Most resellers start by selling their own things. A jacket that no longer fits, a camera that sat in a drawer, a stack of books. Then one weekend they buy a box at a yard sale because the contents would sell well, and something changes. This manual explains how the IRS describes the stages between clearing out a closet and running a business. It is general information, not tax advice; the right answer for a specific person depends on facts a guide cannot see.
Stage one: selling personal items
The IRS's Form 1099-K help page describes a personal item as something you owned for personal use, giving examples like a car, refrigerator, furniture, stereo, jewelry or silverware. For these:
- If you sell for less than you paid, the IRS says there is no tax liability and the loss cannot be deducted. You can zero out reported gross income for the item.
- If you sell for more than you paid, the profit is taxable, figured as the difference between what you received and what you originally paid.
- If you sold a mix of items at a loss and at a gain, the IRS says to report losses and gains separately.
Most used household goods sell for less than their original price, so a closet clear-out often produces no tax. The catch is proof. Keep whatever shows what you paid, and do not assume the platform knows.
Stage two: buying to resell
When you buy items for the purpose of selling them, you are no longer selling personal items. You have inventory. The IRS's 1099-K page says hobby sellers and other self-employed people are considered sole proprietors and report payment information on Schedule C.
Whether that activity is a hobby or a business affects how losses are treated. The IRS fact sheet on hobbies and businesses says that if taxpayers are not trying to make a profit, they cannot use a loss from the activity to offset other income, and income from an activity carried on with no intention of making a profit is reported on Schedule 1.
The factors the IRS lists
The IRS fact sheet frames the question through a set of key questions. Paraphrased:
- Is it conducted like a business? Complete and accurate books and records; doing it the way similar profitable activities are done.
- Do you change methods to improve profitability? Advertising, promotion, working to secure suppliers.
- What expertise do you or your advisors have? Study of accepted business practices, following expert advice.
- Is it a main source of income? Time and effort spent, full-time or part-time.
- Have you made, or do you expect to make, a profit? Past experience turning activities profitable; expected appreciation.
- Is it profitable in some years? Occasional profits, substantial profits.
- Are losses beyond your control or normal for the startup phase? Or do they continue beyond a reasonable period?
- Does it have elements of personal pleasure or recreation?
No single factor decides it. Reading the list honestly against your own activity is a good way to see which way it leans.
What a reseller can do with that
Many of the factors describe habits a careful reseller already has, or should:
- Keep a sales log and purchase receipts. See tax records.
- Track costs per item and per month so you can tell what is profitable.
- Change sourcing and pricing when a category is not working.
- Know your category well enough to inspect, grade and price it.
These habits do not guarantee any tax outcome. They do make it possible to answer the question with facts, and they make the activity more profitable whether or not it is a business.
Self-employment tax
If your reselling is a business and produces net earnings, self-employment tax may apply in addition to income tax. The IRS self-employed individuals tax center explains the rules, filing thresholds and estimated payments. Figures change each year, so read the current pages.
Mixed sellers
Plenty of people sell both their own old things and bought-for-resale inventory on the same account. That is workable if your records separate them. Two tabs in a spreadsheet are enough: one for personal items with what you originally paid, one for resale inventory with purchase cost, fees and shipping. The 1099-K from the platform will not split them for you.
When to get help
Consider a qualified tax professional when your sales grow quickly, when you have a mix of personal and resale items with significant gains, or when you are unsure whether losses are deductible. Bring your sales log, purchase records and platform reports. The Form 1099-K manual explains how to reconcile those reports first.
I only sell my own old things. Do I have a business?
Selling your own used personal items is generally treated differently from buying goods to resell. The IRS says a loss on a personal item is not deductible, while a gain is taxable. Once you start buying items specifically to resell, the IRS factors for a business become relevant. A tax professional can help if you are near the line.