use Underpriced’s profit tracking features to automatically categorize income and fees throughout the year. When tax time arrives, you’ll have clean data ready for your tax software or accountant instead of scrambling through 12 months of transactions.

Frequently Asked Questions

Can I deduct inventory I haven’t sold yet?

No. You can only deduct Cost of Goods Sold (COGS) for items you actually sold during the tax year. Unsold inventory remains an asset on your books until the year it sells. This is one of the most common mistakes new resellers make.

Example: You buy 100 items for $1,000 total ($10 each). You sell 60 of them this year. You can only deduct $600 in COGS this year. The remaining $400 deducts when you sell those 40 items in future years.

Do I need an LLC to claim deductions?

No. You can operate as a sole proprietor (no formal entity) and claim all the same deductions. An LLC, S-Corp, or C-Corp may provide liability protection or tax advantages in specific situations, but entity type doesn’t determine deductibility of expenses.

You report business income and expenses on Schedule C as a sole proprietor. The IRS cares that you’re operating a legitimate business with profit intent, not your legal structure.

What if I don’t have receipts?

The IRS requires documentation. Without receipts, deductions can be disallowed in an audit. However:

If you lost receipts:

• Bank/credit card statements showing vendor and amount help (though not as strong as receipt)
• Reconstruct records: Return to vendor for duplicate receipt if possible
• Document what you can remember with dates and business purpose notes

For small purchases: The IRS has a “Cohan rule” allowing estimated deductions if you can prove the expense occurred, even without perfect documentation. But don’t rely on this—keep receipts.

Prevention:

• Photo receipts immediately with smartphone
• Use expense tracking apps that auto-save digital copies
• Snap photos of handwritten receipts (they fade)

Should I hire an accountant?

Consider DIY tax software if:

• Part-time reseller with under $30K revenue
• Straightforward sourcing and selling (no complicated inventory methods)
• Comfortable learning tax concepts
• Operating as sole proprietor in one state

Hire a CPA if:

• Full-time reseller, complex operations
• Revenue over $50K
• Multiple entities (LLC, S-Corp)
• Selling across multiple states (nexus issues)
• Want strategic tax planning (retirement accounts, entity structure)
• Value peace of mind and audit protection

The ROI calculation: If a CPA costs $1,000 but finds $4,000 in additional deductions you’d miss, you save $1,200 in taxes (at 30% rate) minus $1,000 fee = $200 ahead, plus you get expertise and time savings.

Many resellers start with software, hire a CPA once they hit $40-50K in revenue.

Final Thoughts: Take Action on Deductions Now

You’ve just learned how to legally reduce your reseller tax burden by thousands of dollars. But knowledge without action is worthless—especially when it comes to taxes.

What to do today:

1. Set up tracking systems: Download a mileage app, choose an expense tracker, create digital receipt folders
2. Organize current receipts: Gather what you have from this year, photograph or scan everything
3. Calculate quarterly estimates: If you haven’t paid Q1 2026 yet, calculate and pay now
4. Review your deductions: Use this guide as a checklist—which categories are you missing?

What to do this month:

1. Implement recordkeeping habits: Weekly receipt uploads, monthly expense review
2. Separate business finances: Open a business bank account or credit card if you haven’t
3. Consult with a tax professional: Even a one-time consultation can provide personalized strategy
4. Project your year-end numbers: Estimate profit to plan quarterly payments and avoid surprises

The difference between a stressed reseller scrambling in March and a confident reseller with organized records comes down to systems. Build those systems now while you have time, not when tax deadline pressure hits.

Remember: Every dollar you legitimately deduct is a dollar that stays in your business, funds your next inventory purchase, or goes into your pocket. The IRS allows these deductions—take advantage of them.

Track smarter. Deduct everything you’re entitled to. Pay only what you actually owe.

About Underpriced: We help resellers source smarter, track profitably, and scale faster with market research tools and analytics built specifically for the reselling business. Start your free trial today and see how data-driven reselling gives you an edge.

Last updated: February 4, 2026