How Much Can I Sell on eBay Without Paying Tax in 2023? A Detailed Guide

Selling on eBay can be a lucrative side hustle but also creates tax obligations. If you‘re an eBay seller, understanding the various taxes that may apply to your earnings is crucial for staying compliant. This comprehensive guide examines eBay tax rules for 2023 so you can confidently navigate your reporting requirements.

Types of Taxes Owed on eBay Income

As an eBay seller, you may need to pay some combination of the following taxes depending on your sales volume and profits:

Income Tax: Any net profit from eBay sales is considered taxable income by the IRS and state tax authorities. You must report earnings on your tax return.

Self-Employment Tax: If your eBay activities amount to a business, you owe 15.3% self-employment tax on the first $147,000 of net income to fund Social Security and Medicare.

Estimated Taxes: Paying quarterly estimated taxes helps avoid underpayment penalties if you expect to owe $1,000+ in taxes.

Sales Tax Collection: If you have nexus in states where buyers are located, you may be required to collect and remit sales tax on taxable eBay sales.

Business Licensing: Some states require certain business licenses if you operate an eBay or ecommerce business within their borders.

Thorough record-keeping and tax preparation assistance can help you identify what taxes apply to your specific eBay business.

2023 Tax Reporting Thresholds

The IRS reporting thresholds for third-party transactions like eBay sales are changing for 2023:

  • Gross payments over $600 (previously $20,000)
  • No minimum number of transactions (previously 200)

You will receive a 1099-K from eBay if your gross sales exceed $600. While this means more sellers will get 1099-K forms, you still must voluntarily report all income on your tax return.

How Taxes Are Calculated for eBay Sellers

To estimate what you‘ll owe, you first need to calculate your net profit from eBay. Here‘s an overview of how to do your eBay tax math:

Step 1) Track your gross eBay sales proceeds for the year

Step 2) Deduct the cost of goods sold (what you paid for inventory)

Step 3) Subtract allowable business expense deductions like eBay fees, shipping costs, mileage, supplies, etc.

Step 4) The remainder is your net annual profit from eBay

Step 5) Look up your federal and state (if applicable) income tax rates based on your total taxable income and filing status

Step 6) Multiply your net profit by income tax rates to estimate income taxes owed

Step 7) Calculate 15.3% self-employment tax on the first $147,000 of your net profit

Step 8) Add together estimated income tax plus self-employment tax to determine your total tax liability

Example:

  • eBay gross sales: $75,000
  • Cost of goods sold: $30,000
  • Expenses: $10,000
  • Net profit: $75,000 – $30,000 – $10,000 = $35,000
  • Federal income tax rate (22% bracket): 22%
  • Income tax owed: $35,000 x 0.22 = $7,700
  • Self-employment tax rate: 15.3%
  • Self-employment taxes owed: $35,000 x 0.153 = $5,355
  • Total estimated taxes owed = $7,700 + $5,355 = $13,055

Hobby Sellers vs. Business Sellers

The IRS categorizes eBay sellers as either hobby sellers or business sellers, which impacts your deductions:

Hobby Sellers

  • Earn less than $600 in gross sales (no 1099-K)
  • Cannot deduct business losses against other income
  • Report income on Line 8z of Schedule 1

Business Sellers

  • Earn more than $600 in gross sales (receive 1099-K)
  • Can deduct all allowable business expenses
  • Report income on Schedule C

As a business seller, you save on taxes by deducting expenses. But as a hobbyist, the IRS limits loss deductions against regular income.

Sales Tax Collection on eBay Sales

As an online seller, you may need to collect sales tax if you have substantial economic ties to (nexus in) states where your buyers reside.

To simplify compliance, eBay handles sales tax collection in many states through the Marketplace Facilitator Act. However, you may still need to collect sales tax directly if:

  • Your eBay sales exceed $100,000 in a state
  • You have inventory stored in states where buyers are located
  • You regularly attend trade shows in states where your buyers reside

Use resources like Avalara‘s tax rate lookup tool to stay up-to-date on the latest economic nexus rules and sales tax obligations for eBay sellers.

Tips for Staying Compliant

Follow these tips for managing your eBay taxes properly:

  • Maintain detailed records of all business income and expenses.
  • Track mileage for transportation, sourcing, and shipping.
  • Consult a tax professional about complex issues like estimated payments.
  • Review each state‘s nexus rules and licensing requirements annually.
  • File Schedule C, Schedule SE, and Form 1040 to report your earnings.
  • Make quarterly estimated tax payments if you expect to owe $1,000+ in taxes.

Key Takeaways

  • You must report all eBay earnings on your federal and state tax return.
  • For 2023, the 1099-K threshold drops to $600 in gross sales.
  • Your net profit is subject to income tax and 15.3% self-employment tax.
  • Sales tax collection, estimated payments, and business licenses may also apply.
  • Meticulous record-keeping is vital for navigating eBay taxes.

Understanding small business tax rules does require some upfront work. But taking the time to research requirements and work with a tax pro will help you avoid costly mistakes down the road. With the right preparation, you can sell successfully on eBay and feel confident you are meeting all of your tax obligations.