Why online selling and taxes are suddenly more complicated than they used to be
For a long time, casual online sellers could fly under the radar — platforms didn't report small transactions to the IRS, and most people didn't realize they were technically supposed to report anything. That changed with the American Rescue Plan Act of 2021, which dropped the 1099-K reporting threshold from $20,000 (with 200 transactions) down to just $600 in total payments. As of the 2024 tax year, payment platforms and marketplaces — including PayPal, Venmo, eBay, Etsy, and Poshmark — are required to send you (and the IRS) a Form 1099-K if you receive $600 or more in a calendar year. That means the IRS now has visibility into income it simply didn't track before.
What matters for your taxes isn't the gross amount on the 1099-K — it's whether you made a profit. If you sold a couch you paid $400 for at a garage sale price of $150, you have no taxable income; you took a loss on a personal item. But if you bought that same couch for $150 and resold it for $400, you have a $250 gain, and the IRS wants to know about it. The key concept is "basis" — what you originally paid — and the tax is on the difference between that and your sale price, less any allowable expenses.
The IRS also draws a meaningful line between occasional selling and running a business. If you're regularly selling for profit — buying inventory, making items to sell, or operating in a businesslike way — that income is subject to both regular income tax and self-employment tax (which covers Social Security and Medicare and runs about 15.3% on net profit). Understanding which category you fall into is the most important first step.
Online selling looks different for everyone — and so does the tax situation
The tax rules that apply to you depend heavily on what you're selling, how often, and why — these are six of the most common situations people find themselves in.
What happens if you ignore it — or report it wrong
The most common mistake isn't intentional fraud — it's simply not knowing that online sales income needs to be reported, or not understanding the 1099-K you received. Because the IRS now receives the same 1099-K your platform sends you, any discrepancy between what's reported and what appears on your tax return is an automatic flag. Underreporting doesn't require an audit to catch; the IRS's automated matching system does it without any human intervention. The result is typically a CP2000 notice — essentially a letter saying "we think you owe more than you reported," with penalties and interest added on top of the understated tax.
The IRS failure-to-pay penalty is 0.5% of unpaid taxes per month, up to 25% of the total owed, plus interest. If you're also hit with a failure-to-file penalty, that's an additional 5% per month. On a modest $2,000 tax bill left unaddressed for a year, that's easily $300–$400 in penalties alone — on top of what you already owe. Catching up voluntarily, even late, almost always results in lower penalties than waiting for the IRS to come to you.
There is a trusted solution for this.
We've mapped out exactly how to handle online selling income at tax time — what to report, what to deduct, and how to stay clean going forward.
See the Trusted Solution →Free to read · Independently verified · Updated March 2026
What others have experienced
214 community experiences-
MR
I sold a bunch of old clothes and baby gear on Poshmark last year — probably $900 total — and got a 1099-K in January. I completely freaked out thinking I owed taxes on all of it. After doing some research I realized that because I sold everything for way less than I originally paid, none of it was actually taxable income. But I still had to document it. The 1099-K just means the IRS is watching, not that you automatically owe.
47 found this helpful -
TK
I flip sneakers on StockX and made about $8,000 last year after costs. I had no idea I needed to pay self-employment tax on top of regular income tax until my accountant told me. That extra 15.3% on net profit was a gut punch — I had not set anything aside for it. Now I put 30% of every sale into a separate savings account the moment it hits. Wish someone had told me that in year one.
83 found this helpful -
DL
I sell handmade candles on Etsy and finally sat down with a tax person last fall. The thing that surprised me most was how many expenses I could deduct — supplies, shipping materials, my Etsy fees, even a portion of my internet bill. My gross sales were around $6,000 but my actual taxable profit after deductions was under $2,500. Keeping receipts for everything is genuinely worth the effort.
61 found this helpful
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