Selling on Etsy, eBay and Facebook Marketplace: hobby or business?
Clearing out a closet is not a business. Where the line sits, what to do with a 1099-K for personal items, and why the sales tax on your listings is not yours.
Quick answers
- Do I owe tax on selling my own used furniture?
- Not if you sold it for less than you paid. That loss is not deductible either. If a form reports the payment, you still show it on the return so it does not look like income.
- What if I sold a personal item for more than I paid?
- The profit is taxable. Report it as a capital gain on Form 8949, which carries to Schedule D, using what the item originally cost you as the basis.
- When does online selling become a business?
- When it is carried on for profit in a businesslike way, with records, pricing changes and promotion. A business reports on Schedule C and can deduct costs; a hobby cannot deduct a loss.
Selling your own used things at less than you paid is not taxable income, even when a form arrives. Selling to make a profit is a business from the first sale, and the two are reported in completely different places.
| Form 1099-K reporting threshold, gross payments | $20,000 | IRS fact sheet FS-2025-08 (IR-2025-107) |
|---|---|---|
| Form 1099-K reporting threshold, transactions | 200 | IRS fact sheet FS-2025-08 (IR-2025-107) |
Three situations, not one
Work out which one you are in before anything else, and be ready for the answer to be more than one, because a single year can hold all three.
A personal item sold for less than you paid. A personal item is something you owned and used yourself rather than bought to resell: the couch, the old phone, a car. The loss on it is not deductible and there is no income to report, but where a form reported the payment you still have to show it so the gross figure does not read as profit.
A personal item sold for more than you paid. The difference between what you received and what the item originally cost you is a taxable gain.
Buying or making things in order to sell them. That is a business from the first sale, whatever the platform calls you.
What to do with a 1099-K for personal items
For items sold at a loss the IRS offers two routes. One runs through Schedule 1 and takes two entries: the amount from the form goes in as income, and the same amount is backed out again on an offsetting line, so the gross reported by the platform nets to nothing and no tax is paid on money that was never income. The other is to report the loss on Form 8949, which carries to Schedule D. Either way the form is accounted for on the return rather than left to sit unmatched.
For an item sold at a gain, the profit goes on Form 8949 and carries to Schedule D. If the year was a mix, some items sold at a loss and some at a gain, the losses and the gains are reported separately rather than merged into one figure first. 1099-K covers the form itself, and where the threshold goes next covers who will be getting one.
Where the line is: hobby or business
There is no sale count or dollar figure that turns a hobby into a business. The IRS asks about the activity instead. Is it conducted in a businesslike way? Are complete and accurate books and records kept? Is it done the way similar profitable activities are done? Does the seller change methods of operation to improve profitability? Do they advertise or promote it? What expertise do they, or their advisors, have?
The practical difference is what happens to a bad year. A business deducts its costs and can produce a loss that counts against other income. A hobby cannot deduct a loss against your other income at all. Nothing about which side you are on depends on how the platform describes you.
If it is a business
Then the reporting is Schedule C: receipts at the top, cost of goods sold taken off, then platform and payment processing fees, shipping and packaging, and mileage to the post office. Net earnings from self-employment of $400 or more also bring self-employment tax at 15.3%, which is the part a first profitable year does not warn anyone about. Schedule C is the tour of the form.
Basis: what you paid, and how to prove it
Basis is what the item cost you, and it is the hinge for both routes above. Without it, the entire sale price looks like profit, and the person who has to show otherwise is you.
Keep the original receipt where there is one. A card or bank statement from the purchase does the job. So does a photograph of a price tag, or a note made at the time rather than reconstructed two years later. Inherited and gifted items follow different basis rules that are not worth guessing at; take those to a preparer along with whatever paperwork came with the item.
The sales tax on your listings is not your income
Under state marketplace rules, a marketplace generally collects sales tax from the buyer and remits it itself. That money was never yours. It is not income, and it is not a deduction either. Worth saying, because a gross payment figure can look inflated for several reasons at once, including fees, refunds and shipping charges collected from buyers, and sales tax is the one sellers worry about first.
What to do before next year
Separate the closet clear-out from the resale activity, in your head and preferably in your accounts, because the two are reported in different places. Keep basis records for anything bought to resell, from the day you buy it rather than the day you list it. And download each platform's annual statement in January, while it is still easy to reach.