Reseller Taxes in 2026: What Flippers Actually Owe

A 1099-K reports gross payments. It is not the tax.

Form 1099-K is an information return. A payment app or online marketplace (the IRS calls these third party settlement organizations) tells the IRS, and you, the gross amount of payments it settled for goods or services. Gross means the total before fees, refunds, discounts, and the other amounts the form instructions tell the filer to ignore. Box 1a will not match the take-home number in your payout screen, and it will not match the profit number in a reseller profit tracker. If you type box 1a onto your return as if it were profit, you pay tax on money the platform already kept and on money you already sent back to buyers.

For calendar year 2026, a third party settlement organization is required to file Form 1099-K when gross payments for goods or services are more than $20,000 and the number of transactions is more than 200. Both tests have to be met. The One Big Beautiful Bill put that pre-2021 threshold back in place. The $600 phase-in that people still quote, and the transitional $5,000 and $2,500 figures from earlier IRS delay notices, are not the federal rule for 2026. The IRS states this directly in its Form 1099-K FAQs and in the instructions for the form.

Three exceptions swallow the comfort people take from that sentence. First, the threshold is a filing rule for the platform. It is not an exclusion for the seller. Income from selling goods is reportable at one dollar if it is taxable income. Second, a platform may send a 1099-K below the federal line, and your state may require reporting at a lower amount, so a modest Poshmark or eBay year can still produce a form. Third, the de minimis exception belongs to third party network transactions. A payment-card settlement entity does not get the same dollar floor. If you take cards through your own processor, a 1099-K can show up with no $20,000 gate.

• No form does not mean no income. Cash, checks, Zelle transfers a bank does not 1099, and local pickups paid in the driveway are still gross receipts when the sale is part of the business.
• A form does not mean the whole number is profit. Fees, refunds, shipping you paid, and the cost of the item come off on the return, each in one place.
• A form can include dollars that are not business income. Personal items sold at a loss, and amounts the platform included in error (a gift, a reimbursement), have their own spot at the top of Schedule 1. They do not belong on Schedule C.

Closet cleanout, hobby, or a real business

The return splits into three different activities, and the dollar total does not pick the category for you. There is no federal rule that says flipping stays tax-free under $600, under $5,000, or under the 1099-K threshold. The category follows what you did and why.

A closet cleanout is the sale of personal items you bought to use. You owned the couch, the stroller, the jacket. You are done with it. If you sell it for less than your cost, the economic loss is personal. The IRS does not let you deduct that loss. If a marketplace reports the proceeds on a 1099-K anyway, you still have to show the IRS why those proceeds are not taxable income. For tax years beginning in 2024 and still the instruction for later years, you enter the personal-loss amount (or an amount included on the form in error) in the entry space at the top of Schedule 1 (Form 1040). You can instead report the sale on Form 8949, which carries to Schedule D, and show basis so the loss does not become a deduction. The IRS couch example is the clean version: you paid $1,000, you sold it for $700, the 1099-K shows $700, you enter $700 in that Schedule 1 space. See What to do with Form 1099-K.

If the same personal item sells for more than you paid, the gain is taxable. A $1,000 couch that sells for $1,200 is a $200 gain on Form 8949 and Schedule D. When one 1099-K mixes a loss sale and a gain sale, only the loss-sale proceeds (and any erroneous amounts) go in the Schedule 1 entry space. The gain is reported on its own. Collectibles you held as investments, rather than as inventory, can be taxed at the collectibles rate, up to 28 percent. Goods you bought to resell are not capital assets in that sense. They are inventory, and the profit is ordinary income.

A hobby is an activity you pursue without a genuine profit motive. Hobby income is still income. Hobby expenses generally are not deductible. The suspension of miscellaneous itemized deductions was made permanent, so the old path of deducting hobby costs on Schedule A is not available. Calling a money-losing shop a hobby to dodge self-employment tax also strands the cost of the goods. The business classification is the one that unlocks cost of goods sold and ordinary expenses, and it is also the one that brings self-employment tax.

• Profit motive is a facts test, not a slogan. Treasury Regulation 1.183-2 looks at how businesslike you are, whether you have or seek expertise, time and effort, expectation that assets will appreciate, your success in similar work, your history of profit and loss, the size of occasional profits, your other income, and how much of the activity is personal pleasure.
• Three profitable years out of five is a presumption, not a requirement. If you show a profit in three of five consecutive years (two of seven for horse activities), the law presumes the activity is for profit. You can still be a business in a loss year. You can also be a hobby in a year you happened to make money. The presumption helps. The records decide arguments.
• Keep the closet off Schedule C. Mixing a personal Poshmark cleanout with inventory you bought to flip is how people pay self-employment tax on a loss they cannot deduct, or fail to deduct a real cost of goods. Separate the two piles before January, in the records, while you still remember which jacket was yours.

A business is the regular activity of buying and selling with a profit motive. One deliberate flip can be a business if the facts say so. A year of thrift runs, listed SKUs, and a restock habit is a business even when a single month loses money. Sole proprietors report that activity on Schedule C (Form 1040). Partners use Form 1065. An S corporation uses Form 1120-S. Most people reading this are Schedule C until a professional tells them the entity is worth the payroll and the separate return.

Schedule C starts with receipts, then cost of goods sold

Schedule C is a profit-and-loss statement with a tax form's line numbers. Part I is income. Gross receipts include marketplace payouts, cash, and checks for business sales. Add the platforms together with the cash the platforms never saw. Then subtract returns and allowances: refunds you actually gave back, and allowances you actually granted. What remains is net receipts.

Part III is cost of goods sold, and it is the line resellers get wrong in both directions. The formula is beginning inventory, plus purchases and incoming freight, minus ending inventory. That difference is the cost of what left the shelf. A jacket you bought for $18 and still own on December 31 is ending inventory. It is an asset. It is not a 2026 deduction. The deduction arrives in the year you sell it (or otherwise dispose of it as inventory). Buying hard in the last week of December does not lower the current year's taxable profit unless those goods also sold.

Most flippers are cash-method taxpayers. Cash method means you generally count income when you receive it and expenses when you pay them. Inventory is the exception people forget. If you are under the IRS gross-receipts test for small business taxpayers — the threshold is in the tens of millions and is adjusted each year in Publication 334 — you can use the cash method, and you may treat inventoriable goods as non-incidental materials and supplies under section 471(c). Non-incidental supplies are deducted in the year they are used or consumed. For a reseller, that year is the year of sale. The small-business rule changes the accounting method you are allowed to use. It does not turn a storage unit full of unsold goods into a deduction.

• Count ending inventory at cost, not at the price you hope to get. A $40 shirt you think you can sell for $120 is still a $40 asset until it sells. Marking it up in your head inflates ending inventory and understates cost of goods sold.
• Specific identification fits this business. You know which unit you sold. Track cost per item. FIFO is a fallback for identical goods you cannot tell apart, not a reason to skip the tag in the tote.
• Personal use is a withdrawal. If you keep a pair of shoes you bought as inventory, take them out of inventory at cost. That is not a sale and it is not a loss. The cost simply never becomes cost of goods sold.
• Dead inventory is still inventory until you dispose of it. Donating, discarding, or selling at a deep discount has its own documentation. Leaving it in ending inventory at full cost is the honest default until a disposal is real.

Gross profit is net receipts minus cost of goods sold. Everything people call a write-off — fees, labels, mileage, software, supplies — comes after that, in Part II. If gross profit is thin before those expenses, the expenses will not invent a business. They will only show the truth faster. The companion pages on marketplace fees and shipping are how you estimate those lines during the year instead of discovering them in April.

Put each dollar in one place

The expensive mistakes are double counts. Box 1a is gross. If your bookkeeping already subtracted marketplace fees from that number, and you then deduct the same fees again as an expense, you have erased the fee twice and understated income. If you enter box 1a as gross receipts and also forget to deduct the fees, you have taxed money you never kept. One home for each dollar.

Refunds work the same way. A refunded sale that is still inside the 1099-K gross belongs on the returns and allowances line, so net receipts fall. Deducting that same refund a second time as an expense understates profit. A refund of a sale that was never in your receipts does not belong on the return at all.

Shipping charged to the buyer is often inside the gross figure. Include it in receipts, then deduct the label you actually bought. Netting the label out of receipts and deducting the label is the same double count in a different costume. Sales tax that a marketplace collects from the buyer and remits itself is generally the marketplace's remittance. Do not add it on top of income, and do not assume your 1099-K already subtracted your fees. Read that platform's 1099-K explainer for the year before you type. eBay, Poshmark, Mercari, Depop, and the others do not describe box 1a in identical sentences.

If box 4 of the 1099-K shows federal income tax withheld, that withholding is a payment toward your tax. Claim it on the return. Backup withholding happens when a taxpayer identification number is missing or does not match. Fix the TIN with the platform so the next year does not repeat it. And if the form is wrong and the platform will not correct it, the IRS instructions still tell you to report the situation. You do not get to ignore a form the IRS already has.

Expenses you can support with a record

A business expense has to be ordinary and necessary for the reselling activity, paid or incurred in the year, and substantiated. Ordinary means common in this trade. Necessary means appropriate and helpful, which is a lower bar than indispensable and a higher bar than 'I bought it on the way to the thrift store.' The record has to exist. A reconstructed April spreadsheet of miles you think you drove is the deduction that dies in an exam.

The expenses that show up on almost every reseller Schedule C are marketplace fees and payment processing, postage and shipping labels, packing supplies, a storage unit used for inventory, software you use to source or track the business, and the business share of a phone or internet bill. Education that maintains or improves a skill you already use in the business can qualify. Education that qualifies you for a new trade is personal. A course on how to read sold comps is in a different pile from a degree you decided to start because reselling is going well.

Mileage is the deduction people invent and the one the IRS knows how to check. For 2026 the business standard mileage rate is 72.5 cents per mile from January 1 through June 30, and 76 cents per mile from July 1 through December 31. Charity miles stay at 14 cents. Those figures are on the IRS standard mileage rates page. You log the date, the miles, and the business purpose at the time of the trip. The rate you use is the rate in effect on the day you drove, so a single yearly average will be wrong in a year the IRS split the rate on July 1.

• Standard mileage or actual expenses, not both for the same miles. The standard rate is meant to cover gas, depreciation, insurance, and maintenance in one number. Choosing actual vehicle expenses is a different method, with its own records and, after the first year, limits on switching. Most solo resellers are better off with the standard rate and a clean log.
• Know which trips are business miles. Driving from a qualifying home office to the post office, the thrift store, or a pickup is generally business mileage. Commuting from home to a regular place of business is not. Publication 463 is the IRS discussion. If your only workplace is the dining table you also eat on, do not assume every Saturday loop is deductible. The home has to be the principal place of business before those miles start at the front door.
• The home office is exclusive and regular use. The space has to be used only for the business, and it has to be your principal place of business (or a place you meet customers, or a separate structure). A guest room that is also a packing station fails exclusive use. The simplified method is $5 per square foot, up to 300 square feet, which caps that method at $1,500. The actual-expense method allocates a share of rent or mortgage interest, utilities, and insurance, and it asks for more records. Packing on the kitchen table is a workflow. It is not automatically a deduction.
• Meals are a narrow category. Coffee on a sourcing run is generally personal. A meal with a business purpose, with the person and the purpose written down, is generally 50 percent deductible. Do not build the deduction out of drive-through receipts.

A storage unit that holds inventory and packing supplies is a straightforward ordinary expense. A unit that also holds the household's off-season clothes is partly personal, and only the business share belongs on Schedule C. The same split applies to the phone. If you deduct 100 percent of a phone you also use to text your family, the percentage is the thing an examiner asks about first. Write the percentage down when you set it, and keep it stable unless your use actually changes.

Self-employment tax, then the QBI deduction

Net profit on Schedule C is not the tax bill, and it is not the only tax. Self-employment tax is the Social Security and Medicare tax that employees split with an employer. A sole proprietor pays both halves. For 2026 the Social Security portion is 12.4 percent and the Medicare portion is 2.9 percent, a combined 15.3 percent. Social Security applies only up to the wage base. The Social Security Administration set that base at $184,500 for 2026. Medicare has no wage cap. If you also have a W-2 job, Social Security wages already taxed on the W-2 reduce the room left for the 12.4 percent piece. Medicare still applies to the self-employment earnings.

Schedule SE does not multiply net profit by 15.3 percent directly. It multiplies net earnings by 92.35 percent first, which is the mechanical way the form gives you the deduction for the employer-equivalent half, and then applies the 12.4 and 2.9 rates. You also deduct half of the self-employment tax as an adjustment on Schedule 1. That deduction reduces income tax. It does not reduce the self-employment tax itself. Above the statutory thresholds (long set at $200,000 for single filers and $250,000 for married filing jointly), an additional 0.9 percent Medicare tax can apply on Form 8959. The 3.8 percent net investment income tax generally does not stack on top of income that is already subject to self-employment tax. Use the current Schedule SE for the year; the form is the computation.

The qualified business income deduction under section 199A is a separate income-tax deduction of up to 20 percent of qualified business income. It was scheduled to expire after 2025. The same 2025 law that restored the 1099-K threshold made section 199A permanent, with changes that start in tax years beginning after December 31, 2025. For 2026, the simplified Form 8995 is the form when taxable income before the deduction is at or below $201,750 for most filers, $201,775 if married filing separately, and $403,500 if married filing jointly. Above those amounts, Form 8995-A brings in the wage and property limits. Qualified business income is not gross sales. It starts from the net from the qualified business and is reduced by items such as the deductible half of self-employment tax attributable to that business. There is also a minimum deduction, set in the statute at $400 when active qualified business income is at least $1,000 and you materially participate. Compute it on the 2026 Form 8995 instructions for the year you file. A blog cannot see the rest of your return, and the taxable-income limitation can shrink the deduction to zero.

Sales tax is a different tax, owed to a state

Income tax is a tax on profit, paid to the IRS and often to your state of residence. Sales tax is a tax on the transaction, collected from the buyer and remitted to a state department of revenue. Mixing them is how sellers either collect tax they were not supposed to add on top of a marketplace price, or fail to collect tax on the cash sales the marketplace never touched.

Most states now have marketplace facilitator laws. On a facilitated sale, the marketplace is the party that calculates, collects, and remits the buyer's sales tax. For a typical shipped sale on eBay, Etsy, Amazon, Poshmark, or Mercari, you usually do not also collect sales tax yourself. Confirm it on that platform's tax page for the year, because a local-pickup path and a shipped path are not always the same product. Facebook Marketplace checkout that runs through a processor can be facilitated. A cash handoff on a porch is a sale you made. Craigslist is almost never a facilitator. OfferUp depends on whether the payment ran through OfferUp or around it.

Your home state is the sales-tax question that actually belongs to you. States differ on whether a casual sale is exempt, whether a garage sale by a non-business is ignored, and whether a person in the business of reselling must register, collect, and file even on local pickup. Once you hold a sales-tax permit, occasional-sale exemptions that protect a household garage sale often stop applying to you. Economic nexus — the threshold at which a remote seller must register in a state where they have no store — is also state by state. Facilitator laws cover many platform sales, so a flipper who only sells on collecting marketplaces may not need a permit in every ship-to state. The moment you store inventory in another state, sell at a show there, or use a checkout that does not collect tax, that assumption is the one to take to a sales-tax specialist before you scale it.

• A resale certificate is about purchases, not about income tax. With a valid state permit, you can give a vendor a resale certificate and buy inventory for resale without paying that vendor's sales tax. The tax is supposed to be collected on the final retail sale. Many thrift stores and nearly all garage sales will not honor a certificate. Using a certificate to buy personal goods tax-free is not allowed.
• A state with no personal income tax can still tax the business. Sales tax, a gross-receipts or margin tax, and local license taxes do not disappear because the state skipped a personal income tax. Washington's business and occupation tax and Texas's franchise tax are examples of regimes that surprise people who moved for the income-tax line on a chart.
• Sales tax you collect and remit is not profit. If you do collect it, the amount you remit is not income. The amount you keep by mistake is income. Your books should show the tax as a liability until you file the state return, not as a bonus on the flip.

A full-year example that foots

The numbers below are illustrative. They describe one sole proprietor, cash method, no employees, no other business, and no W-2 wages, selling on marketplaces during 2026. They are not your return. They exist so the categories have a scale.

She receives $42,000 of business payments. That figure is what the 1099-Ks and the cash sales add up to after she has already pulled personal-loss items and a misposted reimbursement out to Schedule 1. Refunds she issued, which were included in the gross, are $1,200. Net receipts are $40,800.

Inventory at January 1 cost $2,000. Purchases during the year cost $14,000. Inventory still on hand at December 31 cost $3,500. Cost of goods sold is $2,000 plus $14,000 minus $3,500, which is $12,500. Gross profit is $40,800 minus $12,500, which is $28,300. The $3,500 still in totes is next year's problem and next year's deduction. None of it is a 2026 write-off.

The mileage line is the July split in miniature. Four hundred miles from January through June at 72.5 cents is $290. Six hundred miles from July through December at 76 cents is $456. Together, $746. The $940 is $400 of packing supplies, $300 of software, and $240 that she can show is the business share of the phone. There is no home-office deduction in this example, because she packs in a room that is also the guest room. Exclusive use fails, so the example does not pretend otherwise.

Self-employment tax on $18,054 of net profit is about $2,551. The path is $18,054 times 92.35 percent, which is $16,673, then 12.4 percent Social Security ($2,067) plus 2.9 percent Medicare ($484). She is under the $184,500 Social Security wage base and under the additional Medicare threshold, and she has no W-2 wages eating into the Social Security room. Half of that self-employment tax, about $1,275, is the Schedule 1 deduction. Qualified business income is on the order of profit minus that half, and 20 percent of that amount is a bit over $3,300, before the taxable-income limit and the rest of Form 8995. Federal income tax then depends on filing status, the standard deduction or itemized deductions, and any other income. State income tax is a separate return. None of those later figures belong in the $18,054. The $18,054 is profit. The tax is smaller than profit and larger than zero.

If $6,000 of the $42,000 was cash on Facebook Marketplace and Craigslist, that $6,000 is already inside gross receipts for income tax. It may also be the slice her state wants sales tax on, because no facilitator stood between her and the buyer. The eBay portion of the same year can be fully facilitated at the same time. One business, two sales-tax answers. And if a day job had withheld enough federal tax to cover the income tax and the $2,551, she might not need quarterly estimates. With no W-2, she does. The $1,000 threshold for owing estimated tax is long behind her by the summer.

Quarterly estimates, and the January close

Employees have tax taken out of each paycheck. Sole proprietors do not. If you expect to owe at least $1,000 in federal tax for the year after subtracting withholding and credits, you generally pay estimated tax. The usual due dates are April 15, June 15, September 15, and January 15 of the following year. When a date falls on a weekend or a holiday, the IRS moves it. Pay with IRS Direct Pay, EFTPS, or the voucher from Form 1040-ES. A safe harbor is to pay 100 percent of last year's tax, or 110 percent if your adjusted gross income was more than $150,000 ($75,000 if married filing separately). The other safe harbor is 90 percent of the current year's tax. Meeting a safe harbor limits the underpayment penalty even when you still owe a balance in April.

Withholding from a W-2 job counts toward the requirement, and withholding is treated as paid evenly through the year. Raising withholding on Form W-4 is often simpler than four estimated payments, and it can catch up a year that started before the reselling profit was obvious. If reselling is the only income, estimates are the tool. States with an income tax often have their own estimate schedule. Skip those and a federal refund does not rescue the state penalty.

January is a reconciliation, not a reconstruction. Before you file, you want five piles that agree. Gross receipts by channel, including cash. Refunds. Fees, from the platform reports rather than from memory. Cost of goods sold, with a beginning inventory, purchases, and an ending count at cost. Expenses with receipts, plus a mileage log that was written when the miles happened. Download every 1099-K, 1099-NEC, and 1099-MISC. A 1099-NEC shows up when a business pays you directly, for example a shop that bought a lot from you outside a marketplace. Those dollars are income too, and they are easy to leave out of a return that was built only from eBay.

• Keep the records longer than the feeling lasts. The IRS generally has three years from the filing date to assess additional tax, and six years if you omit more than 25 percent of gross income. There is no limit when a return was never filed or when fraud is involved. Keep cost records for an item until you sell it and the assessment window on that return has closed. Thermal register receipts fade. Photograph them.
• Use one business account. A separate bank account and a separate card will not, by themselves, make you a business. They will make the Schedule C possible to tie out. Personal Venmo that also receives buyer payments is how closet cleanouts and inventory end up on the same 1099-K with no legend.
• Hire a preparer when the facts outgrow the form. Employees, inventory you cannot reconcile, a 1099 that misses your books by more than you can explain, sales tax in more than your home state, or several years of mixed personal and business payments are the usual triggers. The fee is an ordinary business expense. The notice you avoid is more expensive than the fee.

Botifex does not file a return, compute sales tax, or replace a CPA. What it is for, in this loop, is the operating record the return is built from: what you sourced, what it cost, and whether the flip was worth making after fees. The profit and inventory guide is the workflow. How to start reselling is the setup if the business is still an idea and you want the records to exist before the first taxable year is a shoebox. Alerts find the item. They do not tell the IRS what you paid for it. You write that down on the day you buy, because January will not remember the estate-sale price for you.