Taxes are not the exciting part of restocking and reselling, but ignoring them can lead to penalties, interest charges, and serious headaches with the IRS. If you are buying products at retail and selling them above retail price, you are generating taxable income, and the IRS expects you to report it. This guide explains your tax obligations in clear terms, walks through what you can deduct, and helps you set up a record-keeping system that makes tax season painless.
Important disclaimer: This guide provides general educational information about US tax obligations for resellers. It is not tax advice. Tax laws vary by state and individual circumstances. Consult a licensed tax professional (CPA or enrolled agent) for advice specific to your situation.
Do You Actually Owe Taxes on Reselling?
Yes. If you sell products for more than you paid for them, the profit is taxable income. This is true whether you sell one pair of sneakers a year or one thousand. The IRS does not have a minimum income threshold below which you are exempt from reporting. Every dollar of profit is technically reportable.
The confusion around whether resellers owe taxes typically comes from the IRS reporting threshold, which is different from the tax obligation threshold.
Reporting Threshold vs. Tax Obligation
| Concept | What It Means |
|---|---|
| IRS reporting threshold ($600) | Marketplaces (StockX, GOAT, eBay, PayPal) must send you and the IRS a 1099-K form if your total sales exceed $600 in a year |
| Tax obligation | You owe taxes on net profit from the first dollar, regardless of whether a 1099-K is issued |
The $600 threshold does not mean you are tax-free below that amount. It means the marketplace is not required to report your sales to the IRS below that level. You are still legally required to report the income yourself. In practice, many people who sell a single pair of sneakers for $50 profit do not report it, but technically they should.
Hobby vs. Business Classification
The IRS distinguishes between hobby income and business income. This classification affects how you report and what you can deduct.
| Factor | Hobby | Business |
|---|---|---|
| Profit motive | Primarily for enjoyment | Primarily to make money |
| Regularity | Occasional, sporadic | Regular, ongoing |
| Record keeping | Minimal | Detailed records maintained |
| Deductions | Cannot deduct expenses against income (post-2018 tax law) | Can deduct all ordinary and necessary business expenses |
| Self-employment tax | Not applicable | 15.3% on net earnings |
| Tax form | Schedule 1, Line 8 (Other Income) | Schedule C (Profit or Loss from Business) |
The hobby-versus-business distinction matters enormously for deductions. If the IRS classifies your reselling as a hobby, you cannot deduct your expenses (shipping costs, platform fees, supplies) against your income. You pay taxes on the gross sales minus the cost of goods, with no other deductions. If classified as a business, you can deduct every legitimate expense.
When does reselling become a business? There is no bright line, but if you answer yes to most of these questions, the IRS will likely consider your reselling a business:
- Do you resell with the intention of making a profit?
- Do you spend regular time on restocking activities?
- Do you maintain records of purchases and sales?
- Have you made a profit in at least three of the last five years?
- Do you depend on reselling income for living expenses?
Most consistent resellers who buy and sell monthly or more frequently should report as a business on Schedule C.
How to Calculate Your Taxable Income
Your taxable income from reselling is your net profit, which is your total sales minus your cost of goods sold (COGS) and business expenses.
Cost of Goods Sold (COGS)
COGS is the total amount you paid to acquire the items you sold. This includes:
- The retail price of the product
- Sales tax you paid at purchase
- Shipping costs to receive the product (if applicable)
Example:
You bought three pairs of Nike Dunks at $115 each plus 8.5% tax, and sold them on StockX.
| Item | Purchase Price | Sales Tax (8.5%) | Total Cost | Sold For | StockX Fees | Net Revenue | Profit |
|---|---|---|---|---|---|---|---|
| Pair 1 | $115 | $9.78 | $124.78 | $200 | $25.00 | $175.00 | $50.22 |
| Pair 2 | $115 | $9.78 | $124.78 | $190 | $23.75 | $166.25 | $41.47 |
| Pair 3 | $115 | $9.78 | $124.78 | $185 | $23.13 | $161.87 | $37.09 |
| Total | $345 | $29.34 | $374.34 | $575 | $71.88 | $503.12 | $128.78 |
Your taxable income from these sales is $128.78, not $575. Many beginning resellers panic when they see their 1099-K showing $575 in gross sales, but you only owe taxes on the net profit after subtracting COGS and fees.
Deductible Business Expenses
If you report as a business (Schedule C), you can deduct ordinary and necessary business expenses beyond COGS. These deductions reduce your taxable income.
| Expense Category | Examples | Deductible? |
|---|---|---|
| Platform fees | StockX transaction fees, GOAT commission, eBay fees | Yes |
| Shipping costs | Postage, boxes, bubble wrap, tape | Yes |
| Packaging supplies | Tissue paper, poly mailers, labels | Yes |
| Software subscriptions | Restock monitors, notification services, VPN | Yes |
| Discord server memberships | Paid alert services | Yes |
| Phone/internet (business portion) | Percentage used for restocking activities | Yes (business use %) |
| Home office (if applicable) | Dedicated space for packing, shipping, inventory | Yes (with limitations) |
| Mileage | Driving to retailers for in-store restocks, post office trips | Yes (67 cents/mile in 2026) |
| Education | Courses, guides, paid communities for learning to resell | Possibly (if directly related) |
| Payment processing fees | PayPal fees, credit card processing | Yes |
| Inventory storage | Storage unit for holding inventory | Yes |
Expenses You Cannot Deduct
- Personal sneakers you bought for yourself and wear
- Clothing you wear (even if you wear it while restocking)
- Meals (unless directly tied to a business meeting about reselling)
- Products you bought and kept (not resold)
- Fines or penalties from platforms
The 1099-K Form
Starting with the 2024 tax year and continuing through 2026, payment platforms and marketplaces are required to issue a 1099-K to sellers who receive $600 or more in gross payments during the calendar year. This applies to:
- StockX
- GOAT
- eBay
- PayPal
- Venmo (for business transactions)
- Facebook Marketplace (via PayPal/Meta Pay)
- Mercari
- Any other payment processor
What the 1099-K Shows
The 1099-K reports your gross sales, not your profit. If you sold $5,000 worth of sneakers but your profit was only $1,200, the 1099-K will show $5,000. This is why record keeping is critical. You need documentation to prove your actual costs and arrive at the correct taxable amount.
Receiving Multiple 1099-Ks
If you sell on multiple platforms, you may receive multiple 1099-K forms. Each platform reports its own gross sales independently. You need to account for all of them on your tax return.
Example:
| Platform | Gross Sales | 1099-K Issued |
|---|---|---|
| StockX | $3,200 | Yes |
| GOAT | $1,800 | Yes |
| eBay | $900 | Yes |
| Local sales (cash) | $400 | No (but still taxable) |
| Total | $6,300 |
Even the $400 in local cash sales is taxable income. The lack of a 1099-K does not make it tax-free.
Record-Keeping System
Good record keeping is the single most important thing you can do for tax compliance. Without records, you cannot prove your costs, you cannot claim deductions, and you may end up paying taxes on gross sales instead of net profit.
What to Track for Every Transaction
For each item you buy and sell, record:
- Purchase date
- Purchase price (including sales tax)
- Retailer purchased from
- Receipt or proof of purchase (screenshot, email confirmation, or physical receipt)
- Sale date
- Sale price (gross, before platform fees)
- Platform fees deducted
- Net payout received
- Shipping costs (if you paid separately)
- Platform sold on
Spreadsheet Template
A simple spreadsheet is sufficient for most resellers. Here is a recommended structure:
| Date Bought | Item | Size | Retailer | Cost + Tax | Date Sold | Platform | Sale Price | Fees | Shipping | Net Payout | Profit |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 01/15/2026 | Nike Dunk Low Panda | 10 | Nike.com | $124.78 | 01/22/2026 | StockX | $200 | $25.00 | $0 | $175.00 | $50.22 |
Save Your Receipts
The IRS can audit you for up to three years after filing (six years if they suspect significant underreporting). Keep digital copies of:
- Retailer order confirmations (screenshot or PDF)
- Platform sale confirmations
- Shipping receipts
- Payment processor statements (PayPal, bank statements showing deposits)
- 1099-K forms
- Any business expense receipts
Cloud storage (Google Drive, iCloud, Dropbox) is the easiest way to maintain receipt backups. Create a folder for each tax year and organize by month.
Filing Your Taxes
How you file depends on your hobby-versus-business classification and the complexity of your reselling activity.
Filing as a Hobby
If your reselling is occasional and you treat it as a hobby:
- Report gross income on Schedule 1, Line 8z (Other Income).
- You may subtract your COGS (cost of goods sold) from the gross income, reporting only the net gain.
- You cannot deduct other expenses (shipping supplies, platform fees, etc.) against hobby income under current tax law.
- The income is subject to your regular income tax rate but not self-employment tax.
Filing as a Business (Schedule C)
If your reselling is a business:
- File Schedule C (Profit or Loss from Business) with your Form 1040.
- Report gross receipts (total sales) on Line 1.
- Report COGS on Line 4 (use Part III to calculate).
- Report all business deductions in Part II (advertising, shipping, supplies, etc.).
- The resulting net profit (or loss) flows to your Form 1040 as income.
- File Schedule SE (Self-Employment Tax) if net profit exceeds $400.
- Pay self-employment tax of 15.3% (Social Security 12.4% + Medicare 2.9%) on net earnings.
Estimated Quarterly Taxes
If you expect to owe $1,000 or more in taxes for the year, the IRS requires you to make estimated quarterly tax payments. Failing to make these payments results in an underpayment penalty.
Quarterly payment due dates:
| Quarter | Period Covered | Payment Due |
|---|---|---|
| Q1 | January 1 - March 31 | April 15 |
| Q2 | April 1 - May 31 | June 15 |
| Q3 | June 1 - August 31 | September 15 |
| Q4 | September 1 - December 31 | January 15 (following year) |
Use IRS Form 1040-ES to calculate and submit estimated payments. If you are unsure how much to pay, a common rule of thumb is to set aside 25 to 30% of your net profit from each sale into a separate savings account for taxes.
State Tax Obligations
In addition to federal taxes, most states impose income tax on reselling profits. State tax rates and rules vary significantly.
State Sales Tax on Reselling
If you sell locally (in person, not through a marketplace), some states require you to collect and remit sales tax. If you sell through marketplaces like StockX, GOAT, or eBay, the marketplace typically handles sales tax collection and remittance on your behalf under marketplace facilitator laws.
State Income Tax
Your reselling profits are subject to state income tax in states that have it. States without income tax (Texas, Florida, Nevada, Washington, Wyoming, Alaska, South Dakota, Tennessee, New Hampshire) are the exception.
Common Tax Mistakes Resellers Make
Avoiding these mistakes saves you money and stress:
-
Ignoring the 1099-K. If you receive a 1099-K and do not report the income, the IRS computers will flag the discrepancy and you will receive a notice. Always report income that matches your 1099-Ks.
-
Reporting gross sales as income without deducting COGS. This is the most expensive mistake. If you sold $10,000 gross but your cost of goods was $7,000 and fees were $1,000, your taxable income is $2,000, not $10,000. Without records to prove your costs, the IRS may assess taxes on the full gross amount.
-
Not tracking local or cash sales. Cash and local sales are taxable even without a 1099-K. Not reporting them is technically tax evasion.
-
Mixing personal and business finances. Open a separate bank account and credit card for your reselling business. This makes tracking income and expenses dramatically easier and provides clean records in case of an audit.
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Forgetting self-employment tax. Many new resellers calculate only income tax and are surprised by the additional 15.3% self-employment tax on Schedule C profits.
-
Not making estimated payments. If you owe more than $1,000 at filing time, you may face underpayment penalties for not making quarterly estimated payments throughout the year.
When to Hire a Tax Professional
You should consider hiring a CPA or enrolled agent if:
- Your gross reselling sales exceed $10,000 per year.
- You are unsure whether you qualify as a hobby or business.
- You have inventory that carries over between tax years.
- You sell across multiple states or internationally.
- You received an IRS notice related to unreported income.
- You want to set up an LLC or other business entity for your reselling.
A tax professional familiar with e-commerce and reselling typically charges $200 to $500 for annual tax preparation. Given that a single mistake in classification or deductions can cost you hundreds or thousands of dollars, the investment is often worthwhile for serious resellers.
For more context on the financial side of restocking, see our guides on restocking versus reselling and selling on platforms like StockX and GOAT.
FAQ
Do I need to report sales if I sold sneakers at a loss?
Yes, you should report all sales on your tax return. However, if you sold at a loss (for less than you paid), there is no profit to tax. The loss can offset other reselling income if you report on Schedule C. For example, if you made $500 profit on three pairs but lost $200 on a fourth, your net taxable income is $300. If your reselling is classified as a hobby, you cannot use losses to offset other income.
What if I received a 1099-K but most of the sales were personal items sold at a loss?
If you sold personal items (used sneakers, old electronics, etc.) below what you originally paid, those sales are not taxable. However, you still need to account for the 1099-K on your tax return to avoid IRS inquiries. Report the gross amount from the 1099-K on Schedule 1 or Schedule C, then subtract your cost basis to show a net gain of zero or a loss. Keep records (original purchase receipts) to prove you sold at a loss.
Should I create an LLC for reselling?
An LLC is not required for tax purposes. You can report reselling income as a sole proprietor on Schedule C without any business entity. An LLC provides liability protection (separating your personal assets from business liabilities) and can offer tax benefits at higher income levels (such as electing S-Corp taxation to reduce self-employment tax). Most resellers with under $50,000 in annual net profit do not need an LLC. Consult a tax professional if your profits exceed that level.
How far back can the IRS audit my reselling income?
The IRS generally has three years from the date you filed your return to initiate an audit. If the IRS suspects you underreported income by 25% or more, the window extends to six years. If you did not file a return or filed a fraudulent return, there is no time limit. Keep records for at least seven years to be safe.
Can I deduct the cost of sneakers I bought for personal use?
No. Only sneakers (or other products) that you purchased with the intent to resell and actually sold are deductible as cost of goods sold. Products you bought for personal use, even if you later decide to sell them, are personal property, not business inventory. If you sell personal items for more than you paid, the profit is taxable as a capital gain, but the original purchase price is not a business deduction.
