Tax Rules for eBay and Etsy Sellers

For solo entrepreneurs and small business owners, both eBay and Etsy provide unique platforms for selling products, new and secondhand, online. The following information breaks down the taxes you need to pay and tips for filing — starting with the key taxes you will need to be aware of.

The Taxes You Need to Know

For all entrepreneurs, including those who sell on eBay or Etsy, there are several different types of taxes that you need to know about and pay.

Federal Income Tax

As an Etsy or eBay seller, income tax on sales is paid as “self-employment income.” The United States takes a “pay as you go” approach to self-employment income tax, which means you need to pay estimated taxes on a quarterly basis if you expect to owe more than $1,000 for the year. These taxes are due on the 15th of April, June, September and January.

If you have a net profit of $400 or more from your sales on Etsy or eBay, you will need to pay the self-employment tax on your income. This amount is really two taxes: 12.4 percent of the first $127,200 you earn for Social Security and 2.9 percent for Medicare.

State Income Tax

Just as if you worked for employer rather than as an entrepreneur, you will also have a state income tax on your eBay and Etsy sales. Most states require quarterly estimated taxes on income, but the tax obligations within each state vary.

Sales Tax

Sales tax is another important tax that you need to know about as an entrepreneur who sells on this platform. You are responsible for collecting sales tax from customers who live in the same state as your business.

Tips for Filing Your Taxes

Keep Clear Records and Files

If you keep all of your financial information — including receipts for business-related purchases — organized from the start, getting everything in order for filing taxes will be much simpler. You will also be better prepared in case of an audit.

Apply the Appropriate Deductions

As a marketplace seller, you can reduce the amount you owe on taxes by deducting your costs, if those deductions are authorized by the IRS. Expenses that you can deduct include items or materials purchased for creating your product, advertising and even phone and internet costs, if they are connected to your Etsy or eBay sales.

Filing taxes as an eBay or Etsy seller may sound complicated, but it doesn’t have to be intimidating. As with any tax filings, it’s best to get started early.

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