Reseller Tax Guide: Selected Deductions, Platform Reporting, and Common Errors

Service boundary: Entity discussion is education only. Monaco CPA does not form entities, provide legal advice, obtain EINs, file DBAs, act as registered agent, open bank accounts, or set up/transmit payroll.

In This Article

1. Platform Fees: Where the Current Rates Live and What Belongs on the Return
2. The 1099-K After OBBBA: What Actually Changed
3. COGS Tracking: The Hardest Part of Reseller Taxes
4. Selected Deduction Categories
5. NJ Resale Certificate: Form ST-3
6. NJ State Tax for Resellers
7. LLC and S-Corp: When to Form, When to Elect
8. Quarterly Estimated Taxes
9. Ready to File With Confidence?

Yes, you owe tax on reselling income even if you never receive a 1099-K. The form is not the tax trigger. For an ordinary nonfarm sole proprietor, Schedule C profit generally is multiplied by 92.35% to determine Schedule SE line 4c net earnings; line 4c of $400 or more generally triggers Schedule SE. Social Security then applies within the taxpayer's remaining $184,500 combined wage base for 2026, Medicare has no comparable cap, and Form 8959 separately tests Additional Medicare Tax against combined wages and self-employment income; railroad retirement (RRTA) compensation is tested separately against its own threshold on Form 8959 Part III.

Resellers at every level make the same tax mistakes - from someone flipping 20 items a month on Poshmark to six-figure sneaker operations running StockX and GOAT simultaneously. The errors are remarkably consistent: overpaying because they report gross 1099-K amounts without deducting COGS and expenses, missing the NJ resale certificate that removes the 6.625% sales tax on taxable inventory purchases (most clothing is already exempt), and skipping quarterly estimated payments until penalties hit.

IRC citations and Schedule C mechanics are stated as of September 2026; platform fees change frequently, so verify current rates on each platform's fee page.

Platform Fees: Where the Current Rates Live and What Belongs on the Return

Understanding platform fees is part of the gross-to-net reconciliation. Fees actually borne by an active resale business may be current ordinary expenses when they are substantiated, unreimbursed, properly timed, and not already netted from the income reported on the return. Classification under the current Schedule C instructions depends on the fee's nature; a platform label does not guarantee Line 10 treatment or full current deductibility.

Each platform structures its fees differently - flat commissions, tiered final-value fees, rating- or volume-based rates, separate processing and cash-out fees, authentication charges - and every platform has repriced at least once in recent years. The current rates live on each platform's own fee page (Poshmark, eBay, Mercari, Depop, StockX, GOAT, Facebook Marketplace), and your seller statements show what you actually paid, which is the number that belongs on the return.

What Actually Affects Your Taxes: What Each 1099-K Contains

The fee rates matter less than the reporting composition, and this is where platforms genuinely differ - so check each platform's current tax documentation and reconcile to your own statements rather than assuming:

Most marketplaces report gross, pre-fee amounts on the 1099-K, and platforms differ on whether buyer-paid shipping, marketplace-collected sales tax, refunds, and canceled transactions are inside or outside the gross number. A platform whose form is prepared through a payment partner (StockX's is issued through Hyperwallet, a PayPal company, and StockX describes the reported gross amount as 'the total payout amount of each sale') changes the reconciliation: confirm from the platform's own year-end statement whether fees are inside or outside the reported figure before deducting them, so nothing is deducted twice. Sellers who ran the same shop through two processors can receive two separate 1099-K forms covering one activity.

Reconcile before classifying: start with the amount and transaction composition actually reported on each information return, then reconcile sales, refunds, chargebacks, fees, sales tax, shipping, and payouts to the books and platform statements. Claim only costs the taxpayer actually bore that are not already netted or reimbursed and that satisfy the applicable timing and deduction rules. Failed-authentication charges, government fines, contractual penalties, counterfeit losses, and confiscated inventory can have different treatment; analyze their origin and supporting records rather than treating every charge as a current Schedule C expense.

Facebook Marketplace charges 10% of the entire transaction, including buyer-paid shipping and tax, with a minimum of $0.80, on shipped items sold through Facebook checkout (Meta's seller policies, retrieved September 2026); the fee was raised from 5% (minimum $0.40) in 2024. Local pickup sales carry no Meta fee. Meta's Form 1099-K covers the payments it processed through checkout; cash, Venmo, or Zelle payments for local sales generate no 1099-K from Meta (a payment app may issue its own for goods-and-services payments). Those sales are still fully taxable. You bear complete self-reporting responsibility.

Promoted Listings and Advertising Costs

eBay's Promoted Listings general campaign strategy (the product formerly sold as Promoted Listings Standard) charges a seller-set ad rate of 2% to 100% of the item's total sale amount, including shipping and tax, only when the promoted item sells within 30 days of a click on 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. The priority campaign strategy (formerly Promoted Listings Advanced) is pay-per-click, priced by a second-price auction with a reserve price rather than a published flat minimum. Both are deductible as advertising expenses on Schedule C, Line 8.

Depop's Boosted Listings carry an 8% fee on boosts placed before March 23, 2026 and 12% on new boosts from that date, with a 28-day attribution window, per Depop's Boosted Listings help article (verify on the article before relying on it). 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 mandatory Form 1099-K threshold for third-party-network (TPSO) transactions to more than $20,000 in gross payments AND more than 200 transactions. Payment-card merchant acquirers have no federal de-minimis threshold, and a TPSO may furnish below its mandatory threshold. This retroactively killed the ARPA $600 TPSO threshold. The IRS's phase-in under Notice 2024-85 ($5,000 for 2024, $2,500 for 2025) was overtaken: CY2024 forms had already been furnished at the $5,000 level, and OBBBA restored the $20,000/200 rule for 2025 forms before they were due.

What this means for resellers: A seller may not meet a TPSO's federal mandatory threshold when payment volume is split across platforms, but the actual form outcome depends on the issuer, payment flow, tax year, and platform policy. Do not treat an earnings amount alone as a promise that a form will or will not arrive.

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 filing rules are separate. NJ-WT's $1,000-or-withholding rule is a payer state-copy filing duty for covered Forms 1099. It neither replaces the federal Form 1099-K issuer rules nor guarantees a separate recipient form. Other states and individual platform policies vary; confirm the issuer, tax year, and document actually furnished before drawing a reporting conclusion.

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 entry for amounts reported in error, 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. Multiplying the $30,000 gross-profit difference by an assumed 30% combined rate equals $9,000. That is a simplified arithmetic illustration, not a return-level saving, and no comparison with other deductions is implied.

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. Virtually every online reseller qualifies - the exceptions are tax shelters and sellers whose receipts, aggregated with commonly controlled businesses under IRC Section 448(c)(2), exceed the threshold.

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 the item-by-item cost basis the regulations contemplate and the strongest position in an IRS examination.

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. Bank and card statements can support that inventory purchases occurred, though they cannot prove what specific items were bought; expect an examiner to weigh them, not simply accept them. 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 the §471(c) NIMS method, damaged or unsalable items stay at cost until sold or scrapped, and the cost is recovered when they are disposed of (the Treas. Reg. §1.471-2(c) 'selling price less direct cost of disposition' write-down belongs to the regular §471(a) inventory method, not to NIMS). 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.

Selected Deduction Categories

The categories below identify costs a resale business may need to analyze. Each amount still requires business purpose, substantiation, allocation, gross-to-net reconciliation, timing, capitalization, inventory, reimbursement, and current-form classification review; no vendor or category label establishes a deduction or Schedule C line by itself.

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

COGS generally includes the recoverable basis of inventory sold during the year after applying the taxpayer's permitted inventory method and accounting for freight, returns, allowances, beginning and ending inventory, and any capitalization rules. Purchases still held at year-end are not automatically a current deduction.

Platform Selling Fees (Schedule C, Line 10)

Marketplace commissions and store-subscription fees actually borne by the seller may be current expenses when they relate to reported business receipts, are not already netted or reimbursed, and satisfy the taxpayer's accounting-method and prepayment rules. Use current statements and Schedule C instructions; platform rates and line classification can change.

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

Processor fees (Stripe on Depop, GOAT cash-out fees, PayPal fees, currency conversion charges) at whatever rates the processor currently charges. Can be combined with platform fees on Line 10 or itemized separately in Part V flowing to Line 27b.

Shipping and Packaging (Schedule C, Line 27b 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 27b. 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 for January 1-June 30 and 76 cents per mile for July 1-December 31 (Announcement 2026-11). 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 and claim MACRS or §179, you must stay on actual expenses for that vehicle.

Example: 5,000 sourcing and shipping miles spread evenly across 2026 = 2,500 x $0.725 + 2,500 x $0.76 = $3,713 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)

Cameras, lights, backdrops, mannequins, tripods, and steamers require a supported business-use, useful-life, basis, and placed-in-service analysis. The de minimis safe harbor in Treas. Reg. Section 1.263(a)-1(f) may apply within its per-item or invoice ceiling only with a qualifying start-of-year accounting policy, consistent book treatment, and the annual election. Section 179 is elective and subject to eligible-property, more-than-50% business-use, investment, taxable-income, vehicle, and recapture rules; qualified property can receive separate Section 168(k) bonus treatment under its own requirements.

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

Vendoo, List Perfectly, Crosslist, photo-editing and inventory-management tools, barcode scanners, and bookkeeping software may support a resale business. Deduct or recover only the documented business-use cost under the applicable subscription, prepayment, equipment-capitalization, safe-harbor, and accounting-method rules, and use the current Schedule C instructions for line classification.

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

Only the supported business-use percentage of cell-phone and internet bills may be deductible. The base rate of the first telephone line into the home is personal, and a separate line may be fully allocable only when the facts establish exclusive business use. A 60% cell-phone allocation is appropriate only when representative usage records support it. Retain invoices and the allocation method, exclude reimbursements, and apply prepayment and accounting-method rules.

Storage Unit (Schedule C, Line 20b)

Rent for a storage unit used in an active inventory business may be reported as rent for other business property under the current Schedule C instructions. Deduct only the supported business-use amount for the proper period; allocate mixed or personal use and apply the taxpayer's accounting method, prepaid-rent rules, and any reimbursement or related-party limitations.

Authentication Fees (Schedule C, Line 27b)

Third-party authentication charges may be current ordinary expenses when they relate to the active resale business, are actually borne by the seller, are substantiated, and are not part of inventory basis or otherwise capitalized. Failed-authentication charges and penalties require origin-of-liability review; government fines and some other payments can be disallowed. Use the current Schedule C instructions rather than assuming Part V treatment.

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 27b)

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

Deductible part of self-employment tax: Schedule SE computes the employer-equivalent adjustment reported on Schedule 1. It is generally one-half of the regular Social Security and Medicare components, not one-half of every employment-tax amount; Additional Medicare Tax is computed separately. Use the form result rather than applying 50% to a total tax figure.

Self-employed health insurance: Form 7206 may produce a Schedule 1 deduction for eligible premiums actually paid during months when the taxpayer and spouse were not eligible to participate in a subsidized employer plan. The amount is limited by earned income from the trade or business under which the plan is established, premium-tax-credit coordination, and other rules; total premiums are not automatically deductible. IRC Section 162(l).

Qualified Business Income (QBI) deduction: Online reselling generally is not a Specified Service Trade or Business, but the Section 199A deduction is not an automatic 20% of Schedule C profit. It begins with QBI after allocable deductions and is subject to the taxable-income ceiling. Below $201,750 single / $403,500 MFJ for 2026, the wage/property limitation generally does not apply. OBBBA made the deduction permanent and 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 roughly 20% of net SE earnings (the 25%-of-compensation limit after the 50% SE tax deduction and rate adjustment), maximum $70,000 for 2025 / $72,000 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 an employer contribution of roughly 20% of net SE earnings (25% plan rate after adjustments). Total combined limit: $70,000 for 2025 / $72,000 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

A properly completed Form ST-3 lets a registered New Jersey reseller claim the resale exemption on qualifying inventory purchased solely for resale. It does not apply to tools, equipment, personal use, or other nonqualifying purchases, and it does not create a 6.625% savings when sales tax was not otherwise due.

How to Get One

1. Register with the NJ Division of Revenue and Enterprise Services by filing Form NJ-REG (Business Registration Application) through the NJ Business Gateway Services portal (opens in a new tab). The tax registration is separate from any entity-formation filing and its fee.
2. Receive your Certificate of Authority and NJ Taxpayer Identification 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. Form ST-3 is signed under the penalties for perjury and false swearing, and a purchaser who claims an improper exemption is liable for the tax, interest, and penalties; inventory later taken for personal use owes NJ Use Tax. The State Uniform Tax Procedure Law's late-filing penalty (5% per month, up to 25%, plus $100 per month) and 5% late-payment penalty under N.J.S.A. 54:49-4 can apply on top of the tax and interest.

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, subject to the store's acceptance. A registered reseller may issue Form ST-3 to any seller for inventory bought for resale, including Goodwill, Salvation Army, and other thrift stores; the store decides whether to accept it. If it declines, keep the receipt - sales tax paid on inventory is part of that inventory's cost.

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. A seller whose only sales run through marketplace facilitators (eBay, Poshmark, Amazon, Mercari) may ask to be placed on a non-reporting basis with Form C-6205-ST; the form's marketplace checkbox is written for remote sellers, so a New Jersey-based seller should confirm the applicable box (no taxable sales) with the Division. 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: Most clothing and footwear for human use are exempt from NJ sales tax (fur clothing, accessories, and sport, recreational, and most protective equipment are not). 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 you to add back federal bonus depreciation and recompute under regular MACRS without the bonus. Items you immediately expensed federally under Section 168(k) are added back and depreciated over their normal recovery period on Worksheet GIT-DEP.
• NJ Section 179 is capped at $25,000 versus federal's $2,560,000 for 2026. Amounts above $25,000 must be added back and depreciated.
• No QBI deduction. NJ has no equivalent to the federal 20% Section 199A deduction.
• Meals subtraction. A sole proprietor deducts on NJ-BUS-1 the ordinary business-meal expense the federal 50% rule disallowed (NJ-1040 instructions, NJ-BUS-1 adjustment 4); NJ S corporations reach the same result under TB-37(R); NJ C corporations make no adjustment and retain the federal 50% deduction.
• Net losses cannot reduce a regular NJ gross-income category below $0. Schedule NJ-BUS-2 separately can calculate a limited Alternative Business Calculation Adjustment across the included business-related categories (business; rents/royalties/patents/copyrights; partnership; and S-corporation), with specified unused losses carried forward for up to 20 years. For TY2026, P.L. 2026, c.22 (approved June 30, 2026, retroactive to taxable years beginning on or after January 1, 2026) tiers the otherwise allowable adjustment by gross income: 50% at $500,000 or less, 25% above $500,000 through $1,000,000, and 0% above $1,000,000. It is not a general NOL or an offset against wages, interest, dividends, or other excluded categories.

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

NJ estimated payments generally apply when expected tax due after withholding and credits is more than $400. Current Form NJ-2210 generally computes underpayment interest from the smaller of 80% of current-year tax or 100% of prior-year tax, subject to installment timing and exceptions. N.J.S.A. 54A:9-6(d)(3) separately states a 110% high-income exception, but the Division says it imposes interest using the 100%-prior/80%-current computation.

Marketplace Facilitator Law

Under NJ's marketplace facilitator law (P.L. 2018, c. 132; Technical Bulletin TB-83), a marketplace seller generally does not collect or remit NJ sales tax on a taxable transaction when a marketplace facilitator is required to collect and remit it. Confirm the platform's role and the transaction's taxability; direct sales, registration, and other filing duties can remain.

For direct sales outside a marketplace (own website, local in-person sales, flea markets), a New Jersey seller generally has physical nexus and should analyze registration and collection for taxable sales delivered to New Jersey buyers. An out-of-state remote seller separately tests more than $100,000 of covered New Jersey retail sales or 200 or more separate covered New Jersey transactions involving tangible personal property, specified digital products, or taxable services; sourcing, exclusions, and physical nexus remain separate inquiries.

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

Default Schedule C Treatment

A sole proprietorship is the default federal treatment. Schedule C profit generally is multiplied by 92.35% to determine Schedule SE line 4c net earnings; the Social Security and Medicare components then apply under their separate wage-base rules. The employer-equivalent Schedule SE deduction affects income tax but not SE tax itself. The standard or itemized deduction and any QBI deduction apply separately, with QBI reduced by allocable deductions and limited by taxable income and the other Section 199A rules.

Single-Member LLC: A Legal-Structure Decision

A single-member LLC generally retains Schedule C federal tax treatment unless an election changes it. Formation, legal effects, fees, EINs, and bank setup require current official guidance and independent counsel; Monaco CPA does not provide those services.

S-Corp: Run the Complete Model

An S-Corp election lets you split business economics between reasonable W-2 compensation (subject to payroll tax) and residual pass-through profit (not subject to SE tax). A calendar-year election generally is due by the 15th day of the third month; in 2026 that date was March 16 because March 15 fell on Sunday. Use the S-Corp calculator as a starting point, then include the owner's complete return.

Example at $80,000 net profit:

• Without S-Corp: $80,000 x 92.35% = $73,880 of Schedule SE line 4c net earnings; $73,880 x 15.3% = $11,303.64 of regular SE tax, assuming no W-2 wages
• With S-Corp (hypothetical $40,000 salary assumption, not a reasonable-compensation conclusion): Payroll tax = $40,000 x 15.3% = $6,120
• Gross payroll-tax difference: $11,303.64 - $6,120 = $5,183.64
• Compliance costs: Payroll-provider pricing varies, so confirm current payroll costs directly with providers. Form 1120-S preparation and additional bookkeeping also require a scope-specific written quote; this article does not publish a market range.
• Do not subtract a generic compliance-cost range from the payroll-tax difference. Combine current provider quotes with the complete return before evaluating any net result.

Shareholder-employees who perform services must be paid reasonable compensation before non-wage distributions; understated wages are a recurring reclassification issue in IRS examinations. Document your salary determination with market comparisons for the hours and type of work you perform.

QBI interaction: For the sole proprietor, half of $11,303.64 is $5,651.82, so the preliminary QBI base is $80,000 - $5,651.82 = $74,348.18 and 20% is $14,869.64 before other allocable deductions and the taxable-income ceiling. In the illustrative S-Corp, employer FICA is $40,000 x 7.65% = $3,060, leaving $36,940 of residual profit before other expenses; if that entire amount is otherwise qualified QBI, 20% is $7,388 before the same limits. The different income-tax deduction and QBI results must be included in the final comparison.

No Fixed S-Corp Profit Threshold

At $100,000 of profit, the sole-proprietor regular SE tax is $100,000 x 92.35% x 15.3% = $14,129.55. An illustrative $50,000 salary produces $7,650 of combined FICA and a $6,479.55 gross payroll-tax difference. That is not net savings: other wages, the employer FICA deduction, income tax, QBI, NJ payroll and minimum taxes, reasonable compensation, and compliance costs can change the result.

Couples Reselling Together

If both spouses materially participate and the business is not held in an LLC or other state-law entity, 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 after withholding and credits is $1,000 or more federally (IRC Section 6654) or more than $400 in NJ. 2026 federal due dates: April 15, June 15, September 15, 2026, and January 15, 2027. Determine actual required installments separately under the applicable current-year and eligible prior-year methods, withholding and credits, income timing, annualization, and exceptions; the balance threshold alone does not determine an underpayment charge.

Federal safe harbor: The required annual payment generally is the smaller of 90% of current-year tax or 100% of prior-year tax, increased to 110% when prior-year AGI exceeded $150,000 ($75,000 if married filing separately), subject to prior-return, installment, withholding, and exception rules.

NJ underpayment computation: Current Form NJ-2210 generally uses the smaller of 80% of current-year NJ tax or 100% of prior-year NJ tax, subject to withholding, payment timing, installment allocation, annualization, and the form's exceptions. The statute separately contains a high-income 110% exception, while the Division's published explanation says it imposes interest using the 100%-prior/80%-current computation.

Federal underpayment additions are computed on Form 2210 and NJ underpayment interest on Form NJ-2210. Timely payments can reduce or eliminate an addition only after applying the governing required-annual-payment, installment, withholding, annualization, and exception rules.

FAQ

Disclaimer: 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.

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