Most eBay resellers who receive a 1099-K overpay taxes. They don't earn too much. They fail to document and deduct every legitimate business expense against that gross revenue figure. The IRS taxes your profit, not your 1099-K total, and the gap between those two numbers is in your hands.
If you moved $20,000 of secondhand clothing on eBay last year and your 1099-K shows it, your taxable income is $20,000 minus every deductible cost you can substantiate. For a reseller doing 100–500 items a month, that list is longer than most people realize. This article covers the major categories, shows the math, and flags the ones most often left on the table. It is general information, not tax advice, so confirm specifics with a preparer.
What the 1099-K Actually Reports (And Why It's Not Your Taxable Income)
eBay, Poshmark, Mercari and other payment settlement platforms issue a 1099-K when your gross payments exceed the reporting threshold. The threshold has moved several times, so check the current rule before you assume you will or won't get a form:
- Through 2023: more than $20,000 and more than 200 transactions.
- 2024 (the 1099-K threshold most resellers searched for): the IRS planned a $5,000 threshold, but it was applied as a phase-in. Many platforms issued forms at $5,000 for 2024 anyway, while the IRS framed it as a transition level.
- 2025 and later: recent federal legislation reverted the threshold to $20,000 and 200 transactions, but platforms may still send forms at lower amounts. Confirm the current figure with the IRS or your preparer.
The key point does not change with the threshold: all reselling income is taxable whether or not you receive a 1099-K. A missing form is not a missing obligation.
The number on the form is gross receipts: every dollar a buyer paid, including shipping and sales tax collected in some cases, before platform fees, refunds, or cost of goods. It is not your profit. Schedule C (Profit or Loss from Business) is where you subtract expenses to arrive at net income, the number that gets taxed.
If you received a $12,000 1099-K but spent $8,500 on inventory, supplies, mileage, and fees, your taxable profit is roughly $3,500, not $12,000. Self-employment tax (about 15.3% on net earnings) also applies to that net figure, so every legitimate deduction reduces two bills, not one.
Reseller Cost of Goods Sold Tracking: The Core Deduction
Cost of Goods Sold (COGS) is the largest deduction for most resellers and the most poorly tracked. COGS is what you paid to acquire the inventory you sold during the tax year. Not everything you bought, just what moved. Unsold inventory stays on your books as ending inventory.
For a thrift reseller, COGS includes:
- The purchase price of each item at the thrift store, estate sale, or liquidation lot
- Sales tax paid at point of purchase
- Lot allocation costs. If you paid $40 for a bag of 10 items, each item carries a $4 cost basis
- Direct costs to make an item sellable, such as dry cleaning or repair materials, if you capitalize them into inventory
The failure mode is buying in cash, keeping no receipt, and estimating at year-end. The IRS expects substantiation. A simple per-item log of date, source, and purchase price is enough. FlipDesk records cost basis at intake so every item already has a documented COGS line before it hits your listing queue. At tax time, your sold-items report is your Schedule C input, not a memory exercise.
Example: You sold 400 items at an average sale price of $28 ($11,200 gross). Average cost basis was $4.50 per item ($1,800 COGS). That is $1,800 off the top before any other deduction.
To track COGS across hundreds of items without a mess:
- Assign every item a SKU at intake.
- Record date, source, and price paid against that SKU.
- For lots, divide the total by item count (or by estimated resale value if items differ widely) and write the allocation down.
- Mark the sold date when the item sells.
- At year-end, sum cost basis for items with a sold date in that year only.
[Screenshot placeholder: FlipDesk intake screen showing cost basis and source fields]
Platform Fees and Payment Processing
Every fee a marketplace charges is a deductible business expense. Resellers often track gross sales but forget the fees that came out before the deposit hit the bank. Fee schedules change often, so the rates below are approximate and should be checked against each platform's current fee page.
| Platform | Typical fee (clothing, approx.) | Payment processing | Combined rate |
|---|---|---|---|
| eBay | ~13.25% of total sale + per-order fee | Included in managed payments | ~13.25–14% |
| Poshmark | 20% on sales of $15 or more; flat fee below | Included | 20%+ |
| Mercari | Selling fee varies by period and account | Processing fee applies | Check current rate |
On $11,200 in gross eBay sales, platform fees alone could run $1,450–$1,570. That deduction vanishes if you only look at deposit totals.
Also deductible: eBay Store subscription fees, Promoted Listings charges, and third-party crosslisting tool subscriptions.
Shipping Costs
Shipping is deductible, but the accounting gets messy. Shipping collected from buyers is part of gross receipts, so the postage you pay is an expense against it.
- Postage you purchase is deductible, including the portion buyers reimbursed (since their payment counted as income).
- Packing supplies: poly mailers, boxes, tape, tissue paper, thank-you cards.
- Printer ink and label paper for shipping labels.
- A postal scale as an equipment purchase.
If you ship 300 packages a year at an average postage cost of $4.80 each, that is $1,440 in deductible postage. Add $200–$400 in supplies and you reach $1,600–$1,800 in a category many resellers never track.
Clothing Reseller Business Expenses Most Sellers Miss
COGS and fees are obvious. These routinely fall through the cracks.
Mileage
Every business mile is deductible at the IRS standard rate. The rate was 67 cents per mile for 2024 and 70 cents for 2025. Look up the rate for your filing year. Qualifying trips include:
- Thrift store, estate sale, and auction sourcing runs
- Post office or UPS/FedEx drop-offs
- Trips to buy supplies (boxes, poly mailers, a steamer)
- Bank deposits of business funds
Two sourcing runs a week at 12 miles round-trip, plus two post office runs at 4 miles each, is about 1,664 miles a year. At $0.67 that is $1,115. You need a contemporaneous log (date, destination, business purpose, miles). A notes-app entry made at the time of each trip is sufficient.
Reseller Home Office Deduction
If you use a dedicated space in your home exclusively and regularly for your reselling business, you can deduct part of your home expenses. The simplified method allows $5 per square foot up to 300 square feet ($1,500 maximum). The regular method allocates actual expenses (rent or mortgage interest, utilities, insurance) by the percentage of your home used for business.
A 120 sq ft photography and packing room qualifies for $600 under the simplified method. The key phrase is exclusive use: a living room corner shared with the family does not qualify. A spare bedroom used only for inventory, photography, and packing does. Inventory storage can also qualify in a space used regularly for it, even if not exclusive, but get your preparer's view.
Steamer, Mannequin, Lighting, and Photography Equipment
- Garment steamer
- Dress form or mannequin
- Ring light or softboxes
- Backdrop paper or fabric
- Measuring tape for listing measurements
- Phone mount or tripod
Under the de minimis safe harbor, items costing $2,500 or less per invoice or item can generally be expensed in the year of purchase, provided you follow the election rules. A $180 steamer and a $90 ring light bought in January can both come off that year's income.
Reseller Software and Subscriptions
Software you pay for to run the business is deductible: inventory management, crosslisting, accounting, and condition-grading tools. If you use FlipDesk to manage your catalog, track COGS, and draft listings, that subscription is a business expense like any other.
Returns and Refunds
When a buyer returns an item and you refund, that reduces your revenue. Platforms differ in whether the 1099-K reports gross amounts before refunds, so compare your 1099-K to your actual net deposits. If they don't match, the gap may include refunds, fees withheld, or timing differences you can document. Keep a record of every refund.
Bank and Payment Fees
Monthly fees on a dedicated business checking account are deductible, as are annual fees on a card used only for business purchases.
Other Commonly Missed Items
- Storage unit or shelving costs for inventory
- Cleaning supplies, lint rollers, stain removers, and dry cleaning for inventory
- Sourcing auction fees and buyer's premiums
- Business share of your phone and internet bill
- Tax preparation fees
The 1099-K Deduction Checklist: What to Pull Together Before Filing
- Export your sold-items report from eBay, Poshmark, and Mercari for the full calendar year and reconcile it to each 1099-K.
- Pull your COGS log: every item sold, with purchase price and source. In FlipDesk, this is your sold-items P&L export. In a spreadsheet, filter for sold items only.
- Download platform fee statements from each marketplace. eBay Seller Hub has a monthly fee summary; Poshmark and Mercari show fee detail in transaction history.
- Total your shipping spend: postage paid plus all packing supplies purchased.
- Calculate mileage from your driving log, multiplied by the IRS rate for the tax year.
- Measure your dedicated workspace and compare the simplified and regular home office methods.
- Gather receipts for equipment and supplies: steamer, lighting, label printer, tape gun, mailers, boxes.
- List all software subscriptions paid for the business.
- Document all refunds issued and confirm they are reflected in net revenue.
- Hand everything to your tax preparer organized by category, with a one-page summary of totals.
What Good Record-Keeping Looks Like
The IRS does not require a specific format. It requires that you can substantiate each deduction if audited. For resellers, that means:
- A per-item cost basis record (date, source, amount paid)
- Receipts or bank and card statements for every supply and equipment purchase
- A mileage log with date, destination, and business purpose
- Platform fee statements saved as PDFs monthly or at year-end
- Refund records tied to specific transactions
Resellers get into trouble not by taking aggressive deductions but by taking legitimate ones with no documentation. Keep records as you go. Reconstructing a year of sourcing trips in April is a miserable weekend.
FlipDesk's Reconcile module matches your eBay payouts to individual transactions and flags discrepancies such as partial refunds, Promoted Listings charges, and shipping adjustments that don't show up cleanly in your bank feed. If your P&L and your 1099-K have never agreed, start there.
A Note on Condition Grading and Returns
Returns are a tax-prep problem because every refund is revenue you give back, and each one needs documentation. Most clothing returns on eBay trace to a condition dispute: the buyer expected Very Good, received what they considered Good or Fair, and opened a not-as-described case.
Accurate grading at listing time, using standardized tiers (NWT, NWOT, Excellent, Very Good, Good, Fair, Poor) and documenting defects against factors like Fabric Condition, Structural Integrity, and Cosmetic Appearance, reduces the returns you have to process and reconcile. Fewer returns means a cleaner P&L and less noise between your 1099-K and your taxable income.
Start With One Clean P&L
You don't need a perfect system before your next sourcing run. You need one clean per-item P&L capturing purchase price, sale price, fees, and shipping for every transaction. Mileage, home office, and equipment layer on top.
To see what that looks like, run your last 20 sold listings through FlipDesk's Reconcile module. It matches fees and shipping to each sale and shows true net per item, which is what you hand a tax preparer, not a 1099-K total and a guess.