If you're selling on eBay, the 1099-K form can be a nightmare. The gross amount eBay reports to the IRS is often way higher than what actually hit your bank account. If you don't track your deductions correctly, you could end up paying taxes on money you never made.
Why this matters
The IRS lowered the 1099-K reporting threshold. If you sold more than $600 (or $5,000 depending on current deferrals) on eBay, the IRS knows about it. You need to be ready.
1. Understand What eBay Reports (Gross vs. Net)
The biggest shock for new resellers is seeing their 1099-K form. It shows your Gross Payment Volume. This includes:
- Item sale price
- Shipping fees paid by the buyer
- Sales tax collected by eBay
Yes, you read that right. The number includes sales tax eBay collected and remitted, and shipping money you immediately spent on labels. You must deduct these expenses on your Schedule C to avoid paying income tax on them.
2. The Essential Deductions Checklist
To lower your taxable income legally, you need to track every single deductible expense. Here is the checklist every eBay seller needs:
Direct Costs
- • Cost of Goods Sold (COGS)
- • eBay Final Value Fees
- • Ad Fees (Promoted Listings)
- • Shipping Labels
- • Packaging Materials (Boxes, Tape)
Indirect Costs
- • Home Office Deduction
- • Mileage for Sourcing
- • Storage Units
- • Software Subscriptions (like Eclipse)
- • Phone & Internet (Business % usage)
3. How to Track COGS (Cost of Goods Sold)
This is where 90% of resellers mess up. You generally cannot deduct the cost of inventory until you sell it.
Example: You buy 100 sneakers for $10,000 in December. You sell 0 in December. Your COGS deduction for that year is $0. The $10,000 is an asset (inventory), not an expense yet.
You need a system that links every sale to its specific purchase cost.
4. The Manual Way (Spreadsheets)
You can do this for free using Google Sheets or Excel. It requires discipline. You'll need to:
- Download your transaction report from eBay Seller Hub every month.
- Manually enter the purchase price (COGS) for every item sold.
- Categorize every expense (shipping, fees, supplies).
- Sum up the totals for your Schedule C.
Want a free template?
Get our "Ultimate Reseller Tax Spreadsheet" (Google Sheets)
5. The Automated Way (Eclipse)
If you're doing more than 50 sales a month, spreadsheets become a part-time job. This is why we built Eclipse.
Eclipse connects directly to your eBay account and bank feeds. It:
- Automatically imports every sale and fee
- Matches payouts to bank deposits (reconciliation)
- Tracks inventory and calculates COGS automatically
Common Mistakes to Avoid
- Mistake #1: Deducting inventory you haven't soldOnly deduct COGS for items that actually sold in the tax year. Unsold inventory is an asset.
- Mistake #2: Ignoring small expensesThat $5 tape roll and $12 monthly software subscription add up. Eclipse tracks these automatically from your bank feed.
- Mistake #3: Mixing personal and businessGet a separate business checking account. It makes audits 10x easier and protects your personal assets.