eBay Seller Tax Reporting: What You Need to Know
Selling on eBay is a business, and the IRS treats it as one. Whether you are a full-time reseller moving thousands of items per year or a casual seller clearing out your garage on weekends, the income you earn on eBay is taxable. Understanding your tax reporting obligations is not optional — it is essential for staying compliant and, just as importantly, for making sure you do not overpay. Many eBay sellers pay far more in taxes than they need to simply because they do not understand the rules or fail to document their deductible expenses properly.
This guide covers everything eBay sellers need to know about tax reporting: the 1099-K, federal and state thresholds, deductible expenses, accounting methods, estimated tax payments, and how Auto-Keep can make the entire process painless and automatic.
Understanding the 1099-K
The 1099-K is a tax form that payment processors — including eBay's managed payments system — are required to send to sellers who exceed certain thresholds. Under current federal law, eBay must issue a 1099-K to any seller who receives more than $20,000 in gross payments and processes more than 200 transactions in a calendar year. If you meet both of these thresholds, you will receive a 1099-K from eBay in January, and a copy will be sent to the IRS.
It is critical to understand what the 1099-K reports: gross payments. This is the total amount buyers paid you, including shipping charges, sales tax collected, and any amounts before eBay fees were deducted. The 1099-K does not represent your profit — it represents your total gross receipts. If you sold $25,000 worth of items on eBay, your 1099-K will show $25,000 even though your actual income after expenses might only be $8,000 or $10,000. This distinction is why proper bookkeeping and expense tracking are so important.
State-Specific 1099-K Thresholds
While the federal threshold remains at $20,000 and 200 transactions, many states have adopted significantly lower thresholds. States including Maryland, Massachusetts, Virginia, Vermont, and several others require 1099-K reporting at just $600 in gross payments with no transaction minimum. This means that even very casual sellers in these states may receive a 1099-K and need to report their eBay income.
If you live in a state with a lower threshold, you should be tracking your eBay income and expenses from the very first sale. Waiting until you receive a 1099-K to start thinking about bookkeeping means you will be trying to reconstruct an entire year of transactions retroactively — a stressful, time-consuming, and error-prone process. Auto-Keep ensures you are always ready, regardless of which state you live in, by tracking your income and expenses in real time from the moment you connect your eBay account.
Deductible Expenses for eBay Sellers
The good news for eBay sellers is that there are numerous legitimate business expenses you can deduct from your gross income to reduce your taxable profit. The key is documentation — you need to be able to prove these expenses with records if the IRS ever asks. Common deductible expenses for eBay sellers include:
Cost of Goods Sold (COGS): The amount you paid to acquire the items you sold. This is typically the largest deduction for resellers. Whether you bought items at a thrift store, a liquidation sale, or from a wholesale supplier, the purchase price is deductible as COGS.
eBay Fees: All fees charged by eBay are deductible business expenses. This includes final value fees, insertion fees, promoted listing fees, and managed payments processing fees. For most sellers, eBay fees represent 13–20% of gross revenue and are one of the largest expense categories.
Shipping Costs: Postage, shipping labels, and carrier charges are fully deductible. If you offer free shipping to buyers, these costs come out of your revenue and should be tracked carefully.
Shipping Supplies: Boxes, poly mailers, bubble wrap, packing tape, labels, and printer ink are all deductible business expenses. Many sellers purchase these in bulk and forget to track them.
Home Office Deduction: If you use a dedicated space in your home for your eBay business — for storage, photographing items, or packing shipments — you may be eligible for the home office deduction. The simplified method allows you to deduct $5 per square foot of dedicated space, up to 300 square feet.
Mileage: Miles driven for sourcing trips, post office runs, and supply purchases are deductible at the IRS standard mileage rate. For many resellers who regularly visit thrift stores and estate sales, the mileage deduction can be substantial.
Software and Subscriptions: Tools you use for your eBay business, including bookkeeping software like Auto-Keep, listing tools, and photo editing apps, are deductible business expenses.
Tax-Ready Reports Without the Headache
Auto-Keep tracks every eBay fee, COGS, and shipping charge all year so you're never scrambling at tax time. Your Schedule C data is always up to date and ready to go.
Cash vs. Accrual Accounting for eBay Sellers
Most eBay sellers use the cash method of accounting, which means you recognize income when you receive payment and deduct expenses when you pay them. This is the simpler of the two methods and is appropriate for the vast majority of small-scale eBay businesses. Under cash accounting, if you buy inventory in December but sell it in January, the cost of the inventory is deducted in December (when you paid for it) and the income is recognized in January (when you received payment).
The accrual method, by contrast, recognizes income when it is earned and expenses when they are incurred, regardless of when cash changes hands. This method is more complex and is generally only required for businesses with more than $25 million in average annual gross receipts. Unless your eBay business has reached that scale, the cash method is almost certainly the right choice.
Auto-Keep supports cash-based accounting, tracking transactions based on when payments are received and when expenses are paid. This aligns with how eBay's managed payments system works — you receive payouts on a regular schedule, and Auto-Keep tracks each transaction as it occurs.
Quarterly Estimated Tax Payments
If you expect to owe $1,000 or more in taxes from your eBay business for the year, the IRS requires you to make quarterly estimated tax payments. These payments are due in April, June, September, and January. Failing to make estimated payments can result in underpayment penalties, even if you pay the full amount when you file your annual return.
Calculating your quarterly estimated tax payment requires knowing your projected annual income from eBay and your effective tax rate. Auto-Keep helps by giving you real-time visibility into your year-to-date profit, making it straightforward to estimate your quarterly tax obligation. Instead of guessing or paying too much "just to be safe," you can make accurate estimated payments based on actual data.
Filing Your eBay Taxes: Schedule C
Most eBay sellers report their business income and expenses on Schedule C (Profit or Loss From Business), which is filed as part of your personal tax return. On Schedule C, you report your gross receipts (which should match or reconcile with your 1099-K), then subtract your deductible expenses to arrive at your net profit. This net profit is subject to both income tax and self-employment tax (15.3% for Social Security and Medicare).
Having organized, accurate records makes filing Schedule C straightforward. Auto-Keep generates reports that align with Schedule C categories, showing your total revenue, COGS, eBay fees, shipping costs, and other expenses in a format that is easy to transfer to your tax return or share with your tax preparer. No more sorting through bank statements and eBay transaction histories trying to piece together a year's worth of activity.
How Auto-Keep Makes Tax Reporting Effortless
Auto-Keep was designed with tax season in mind. By automatically syncing your eBay sales data, tracking every fee eBay charges, and recording your cost of goods sold, Auto-Keep maintains a complete, real-time record of your business finances throughout the year. When tax time arrives, you do not need to spend days or weeks reconstructing your records — everything is already organized and ready.
The platform calculates your profit and loss for any time period, breaks down expenses by category, and provides the documentation you need to support every deduction on your Schedule C. At $19.99/month with your first month free during the beta, Auto-Keep is itself a tax-deductible business expense — and one that can save you hundreds or even thousands of dollars by ensuring you never miss a legitimate deduction. Sign up for the free beta today and take the stress out of eBay seller tax reporting.
