Introduction
Launching your first eBay store can feel daunting – but with the right tax and compliance roadmap, you’ll be set up for success. This guide walks new eBay sellers through five essential steps in 2025, from registration to recordkeeping, so you can focus on growing sales and avoid surprises at tax time.
Tax Code References
- Gross Income (IRC § 61): All amounts received from eBay sales must be included in your gross income.
- Information Reporting (IRC § 6051): eBay issues Form 1099-K when you exceed $20,000 in sales and 200 transactions.
- Ordinary & Necessary Expenses (IRC § 162): Deductible costs include eBay fees, shipping, and packaging.
- Self-Employment Tax (IRC § 1401): Net earnings from eBay sales are subject to Social Security and Medicare taxes.
Relevant Forms
- Form 1040, Schedule C: Report profit or loss from your eBay business.
- Schedule SE (Form 1040): Calculate self-employment tax.
- Form 1099-K: Reconciles third-party payment network transactions.
- Form 1040-ES: Pay quarterly estimated taxes.
- State Sales Tax Return: File where you have nexus (varies by state).
Detailed Example
Scenario: Carlos launches “GadgetGuys” selling phone accessories on eBay in 2025.
- Gross Sales: $25,000
- Fees & Costs:
- eBay fees: $2,500
- Shipping & packaging: $3,000
- Net Profit: $19,500
Tax Impact:
- Income Reporting: Carlos reports $19,500 on Schedule C (IRC § 61).
- Self-Employment Tax: He computes SE tax (~15.3%) on Schedule SE (IRC § 1401).
- Form 1099-K: eBay issues a 1099-K because Carlos exceeded both $20,000 and 200 transactions; he reconciles it to avoid misreporting.
- Deductible Expenses: He deducts $5,500 of ordinary business expenses under IRC § 162.
5-Step Compliance Guide
- Register Your Business
- Choose sole proprietor or LLC; obtain EIN (IRS.gov).
- Determine Sales Tax Nexus
- Track total eBay sales per state; if you exceed thresholds (e.g., $100K or 200 sales), register for a sales tax permit.
- Collect & Remit Sales Tax
- Enable eBay’s marketplace tax collection or configure your own software; remit monthly/quarterly.
- Reconcile Form 1099-K
- Compare eBay’s 1099-K with your internal records; adjust Schedule C gross receipts for discrepancies.
- File & Pay Taxes
- Submit Form 1040 with Schedules C and SE by April 15; pay any balance and quarterly estimates via Form 1040-ES.
Conclusion
By following these five steps – registration, nexus assessment, sales tax collection, 1099-K reconciliation, and timely filing – you’ll launch your eBay store on solid footing and avoid tax headaches down the road.
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Disclaimer
Anshul Goyal, CPA, EA, FCA, is a licensed Certified Public Accountant in the U.S. and an Enrolled Agent before the IRS. He represents clients in tax litigation and specializes in e-commerce compliance. This blog is informational and not a substitute for professional advice.
About Our CPA
With over a decade of U.S. and international tax expertise, Anshul Goyal guides new online entrepreneurs through setup, compliance, and growth – ensuring you keep more of what you earn.
Frequently Asked Questions
1. When does eBay issue a 1099-K?
When you exceed $20,000 in gross sales and 200 transactions.
2. Do I need to collect sales tax from day one?
Only in states where you meet economic nexus thresholds.
3. Can I deduct my eBay fees?
Yes – fees, shipping, and packaging are ordinary business expenses under IRC § 162.
4. How often should I pay estimated taxes?
Quarterly: April 15, June 15, September 15, and January 15.
5. Is an LLC worth it for a new seller?
It offers liability protection but involves extra setup and compliance costs.