key takeaways
- Selling individual items at a loss is generally not taxable, but profits from resale may need to be reported as income.
- If you regularly resell items for a profit, the IRS may treat it as self-employment income.
- Resale platforms often collect sales tax for buyers, but you are still responsible for reporting your earnings.
I started by cleaning out my closet.
A blazer I hadn’t worn in years. Shoes that looked great but were impossible to wear. A bag I bought on sale and never actually used. Listing them on Poshmark seemed like a win-win deal. Less clutter and a little extra cash.
By the end of the year, I had made a few thousand dollars between Poshmark and other reselling apps. It was nice to finally get some money back for things I no longer use.
Then tax season started, and I started wondering if that money would actually count as income.
This is how it works.
Selling personal items at a loss is generally not taxable.
If you sell your own clothes, shoes, or accessories for less than you originally paid for them, it generally is not taxable income.
For example, if you bought a jacket for $200 and sold it for $75, you made no profit. you sold it at one Loss. Losses on personal use property are not deductible, and since there is no income, it is not taxable.
So if you’re reselling most items at a price below retail, you may not have to pay income tax on that money.
Making a profit makes it taxable
Things change if you sell items for more than you paid for them.
Let’s say you picked up a designer piece from a thrift store and turned it around. When you buy goods specifically to resell them for profit, it is usually considered self-employment.
You will only be taxed on the profit left after that ExpenditureWhich may include:
- Original cost of goods (cost of goods sold)
- platform fee
- shipping supplies
- packaging material
- Mileage to source or ship items
It’s not about whether you think of it as a business or not. It’s about whether you made money or not and how much.
The $400 Profit Rule Explained
If you make $400 or more in profit (income minus expenses) from resale, you are required to file a tax return and Pay self-employment tax on your earnings.
Self-employment tax covers Social Security and Medicare contributions when you don’t have an employer who withholds and matches them. you will calculate on that Schedule SE.
This is often the part that casual resellers don’t see coming. Once you cross the $400 profit line, it is treated like business income.
How to Report Resale App Income on Your Taxes
If you regularly buy items to resell for profit, the IRS generally considers that self-employment income. you will usually Report that income on Schedule CWhere you can also deduct expenses like platform fees, shipping supplies, and the cost of the items you sell.
Keeping records of what you paid for items and what you sold them for can help you accurately report your profit.
How Sales Tax Works on Resale Apps
Income tax and sales tax are not the same thing.
Income tax is applied on the profits you make. Sales tax applies to the transaction itself and usually depends on where your buyer lives.
Most states now have market facilitator Law. This means that resale platforms typically collect the sales tax for you and remit it to the state.
So in many cases, you don’t need to calculate or collect sales tax yourself; The platform handles this automatically. But since sales tax rules vary by state, it’s still worth checking your state’s department of revenue website to see what applies to you.
Why does it matter?
There’s a real difference between cleaning out your closet and running a profitable resale side.
Knowing where you fall helps you report accurately and avoid surprises later.
Selling on Poshmark, Depop, or Mercari? Use our self-employment tax calculator to estimate how much you might owe before you file.