Disclosure: This article contains affiliate links to our partner sites. If you click through and take action, we may receive a commission at no additional cost to you. All opinions expressed are our own. Full disclaimer.

Resale Taxes Don't Have to Be Scary

Most resellers either ignore taxes until April (bad) or overpay because they don't know what they can deduct (also bad). This guide covers exactly how resale income is taxed, what you can deduct, and how to keep records that make tax time painless.

How Resale Income Is Taxed

Reselling is self-employment income, reported on Schedule C (Profit or Loss From Business) of your personal tax return. You're taxed on net profit, not gross sales.

Net Profit = Gross Sales - Cost of Goods Sold - Business Expenses

Your net profit is then subject to: regular income tax at your marginal bracket (10-37%), plus self-employment tax of 15.3% (covering Social Security and Medicare) on the first $168,600 of net earnings.

Example: $30,000 gross sales, $10,000 COGS, $5,000 deductible expenses. Net profit: $15,000. Income tax (22% bracket): ~$3,300. Self-employment tax (15.3% of 92.35% of $15,000): ~$2,119. Total tax: ~$5,419 (36.1% effective rate).

That SE tax hits hard. It's the biggest surprise for new resellers. Plan for it.

Cost of Goods Sold (COGS): Your Biggest Deduction

COGS includes everything you spent to acquire items that you sold during the tax year. This means purchase price of items sold, sales tax paid on purchases, and shipping costs to receive inventory (if buying wholesale/online).

Important: COGS only includes items you sold. Unsold inventory is an asset, not an expense. If you bought 200 items and sold 150, only the cost of those 150 items counts as COGS this year. The other 50 carry forward.

Tracking method: maintain a spreadsheet with columns for date purchased, item description, source (store name), price paid, date sold, selling price, platform. This log is your COGS documentation and your audit protection.

Business Expenses You Can Deduct

Mileage: This is often the second-largest deduction after COGS. Track every sourcing trip, post office run, supply store visit, and shipping drop-off. At $0.67/mile: 10 miles to thrift store (x3/week): 30 miles/week. 5 miles to post office (x3/week): 15 miles/week. Miscellaneous trips: 10 miles/week. Total: 55 miles/week x 52 weeks = 2,860 miles/year = $1,916 deduction.

Active resellers sourcing daily can easily hit 5,000-8,000 miles/year = $3,350-$5,360 in deductions.

Platform fees: eBay, Amazon, Poshmark, and Mercari fees are all deductible business expenses. These are reported on your 1099-K from each platform. On $30,000 in gross sales at 13% average: $3,900 deduction.

Shipping costs: All postage and carrier charges for shipping sold items. If you spent $4,000 in shipping over the year, that's a $4,000 deduction. (Buyer-paid shipping that passes through your account is reported as both income and expense, netting to zero.)

Shipping supplies: Poly mailers, boxes, tape, labels, tissue paper, bubble wrap. Save receipts from every supply run. Typical annual cost: $300-$800.

Software and subscriptions: eBay store subscription, inventory management tools, photo editing apps, mileage tracking apps, accounting software. Total: $200-$600/year.

Home office: If you have a dedicated space for listing, photographing, and storing inventory, deduct it. Simplified method: $5/sq ft up to 300 sq ft = up to $1,500. For a 100 sq ft home office/storage area: $500 deduction.

Phone and internet: Deduct the business-use percentage. If you use your phone 30% for resale activities (photographing, listing, communicating with buyers, scanning): 30% of your annual phone bill. On a $100/month plan: $360 deduction.

Equipment: Camera, lighting for product photography, garment steamer, lint roller, clothing rack — all deductible. Items under $2,500 can be expensed immediately (de minimis safe harbor election).

For a broader perspective on launching and growing your resale operation, The $97 Launch covers business setup including tax planning.

Quarterly Estimated Taxes

If you expect to owe $1,000 or more in taxes, you must pay quarterly estimates. Due dates: April 15, June 15, September 15, January 15.

Simple method: set aside 25-30% of your net profit each month in a separate savings account. Pay quarterly from this account. If you overpay, you'll get a refund.

Safe harbor: if you pay at least 100% of last year's total tax liability in quarterly estimates (110% if AGI > $150K), you'll owe no penalties regardless of what you actually owe.

The 1099-K Reality

Platforms now report gross sales on 1099-K forms to the IRS. Important: the 1099-K reports gross sales, not profit. The IRS will see your total sales. It's your job (via Schedule C) to show the costs that reduce that gross number to your actual profit.

If your 1099-K shows $30,000 in sales but your actual profit is $15,000, your Schedule C needs to clearly show $10,000 in COGS and $5,000 in expenses. Without those records, the IRS would tax you on $30,000.

Record-Keeping Best Practices

Keep all receipts for 3-7 years. Use a separate bank account and credit card for all resale purchases and expenses. Track inventory purchases in a spreadsheet in real-time (not at tax time). Take a photo of every receipt on purchase day (use an app like Dext or just your phone camera). Reconcile monthly — 30 minutes per month saves 20 hours in April. Back up everything to the cloud.

When to Get Professional Help

Hire a CPA or tax professional when: annual resale revenue exceeds $20,000, you're considering forming an LLC or S-Corp, you have complex situations (multi-state sales, international sales), you receive an IRS notice, or your time is better spent sourcing than doing your own taxes.

A CPA specializing in small business costs $300-$800 per year and typically finds enough deductions to cover their fee.

Action Items

1. Open a separate bank account for resale income and expenses. 2. Start an inventory tracking spreadsheet today. 3. Download a mileage tracking app (MileIQ, Everlance, Stride). 4. Set aside 25-30% of each payment in a tax savings account. 5. Mark quarterly tax dates on your calendar. Your resale business is a real business — treat the taxes like one, and you'll keep more of what you earn.

FAQ

Do I need to pay taxes on reselling income?

Yes. All reselling income is taxable regardless of whether you receive a 1099. If you earn a net profit of $400 or more from self-employment (including reselling), you must file Schedule C and pay self-employment tax. The $600 threshold only determines whether platforms send you a tax form.

How do I track cost of goods sold for reselling?

Keep records of every purchase: date, item description, price paid, and where you bought it. Use a spreadsheet or inventory management app (like SellerDeck or a simple Google Sheet). At tax time, total all purchases of items you sold during the year — that's your COGS.

Can resellers deduct mileage for sourcing trips?

Yes. Business mileage for sourcing trips, post office runs, supply store visits, and shipping drop-offs is deductible at 67 cents per mile (2024 rate). Track every trip with a mileage app. A reseller driving 200 miles/week for sourcing can deduct $6,968/year.