The Complete Reseller Tax Guide: Every Deduction, Every Platform, Every Mistake to Avoid

Yes, you owe taxes on reselling income even if you never receive a 1099-K. The 1099-K is a platform reporting form, not a tax trigger. All net self-employment income above $400 requires filing Schedule SE and paying the 15.3% self-employment tax (IRC Section 1402) — that is 12.4% Social Security on net earnings up to the $184,500 wage base for 2026, plus 2.9% Medicare on all net earnings, plus an additional 0.9% Medicare surtax above $200,000 single / $250,000 MFJ. This guide covers every platform, every deduction, COGS tracking methods, NJ-specific rules, and entity structure decisions so you keep more of what you earn.

I work with resellers at every level, from someone flipping 20 items a month on Poshmark to six-figure sneaker operations running StockX and GOAT simultaneously. The tax mistakes are remarkably consistent across all of them: overpaying because they report gross 1099-K amounts without deducting COGS and expenses, missing the NJ resale certificate that saves 6.625% on every inventory purchase, and skipping quarterly estimated payments until penalties hit.

This guide is built on the research I use in my own practice. Every IRC citation, every Schedule C line reference, and every platform fee number is current as of March 2026. If something changes, I update the guide.

In this guide:

1. Platform Fee Breakdown
2. The 1099-K After OBBBA: What Actually Changed
3. COGS Tracking: The Hardest Part of Reseller Taxes
4. Every Deduction You Can Claim
5. NJ Resale Certificate (Form ST-3)
6. NJ State Tax for Resellers
7. LLC and S-Corp Timing
8. Quarterly Estimated Taxes
9. FAQ

Platform Fee Breakdown: What Every Marketplace Actually Charges

Understanding your platform fees is the first step to accurate tax filing. These fees are 100% deductible on Schedule C, Line 10 (Commissions and fees) under IRC Section 162(a). But each platform structures fees differently, and the differences directly affect what your 1099-K reports.

Platform Fee Details That Affect Your Taxes

Poshmark is the simplest. The 20% commission (or $2.95 flat on items under $15) is all-inclusive. No listing fees, no payment processing fees. Poshmark's 1099-K includes the full sale price before the 20% commission is deducted, but buyer-paid shipping and sales tax are not included in the gross amount. That makes Poshmark one of the easier platforms to reconcile.

eBay uses a combined final value fee that absorbs payment processing (since Managed Payments replaced PayPal in 2022). Most categories carry 13.6% up to $7,500 per item, then 2.35% above that. Category exceptions matter: women's handbags are 15% up to $2,000 then 9%, athletic shoes over $150 are a flat 8% with no per-order fee, and watches use a tiered structure of 15%/6.5%/3%. Store subscribers ($27.95/month for Basic through $2,999.95/month for Enterprise) get reduced rates. Top Rated Sellers earn a 10% discount on final value fees. eBay's 1099-K includes buyer-paid shipping but excludes marketplace-collected sales tax and canceled transactions.

Mercari simplified its fee structure in January 2025. Sellers pay a flat 10% on the combined item price plus buyer-paid shipping. Payment processing fees were eliminated entirely. If an item sells for $50 with $10 buyer-paid shipping, the fee is 10% of $60 = $6. Mercari's 1099-K includes unadjusted gross payments, meaning sales, marketplace shipping, refunded amounts, and marketplace-collected sales tax can all appear in the gross number.

Depop eliminated seller fees for US sellers in July 2024. The only direct cost is Stripe's payment processing at 3.3% + $0.45 per transaction (calculated on item price plus shipping plus applicable taxes). Depop also offers Boosted Listings at 12% (effective March 2026 for new listings). The 1099-K comes from Stripe, not Depop, and includes unadjusted gross sales, shipping, refunds, and both seller-paid and buyer-paid fees. Sellers who previously used PayPal on Depop may receive two separate 1099-K forms.

StockX is the outlier. StockX reports the total payout amount on the 1099-K, which means fees are already deducted from the reported number, unlike every other major platform that reports gross pre-fee amounts. Transaction fees range from 8% (Level 5: 300+ sales or $35,000+) to 10% (Level 1: default), plus a flat 3% processing fee. Seller levels reset quarterly. Failed authentication triggers a $15 penalty fee and the item is returned. Both the penalty fee and lost inventory from confiscated counterfeits are deductible business expenses. The 1099-K is issued by Hyperwallet (a PayPal company).

GOAT uses a rating-based system instead of volume tiers. Sellers with a 90+ rating pay 9.5% commission plus a $5 seller fee (prepaid shipping) plus 2.9% cash out fee. The commission increases sharply for poor ratings: 15% at rating 70-89, 20% at 50-69, and 25% below 50. Unlike StockX, GOAT offers no volume discounts. Total effective fees at good standing run approximately 12.4% + $5 per sale. GOAT excludes shipping, fees, and canceled/returned orders from the 1099-K gross amount.

Facebook Marketplace charges 10% (minimum $0.80) on shipped items, increased from 5% in April 2024. Local pickup sales are completely free with zero fees. Meta issues the 1099-K only for shipped items processed through Facebook checkout. Cash, Venmo, or Zelle transactions for local sales generate no 1099-K from Meta. Those sales are still fully taxable. You bear complete self-reporting responsibility.

Promoted Listings and Advertising Costs

eBay's Promoted Listings Standard charges a seller-set ad rate (2% to 100% of the sale total) only when the promoted item sells within 30 days of a buyer clicking the ad. Starting January 13, 2026, eBay broadened attributed sales so any buyer who purchases the promoted item within 30 days of any click qualifies. Promoted Listings Advanced uses pay-per-click at $0.10+ per click. Both are deductible as advertising expenses on Schedule C, Line 8.

Depop's Boosted Listings carry an 8% fee (US, pre-March 2026 listings) or 12% (new listings from March 23, 2026) with a 28-day attribution window. Also deductible on Line 8.

The 1099-K After OBBBA: What Actually Changed

The One Big Beautiful Bill Act (Public Law 119-21, Section 70432), signed July 4, 2025, permanently restored the federal 1099-K reporting threshold to $20,000 in gross payments AND more than 200 transactions per platform. This retroactively killed the ARPA $600 threshold as if it never existed. The planned $5,000 threshold for 2024 and $2,500 for 2025 were superseded before they fully took effect.

What this means for resellers: Most casual sellers will not receive a federal 1099-K. A seller with $15,000 on eBay and $10,000 on Poshmark would not receive a federal 1099-K from either platform, because thresholds apply per platform, not combined.

What did not change: All income is still taxable whether or not you receive a 1099-K. The threshold is a platform reporting requirement under IRC Section 6050W, not a tax liability trigger. If you earned $8,000 reselling on eBay and received no 1099-K, you still owe taxes on the net profit.

State thresholds are lower. New Jersey requires 1099-K issuance at $1,000 with no transaction minimum (NJ-WT Instructions). Several other states maintain sub-federal thresholds: Vermont, Massachusetts, Maryland, and Virginia at $600; Illinois at $1,000 with 4+ transactions; Arkansas at $2,500. A NJ-based reseller earning $3,000 on a single platform will receive a state-triggered 1099-K even though the federal threshold was not met.

For a deeper walkthrough on what to do when you receive a 1099-K, including personal item sales at a loss and the Schedule 1 offset method, see my complete 1099-K guide.

COGS Tracking: The Hardest Part of Reseller Taxes

Cost of Goods Sold is typically the single largest deduction for resellers, and it is the one most people get wrong. COGS is calculated on Schedule C, Part III (Lines 35-42) and flows to Line 4 of Part I, reducing gross income before any other deductions are applied.

The formula: Beginning Inventory + Purchases - Ending Inventory = COGS.

The problem is not the formula. The problem is proving what you paid for inventory when you bought 47 items at Goodwill for $126.34 on a thermal receipt that faded three months later.

Why COGS Matters More Than Any Other Deduction

Consider a reseller with $50,000 in gross sales and $30,000 in inventory costs. Without COGS, your Schedule C shows $50,000 in gross profit. With proper COGS tracking, it shows $20,000. At a combined 30% tax rate (federal + SE + NJ), that difference saves you $9,000. No other single deduction comes close.

The Small Business Exception That Simplifies Everything

IRC Section 471(c) is the most important provision most resellers have never heard of. If your average annual gross receipts are $32 million or less (2026 threshold per Rev. Proc. 2025-32), you qualify for the small business exception. Every online reseller qualifies.

Under this exception, you can use the cash method of accounting (no accrual needed), treat inventory as non-incidental materials and supplies under Treas. Reg. Section 1.162-3, and skip UNICAP rules entirely (IRC Section 263A exemption). Under the non-incidental materials and supplies method, inventory cost is deductible in the later of the year you sell the item or the year you pay for it. Only the direct purchase price must be tracked. No allocation of indirect overhead costs.

You can use specific identification, FIFO, or average cost methods. LIFO is not permitted under this method. For resellers dealing in unique, one-of-a-kind items (thrifted clothing, vintage goods, sneakers), specific identification is the natural choice and what most tracking software supports.

Three Methods for Tracking Thrift Store COGS

This is where I spend the most time with reseller clients. The IRS requires records "sufficient to establish the amount of gross income, deductions, credits, or other matters" under IRC Section 6001 and Treas. Reg. Section 1.6001-1(a). Here are three approaches ranked from strongest to weakest.

Method 1: Individual Item Tracking (Gold Standard)

Track every item: date purchased, source, amount paid, description, date sold, sale price, platform, fees. Use apps like My Reseller Genie, Seller Ledger, or Flipwise. Photograph receipts immediately (thermal paper fades within months). This gives you a defensible, item-by-item cost basis that survives IRS scrutiny.

Method 2: Bulk Lot Allocation

When you buy a bin of 30 items at an estate sale for $150, allocate cost proportionally. If you expect 20 items to sell for roughly equal amounts, assign $7.50 to each. If one item is clearly more valuable, weight the allocation accordingly. Document your methodology and be consistent. Courts have accepted reasonable allocation methods under the Cohan Rule (Cohan v. Commissioner, 39 F.2d 540, 2d Cir. 1930), which allows reasonable estimates when the taxpayer can demonstrate expenses were incurred.

Method 3: Bank Statement Backup (Last Resort)

If you have no receipts, bank and credit card statements showing payments to Goodwill, Salvation Army, and thrift stores provide acceptable supporting documentation. The IRS will accept these as evidence that inventory purchases occurred, though they cannot prove what specific items were purchased. This method is weaker than Methods 1 and 2 but far better than claiming zero COGS.

Important: The Cohan Rule does not apply to IRC Section 274(d) expenses (travel, meals, listed property), which require contemporaneous documentation. But it does apply to general business expenses and COGS estimates.

Schedule C Part III Walkthrough

Line 33 (Inventory valuation method): Check (a) Cost if using the non-incidental materials and supplies method under Section 471(c). Lower of cost or market is not available.

Line 35 (Beginning inventory): Cost of all unsold items on hand January 1. Must match prior year's Line 41. New businesses enter $0.

Line 36 (Purchases): Total cost of all inventory purchased during the year. Thrift store purchases, estate sale buys, wholesale lots, retail arbitrage. Subtract items withdrawn for personal use. Include freight-in costs for shipped wholesale lots.

Line 37 (Cost of labor): $0 for solo resellers. Never include your own labor.

Line 41 (Ending inventory): Cost of unsold items on hand December 31. This becomes next year's Line 35. Count your unsold inventory and assign costs. Under Treas. Reg. Section 1.471-2(c), damaged or unsalable goods should be valued at selling price less cost of disposition. Document with photos and dated listings at reduced prices.

Line 42: Line 40 minus Line 41 = COGS. This number flows to Line 4 of Part I.

Year-End Inventory Count

Take a physical count of unsold inventory on December 31 (or as close to it as practical). Assign cost basis to each item. This is not optional. Your ending inventory directly affects your COGS calculation, and an overstated ending inventory means understated COGS and higher taxes. Photograph your inventory storage area with a timestamp as documentation.

Every Deduction You Can Claim

Every deduction below is an ordinary and necessary business expense under IRC Section 162(a) and Treas. Reg. Section 1.162-1. I have listed the correct Schedule C line for each. Keep your categorization consistent year to year.

Cost of Goods Sold (Schedule C, Line 4 via Part III)

Your largest deduction. Purchase price of all inventory sold during the year. Covered in detail above.

Platform Selling Fees (Schedule C, Line 10)

All marketplace commissions: Poshmark's 20%, eBay's final value fees, Mercari's 10%, StockX's transaction fees, GOAT's commission, Facebook's 10%. Store subscription fees (eBay stores at $27.95-$2,999.95/month) also belong here.

Payment Processing Fees (Schedule C, Line 10 or Line 27a)

Stripe fees (Depop's 3.3% + $0.45), GOAT's 2.9% cash out fee, PayPal fees, currency conversion charges. Can be combined with platform fees on Line 10 or itemized separately in Part V flowing to Line 27a.

Shipping and Packaging (Schedule C, Line 27a or Line 22)

Postage, shipping labels, Pirate Ship subscriptions, poly mailers, bubble mailers, padded envelopes, boxes, packing tape, tissue paper, bubble wrap, shipping insurance. List as "Postage and shipping" in Part V (Line 48), totaling to Line 27a. Some practitioners place packaging supplies on Line 22 (Supplies). Either is acceptable. Be consistent.

Mileage (Schedule C, Line 9)

The 2026 IRS standard mileage rate is 72.5 cents per mile (IRS Notice 2026-10). Deductible trips include drives to thrift stores, estate sales, retail stores for arbitrage, post office runs, shipping carrier drop-offs, supply store trips, storage unit visits, and bank runs.

You must keep a contemporaneous mileage log under IRC Section 274(d) documenting date, starting/ending location or miles driven, and business purpose. Without adequate records, the IRS can disallow the entire deduction. Apps like MileIQ, Everlance, or Stride provide automatic GPS tracking.

Two methods available per IRS Publication 463: the standard mileage rate (business miles x rate + tolls and parking) or actual expenses (gas, insurance, repairs, depreciation, multiplied by business-use percentage). If you choose the standard method the first year, you can switch later. If you choose actual expenses first, you must continue with that vehicle.

Example: 5,000 sourcing and shipping miles in 2026 x $0.725 = $3,625 deduction.

Home Office (Schedule C, Line 30)

Two methods per IRS Publication 587 and IRC Section 280A:

Simplified method (Rev. Proc. 2013-13): $5 per square foot, maximum 300 square feet = $1,500 maximum. No Form 8829 required. No depreciation recapture concerns when you sell your home.

Regular method: Calculate business-use percentage (business square feet divided by total home square feet) applied to rent/mortgage interest, utilities, insurance, repairs, and depreciation. Requires Form 8829.

The inventory storage exception matters for resellers. Under IRC Section 280A(c)(2) and Publication 587, expenses for inventory storage space can be deducted without meeting the exclusive use test if all five conditions are met: (1) you sell products at wholesale or retail, (2) inventory is stored at home, (3) the home is your only fixed business location, (4) the space is used regularly, and (5) the space is separately identifiable. A spare bedroom you use for storing inventory that occasionally has other use still qualifies under this exception.

Photography Equipment (Schedule C, Line 13 or Line 22)

Camera, ring light, backdrop, mannequin, tripod, steamer for photos. Items under $2,500 per invoice qualify for the de minimis safe harbor under Treas. Reg. Section 1.263(a)-1(f) and can be immediately expensed. Larger purchases can use IRC Section 179 (2026 limit: $2,560,000) or 100% bonus depreciation under IRC Section 168(k), permanently restored by OBBBA for property placed in service after January 19, 2025. Requires Form 4562.

Crosslisting Tools and Software (Schedule C, Line 18 or Line 27a)

Vendoo, List Perfectly, Crosslist, photo editing software, inventory management (My Reseller Genie, Seller Ledger, Flipwise), barcode scanners (ScoutIQ), bookkeeping software (QuickBooks, Wave). All ordinary and necessary business expenses under IRC Section 162(a). Report on Line 18 (Office expense) or itemize in Part V flowing to Line 27a.

Internet and Phone (Schedule C, Line 25 or Line 27a)

Deduct the business-use percentage of your cell phone and internet bills. Per Schedule C instructions, the base rate of the first telephone line into the home is never deductible, but a dedicated business line is 100% deductible, and cell phone business percentage is deductible. A reseller who uses their phone 60% for business (listing, communicating with buyers, pricing research) deducts 60% of the monthly bill. Document the calculation method.

Storage Unit (Schedule C, Line 20b)

Rent for storage units used for inventory is reported on Line 20b (Rent, other business property). Fully deductible if used exclusively for business inventory.

Authentication Fees (Schedule C, Line 27a)

Third-party authentication services (Real Authentication, Entrupy, Legit Check), Mercari's $5 fee, StockX's $15 failed authentication penalty. List in Part V. All deductible under IRC Section 162(a).

Advertising (Schedule C, Line 8)

Promoted listings on eBay and Poshmark, social media advertising, branded packaging, business cards, website hosting.

Business Insurance (Schedule C, Line 15)

Product liability insurance, general commercial liability, business property insurance covering inventory.

Education (Schedule C, Line 27a)

Reselling courses, conferences (BOSS Reseller, Listing Party), sourcing and pricing books, brand identification workshops. Deductible under Treas. Reg. Section 1.162-5(a) if the education maintains or improves skills in your current trade or business. Education qualifying you for a new trade is not deductible. Pre-business education costs are startup costs under IRC Section 195.

Above-the-Line Deductions You Might Be Missing

Self-employment tax deduction: 50% of your SE tax is deductible on Schedule 1, Line 15 as an above-the-line adjustment reducing AGI. This is automatic when you file Schedule SE.

Self-employed health insurance: 100% deductible on Schedule 1, Line 17 via Form 7206 if you are not eligible for employer-sponsored coverage. Cannot exceed net self-employment income. IRC Section 162(l).

Qualified Business Income (QBI) deduction: Online reselling qualifies for the 20% QBI deduction under IRC Section 199A because it involves selling tangible goods, not professional services. It is not a Specified Service Trade or Business. Made permanent by OBBBA (previously set to expire December 31, 2025). Full deduction available below $191,950 single / $383,900 MFJ (2025 thresholds). OBBBA added a $400 minimum QBI deduction for taxpayers with at least $1,000 in QBI who materially participate. Reported on Form 8995 or 8995-A. Use my self-employment tax calculator to estimate your total tax burden.

Retirement Contributions (Not on Schedule C, But Still Critical)

SEP-IRA: Contribute up to 25% of net SE earnings (after the 50% SE tax deduction), maximum $70,000 for 2025 / $72,500 for 2026. Deadline is the tax return filing deadline including extensions. Deducted on Schedule 1, Line 16.

Solo 401(k): Employee elective deferral up to $23,500 for 2025 / $24,500 for 2026, plus employer contribution of up to 25% of net SE earnings. Total combined limit: $70,000 for 2025 / $72,500 for 2026. The employee deferral portion must be elected by December 31. Catch-up contributions available at age 50+.

NJ Resale Certificate: Form ST-3

If you are a New Jersey reseller and you do not have a resale certificate, you are overpaying on every inventory purchase. Form ST-3 lets you buy inventory tax-free, saving 6.625% on every dollar of inventory you purchase in NJ.

How to Get One

1. Register with the NJ Division of Revenue by filing Form NJ-REG (Business Registration Application) through the NJ Business Gateway Services portal. Registration is free and typically processes in 1-2 business days.
2. Receive your Certificate of Authority with a 12-digit NJ Taxpayer Registration Number.
3. Complete Form ST-3 with that number and present it to sellers when purchasing inventory.

What It Covers (and What It Does Not)

Form ST-3 covers inventory purchased for resale and raw materials. It does not cover tools, office equipment, photography gear, or personal items. Using ST-3 for personal items is illegal and constitutes perjury under the certificate's sworn statement. Penalties include 5% per month up to 25% on unpaid tax under N.J.S.A. 54:49-4.

Blanket certificates can cover recurring purchases from the same supplier. The seller retains the certificate for at least 4 years per N.J.A.C. 18:24-10.5. Packaging materials use a separate Form ST-4 (Exempt Use Certificate).

Can You Use ST-3 at Thrift Stores?

Yes. Form ST-3 can legally be used at Goodwill, Salvation Army, and other thrift stores for inventory purchases. Individual stores may decline to accept it, but you have the legal right to present it. If a store refuses, document the refusal and keep your receipt. The sales tax paid becomes part of your COGS.

You Must File Sales Tax Returns

Upon NJ-REG registration, you are required to file quarterly Sales Tax returns (Form ST-50) even if no tax was collected. If all your sales occur through marketplace facilitators (eBay, Poshmark, Amazon, Mercari), you can request non-reporting basis via Form C-6205-ST. For direct sales (own website, flea markets, local Facebook Marketplace sales), you are responsible for collecting and remitting NJ's 6.625% sales tax on taxable items delivered to NJ buyers.

Key NJ exemption for clothing resellers: Clothing and footwear are exempt from NJ sales tax. If you primarily resell clothing on Poshmark or Depop, most of your sales will not generate sales tax obligations even on direct transactions.

NJ State Tax for Resellers

NJ uses a category-based income system. Reselling income falls under "Net Profits from Business" reported on Schedule NJ-BUS-1, Part I, with the total flowing to NJ-1040, Line 18.

NJ Adjustments to Federal Schedule C

NJ does not simply adopt your federal Schedule C number. Key differences:

• No bonus depreciation. NJ requires ADS straight-line depreciation. Items that you immediately expensed federally under Section 168(k) must be added back and depreciated over their useful lives on Worksheet GIT-DEP.
• NJ Section 179 is capped at $35,000 versus federal's $2,560,000 for 2026. Amounts above $35,000 must be added back and depreciated.
• No QBI deduction. NJ has no equivalent to the federal 20% Section 199A deduction.
• 100% meal deduction. NJ allows the full cost of business meals versus the federal 50% limit.
• Net losses cannot reduce NJ income below $0. Enter $0 on Line 18 if you have a loss, but the Alternative Business Calculation Adjustment (Schedule NJ-BUS-2) allows certain business losses to offset other business-related income categories, with unused losses carried forward for 20 years.

NJ Tax Rates

NJ Gross Income Tax rates range from 1.4% on the first $20,000 to 10.75% above $1,000,000. NJ imposes no separate self-employment tax. The 15.3% SE tax is federal only.

NJ has no standard deduction in the traditional sense. Only personal exemptions: $1,000 single, $2,000 joint, $1,500 per dependent.

NJ Estimated Tax Payments

Required if your estimated NJ income tax liability exceeds $400 after credits. Filed on Form NJ-1040-ES with the same quarterly due dates as federal (April 15, June 15, September 15, January 15). Safe harbor: pay 80% of current year tax or 100% of prior year tax to avoid penalties under N.J.S.A. 54A:8-5(a).

Marketplace Facilitator Law

Under NJ's marketplace facilitator law (P.L. 2018, c. 132; Technical Bulletin TB-83), platforms like eBay, Poshmark, Amazon, and Mercari collect and remit NJ's 6.625% sales tax on all marketplace transactions. You do not need to collect or remit sales tax on these sales. This applies regardless of your sales volume.

For direct sales outside a marketplace (own website, local in-person sales, flea markets), you have physical nexus as a NJ resident and must register and collect NJ sales tax on taxable sales delivered to NJ buyers. Remote sellers face an economic nexus threshold of $100,000 in NJ gross revenue or 200+ separate NJ transactions.

LLC and S-Corp: When to Form, When to Elect

Under $25,000 Net Profit: Sole Proprietorship

The default structure. No formation cost, simplest filing. You pay the full 15.3% SE tax on all net profit (12.4% Social Security up to the $184,500 wage base for 2026, plus 2.9% Medicare on all earnings) plus income tax at marginal rates. After subtracting the 50% SE tax deduction, your remaining income is reduced by the standard deduction ($16,100 single / $32,200 MFJ for 2026) or itemized deductions, whichever is greater, before applying federal income tax brackets. The QBI deduction (20% of net profit) further offsets the burden. For a detailed comparison, see my entity structure guide.

$20,000-$50,000 Net Profit: Single-Member LLC

An LLC provides liability protection, separating personal assets from business disputes (customer claims about item condition, product liability, IP infringement). NJ LLC formation costs $125 plus $75 annual report. Tax treatment is identical to sole proprietorship. A single-member LLC is a disregarded entity, still filing Schedule C. The LLC alone does not change your tax situation.

$50,000-$80,000 Net Profit: Consider S-Corp

An S-Corp election (Form 2553, due March 15) lets you split income between reasonable salary (subject to payroll tax) and distributions (not subject to SE/payroll tax). Use my S-Corp calculator to model your specific numbers.

Example at $80,000 net profit:

• Without S-Corp: SE tax = $80,000 x 92.35% x 15.3% = $11,304
• With S-Corp ($40,000 salary): Payroll tax = $40,000 x 15.3% = $6,120
• Gross savings: approximately $5,184
• Less compliance costs (payroll processing $500-$1,500, Form 1120-S preparation $1,000-$2,000, additional bookkeeping $500-$1,000): $2,000-$3,500
• Net annual savings: approximately $1,700-$3,200

The IRS requires a reasonable salary and scrutinizes unreasonably low W-2 amounts. Document your salary determination with market comparisons for the hours and type of work you perform.

QBI interaction: S-Corp distributions count as QBI but W-2 salary does not. At $80,000, a sole proprietor gets a $16,000 QBI deduction (20% of $80,000) while an S-Corp with $40,000 salary gets $8,000 (20% of $40,000 in distributions). Model both effects together before deciding.

$80,000+ Net Profit: S-Corp Strongly Recommended

Net savings typically reach $4,000-$8,000+ annually after compliance costs. At $100,000 net profit with a $50,000 reasonable salary, gross SE tax savings jump to approximately $7,000-$8,000 per year.

Couples Reselling Together

If both spouses materially participate, the Qualified Joint Venture election under IRC Section 761(f) avoids filing Form 1065 entirely. Each spouse files a separate Schedule C and Schedule SE, and both receive Social Security credits. Requires filing a joint return.

Quarterly Estimated Taxes

Required if your expected tax liability exceeds $1,000 federally (IRC Section 6654) or $400 in NJ. 2026 federal due dates: April 15, June 15, September 15, 2026, and January 15, 2027.

Federal safe harbor: Pay at least 90% of your current-year liability or 100% of your prior-year liability (110% if your prior year AGI exceeded $150,000).

NJ safe harbor: Pay at least 80% of current-year liability or 100% of prior-year liability.

Underpayment penalties are calculated on Form 2210 (federal) and are essentially interest charges on late payments. They are avoidable by making timely quarterly payments.

FAQ

Do I have to report reselling income if I did not receive a 1099-K?

Yes. All income is taxable regardless of whether you receive a 1099-K. The 1099-K is a platform reporting form, not a tax trigger. The federal threshold of $20,000/200 transactions (restored by OBBBA Section 70432) only determines when the platform must file the form. Your income reporting obligation under IRC Section 61 exists from the first dollar of profit.

Am I a hobby or a business?

IRC Section 183 uses nine factors (Treas. Reg. Section 1.183-2(b)) to determine whether an activity is for profit. The factors include businesslike conduct, time and effort, profit history, and expertise. The safe harbor presumes profit motive if you show profit in 3 of 5 consecutive years. If classified as a hobby, your income is taxable on Schedule 1, Line 8j but expenses are permanently nondeductible (IRC Section 67(g), made permanent by OBBBA). COGS can still be subtracted because it is not technically a "deduction" but a calculation to arrive at gross income under IRC Section 61(a)(2). Hobby income is not subject to the 15.3% SE tax.

What if my 1099-K is wrong?

Contact the issuer listed in the "Filer" field on the form and request a corrected 1099-K. The IRS explicitly states: "Don't contact the IRS. We can't correct your Form 1099-K." If the platform will not correct it, file your return on time using the Schedule 1 offset method: report the erroneous amount on Part I, Line 8z and the same amount on Part II, Line 24z. Net effect on AGI: $0.

Do I need an LLC to deduct business expenses?

No. A sole proprietor without an LLC can deduct every expense listed in this guide on Schedule C. The LLC provides liability protection, not tax benefits. That said, get an EIN (free from the IRS via Form SS-4 online) even as a sole proprietor to protect your SSN on W-9 forms and begin building business credit.

Can I deduct mileage for sourcing trips?

Yes. Every mile driven for business purposes is deductible at 72.5 cents per mile for 2026 (IRS Notice 2026-10). This includes trips to thrift stores, estate sales, post office runs, shipping carrier drop-offs, supply store visits, and storage unit trips. You must maintain a contemporaneous mileage log under IRC Section 274(d). Without records, the entire deduction can be disallowed.

I sell on multiple platforms. How do I report?

Aggregate all 1099-K amounts onto one Schedule C if they relate to the same business activity. Report total gross receipts on Line 1 (matching or exceeding all 1099-K totals combined), then deduct COGS, platform fees, shipping, and all other expenses. Different business activities require separate Schedule C forms.

Do I need to collect sales tax?

On marketplace platforms (eBay, Poshmark, Amazon, Mercari, StockX, GOAT, Depop), the marketplace facilitator collects and remits sales tax in all applicable states. You do nothing. For direct sales (own website, local Facebook Marketplace, flea markets, Venmo/Zelle transactions), you are responsible for collecting sales tax in states where you have nexus. NJ residents have physical nexus by default.

Circular 230 Disclosure: This post provides general tax information and is not a substitute for personalized tax advice. Consult a qualified tax professional for advice specific to your situation.