If you’re an eBay seller, navigating tax season can feel overwhelming. Whether you’re a casual seller or running an eBay business, understanding what you need to report, how to handle sales tax, and staying compliant with IRS rules can quickly become a headache.

From keeping accurate records to tracking your taxable sales, small mistakes can lead to penalties or missed deductions that cost you money. But don’t worry - we’ve got you covered.

In this guide, we’ll break down everything you need to know about reporting your eBay sales for taxes. Plus, we’ll show you how tools like Link My Books can simplify the process by automating your bookkeeping and ensuring your records are spot-on.

Key Takeaways from this Post

Yes, you must report eBay sales on your taxes, whether it’s a hobby or a business.

Accurate record-keeping is essential to avoid penalties and maximize deductions.

Automating with Link My Books saves time, reduces errors, and makes tax reporting effortless.

Where most eBay sellers go wrong with reporting taxes

Taxes can feel like a maze, and for many eBay sellers, it’s not about avoiding taxes, it’s about not knowing where to start. The process feels unnecessarily complicated, especially if you’re juggling multiple transactions, fees, and tax rules.

Here’s where sellers often get stuck and what you need to avoid:

1. Misunderstanding Tax Rules

Many sellers assume that if they’re just selling “a few things” or clearing out their closets, their income is exempt. But the IRS treats any income from sales, whether it’s a hobby or a business, as taxable income.

The 1099-K Confusion: Starting in 2025, if your total sales exceed $600, eBay will issue a 1099-K form. While the form helps track your sales, the absence of a 1099-K doesn’t mean your income isn’t taxable, you still need to report it.
State Rules: Different states have varying sales tax thresholds. Some states might require you to collect and remit taxes even if eBay hasn’t issued a 1099-K.

Stay informed about both federal and state-level rules. Don’t assume small transactions “don’t count.”

2. Mixing Hobby and Business Income

This is one of the most common pitfalls. The IRS makes a clear distinction between “hobby income” and “business income,” and mixing the two can cause you to:

Overstate your tax liability (missing out on valid deductions).
Underreport, leading to penalties.

Hobby Sellers: If you’re casually selling personal items without the intent to profit, your income is still taxable, but you can’t claim expenses.

Business Sellers: If you’re consistently selling on eBay with the goal of making a profit, your activity qualifies as a business. You’re responsible for reporting all income and you can deduct related expenses like fees, shipping, and supplies.

Clearly define your activity and track expenses accordingly. For business sellers, automated tools like Link My Books ensure all income, fees, and refunds are accurately categorized, saving you time and maximizing deductions.

3. Poor Record-Keeping

Taxes thrive on details, and poor record-keeping can make reporting a nightmare. Sellers often struggle with:

Tracking gross sales, refunds, and reimbursements.
Recording eBay fees like final value fees, listing fees, or promoted listing costs.
Separating shipping costs and sales tax collected by eBay.

When records are incomplete or inaccurate, you risk overpaying, underreporting, or scrambling to fix things during tax season.

4. Manual Entry Errors

Manually entering eBay transactions into your accounting system is a recipe for mistakes. Common issues include:

Duplicating entries
Missing refunds or chargebacks
Misclassifying expenses or sales

These small errors can snowball into bigger problems, like mismatched balances, inaccurate profit and loss reports, or underpaid taxes.

5. Overlooking Sales Tax Responsibilities

Sales tax has become more complex since marketplace facilitator laws came into effect. While eBay collects and remits sales tax in most U.S. states, sellers still need to:

Confirm eBay’s tax settings are enabled
Track where eBay has collected taxes on their behalf
Include accurate sales tax data in their records

Ignoring sales tax can cause confusion when reconciling reports and lead to reporting errors. Here’s how to understand your eBay sales report better.

To avoid all these mistakes you can automate your bookkeeping with Link My Books and save yourself time, stress, and costly errors.

You can try it for free, no credit card is needed, and it takes only 15 minutes to set up.

Try Link My Books for free today!

Do you have to report eBay sales on taxes?

Yes. The IRS requires you to report income from eBay sales, whether you’re selling as a hobby or running a full-fledged business.

If you sell items for profit, regardless of the amount, it’s considered taxable income.

eBay sellers can expect a 1099-K form if their annual sales exceed $600 in 2025 (updated reporting threshold).

Not reporting eBay income can lead to penalties, so it’s critical to file correctly and stay compliant. You can learn more about eBay taxes here.

How to report eBay sales on taxes

Register for tax permits
Set up tax collection on eBay
Keep accurate records
Automate bookkeeping with Link My Books
File your tax returns

Step #1: Register for tax permits

If you’re selling as a business, you need to register for a sales tax permit in any state where you have a tax nexus. This applies if:

You regularly sell products for profit.
Your sales exceed thresholds set by state tax laws (e.g., $100,000 annually or 200 transactions in a state).

Where to Start:

Visit your state’s tax agency website to register for a permit.
For U.S. sellers, consult the IRS Small Business Tax Guide.

If you sell internationally, you may also need to register for eBay VAT or GST in regions like the UK, EU, or Australia. Not sure? Consult a tax professional to avoid surprises.

Step #2: Set up tax collection on eBay

eBay simplifies tax collection in many cases. Thanks to marketplace facilitator laws, eBay automatically collects and remits sales tax for buyers in most U.S. states. However, you still need to:

Confirm that your tax settings are enabled
Check which states eBay collects for, as laws vary

How to Check Your Settings:

Log in to your eBay Seller Dashboard
Go to Account Settings > Sales Tax Table
Review and enable tax collection where necessary

Bonus Tip: If you sell internationally, enable VAT collection settings for European sales to stay compliant.

Step #3: Keep accurate records

Accurate record-keeping is the backbone of stress-free tax reporting. Here’s what you need to track:

Total Sales: Your gross sales, including shipping charges
Refunds: Any returns or reimbursements you processed
eBay Fees: Final value fees, insertion fees, and promoted listings fees
Shipping Costs: Include any expenses for shipping labels or packaging
Sales Tax Collected: Track the tax amounts eBay collects and remits

Pro Tip: If you’re tracking this manually, use this spreadsheet to log each transaction. But as sales grow, automation tools like Link My Books can save you hours by pulling this data directly from eBay into your accounting software.

Step #4: Automate bookkeeping with Link My Books

Getting started with Link My Books is simple and takes just a few minutes:

Connect your eBay account to Xero or QuickBooks via Link My Books.
Customize your settings to map sales, refunds, fees, and taxes automatically.

Once connected, Link My Books transforms your eBay bookkeeping:

Sales Summaries: It consolidates thousands of transactions into clean, payout-level summaries.
Fee and Refund Tracking: eBay fees and refunds are categorized automatically.
Accurate Tax Calculations: Link My Books applies the correct tax rates, ensuring compliance for sales tax, VAT, or GST.

Instead of wasting hours sifting through eBay reports, you get clean, tax-ready data in just a few clicks. It’s accurate, organized, and always up-to-date.

You can read more in this eBay Accounting and Bookkeeping Guide.

Step #5: File your tax returns

When tax season rolls around, you’ll be ready. Here’s what to do:

Use your organized records (or Link My Books data) to calculate your income.
Include all eBay sales, refunds, and expenses in your tax return.
If you received a 1099-K form (issued when sales exceed $600 in 2025), make sure the figures match your records.

If you’re unsure about your reporting obligations, consult your local tax authority or seek professional advice from one of our trusted partners.

How Link My Books makes reporting eBay sales on taxes simple

Manually reporting eBay sales for taxes can feel like a never-ending task, tracking every sale, refund, and fee, ensuring tax rates are applied correctly, and reconciling payouts with your accounting software.

Link My Books takes the guesswork (and stress) out of this process by automating everything.

Here’s how it makes reporting your eBay sales on taxes incredibly simple:

1. Automated Sales and Payout Summaries

Link My Books automatically syncs your eBay sales, refunds, and fees, consolidating them into clear, organized summaries that align perfectly with your eBay payouts. Instead of sifting through hundreds of individual transactions, you get a single, accurate summary for each payout.

What This Means: You can reconcile payouts with your bank feed in Xero or QuickBooks in just a few clicks.
Why It Matters: No more manual entry, mismatched records, or wasted time trying to "balance the books."

2. Accurate fee and refund tracking

eBay charges several fees, final value fees, insertion fees, and promoted listing fees, which often get lost in the mix. Link My Books automatically identifies and categorizes each fee as an expense, giving you a simple profit and loss overview.

Refunds? No problem. Link My Books matches refunds with the original transactions and updates your records seamlessly.
The Benefit: A complete, accurate picture of your net income and expenses, so you know exactly what’s going on with your finances.

3. Effortless sales tax and VAT management

Sales tax and VAT compliance can be overwhelming, especially if you sell to multiple regions. Link My Books takes care of it for you:

Sales Tax: Automatically applies the correct tax rates to each transaction based on eBay’s collected data.
VAT & GST: Breaks down and categorizes VAT/GST amounts for international sellers, ensuring everything is compliant and properly recorded.

Why This Matters: You don’t need to worry about misreporting tax or missing key compliance requirements, Link My Books has you covered.

4. Multi-currency support

If you sell internationally on eBay, payouts in foreign currencies can make tax reporting even trickier. Link My Books simplifies multi-currency transactions by:

Converting foreign currency payouts into your base currency at the correct exchange rate.
Handling any gains or losses related to currency conversion.

The Benefit: Your records in Xero or QuickBooks are accurate and compliant, no matter where your customers are located.

5. Reconcile payouts in just one click

One of the most frustrating parts of eBay tax reporting is matching payouts with bank deposits. Link My Books eliminates this hassle by summarizing all transactions, sales, refunds, and fees, into single payout-level entries. These summaries align perfectly with your bank feed in Xero or QuickBooks.

6. Scalable for high volumes

As your eBay business grows, so does the complexity of your bookkeeping. Link My Books effortlessly scales with your business, handling thousands of transactions with the same precision and accuracy. Whether you’re processing 10 orders or 10,000, Link My Books ensures every detail is tracked and recorded properly.

You’ll never feel like you’re “outgrowing” your accounting system.

7. Tax-ready data for your accountant

At tax time, Link My Books provides you with clean, organized, and tax-ready data that accountants love. All sales, refunds, fees, and taxes are categorized and ready for reporting. No scrambling through spreadsheets or hunting for missing transactions.

If you handle your taxes yourself, the clear, automated summaries simplify your filings.

8. Easy setup and free onboarding

Worried about getting started? Don’t be. Link My Books offers a user-friendly, step-by-step setup wizard to connect your eBay account and Xero or QuickBooks. If you need a little extra help, free 1:1 onboarding calls are available to guide you through the process.

You’ll be up and running in minutes, no technical headaches.

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Which eBay sales are subject to taxes?

Most eBay sales are subject to taxes, especially if you're selling items for profit. Key scenarios include:

Selling New or Used Goods for Profit: If you're listing items with the intention of making a profit, these sales are taxable.
Regular Sales Activity: Engaging in frequent transactions may classify you as a business in the eyes of tax authorities, making your income taxable.

It's important to note that eBay collects and remits sales tax on behalf of sellers in many jurisdictions due to marketplace facilitator laws. However, you're still responsible for reporting this income on your tax return.

Sales exceeding thresholds

In the United States, the Internal Revenue Service (IRS) requires reporting of income from online sales, including those made through platforms like eBay. The thresholds for issuing Form 1099-K, which reports payment transactions, have been adjusted in recent years.

Form 1099-K Reporting Thresholds:

2024 Tax Year: For payments made in 2024, the IRS has set the reporting threshold at $5,000 in gross payments. This means that if you receive more than $5,000 in payments for goods or services through eBay or similar platforms, you will receive a Form 1099-K.
2025 Tax Year: The threshold decreases to $2,500 in gross payments for payments made in 2025. Exceeding this amount will result in the issuance of a Form 1099-K.
2026 and Beyond: Starting in 2026, the reporting threshold will be $600 in gross payments, aligning with the statutory requirement.

Important Considerations:

State Variations: Some states have their own reporting thresholds, which may be lower than the federal threshold. It's essential to check with your state's tax department to understand your specific obligations.
Taxable Income: Regardless of whether you receive a Form 1099-K, all income from sales is taxable and must be reported on your tax return. The form serves as a record but does not determine taxability.
Hobby vs. Business: The IRS distinguishes between hobby income and business income. If your selling activity is regular and profit-oriented, it may be considered a business, subjecting you to additional tax obligations.

In the UK, if your total sales on eBay exceed €2,000 (approximately £1,740) or you complete 30 or more transactions annually, eBay is required to report your account details to HMRC.

Recommendations:

Maintain Detailed Records: Keep comprehensive records of all sales, expenses, and transactions to ensure accurate reporting and to substantiate your income if questioned.
Consult a Tax Professional: Given the complexities and potential changes in tax laws, consulting with a tax advisor can help ensure compliance and optimize your tax situation.

Hobby vs business: key differences for eBay taxes

Determining whether your eBay activity is a hobby or a business affects your tax reporting and obligations.

Hobby Sellers

Nature of Activity: Engage in selling items occasionally without the primary intent of making a profit.
Tax Reporting: Income from hobby sales must be reported, but related expenses are generally not deductible.

Business Sellers

Nature of Activity: Operate with the intent to make a profit, conducting sales regularly and in a businesslike manner.
Tax Reporting: Must report all income and can deduct ordinary and necessary business expenses.

Key Factors to Consider:

Profit Motive: Do you engage in selling with the intention to make a profit?
Regularity: Are your sales frequent and continuous?
Record-Keeping: Do you maintain detailed records and operate in a businesslike manner?

The IRS provides guidelines to help determine the nature of your activity.

Why It Matters:

Classifying your activity correctly ensures compliance with tax laws and determines your eligibility for deductions. Misclassification can lead to issues with tax authorities and potential penalties.

If you're uncertain about your status, it's advisable to consult a tax professional to assess your specific situation and ensure proper tax treatment.

Why manually reconciling & recording eBay transactions is problematic

Manually handling eBay transactions for taxes might seem manageable at first, but as your sales grow, so does the complexity of your bookkeeping. Tracking every sale, fee, refund, and tax manually often causes more harm than good, leaving sellers frustrated and their records inaccurate. Here’s a closer look at why manual reconciliation falls short:

1. High Risk of Errors

Manually recording transactions means entering data line by line. As volume increases, so does the likelihood of mistakes like:

Misclassifying Transactions: Fees accidentally recorded as sales, refunds overlooked, or expenses assigned to the wrong categories.
Duplicate Entries: Entering the same data twice can inflate your income or expenses, throwing off your financial reports.
Missing Refunds: Refunds, chargebacks, or reimbursements can slip through the cracks if not carefully tracked.

Small errors compound over time, distorting your profit and loss reports, creating discrepancies in your books, and putting you at risk of filing incorrect tax returns.

2. Time-Consuming & Unsustainable

Manual reconciliation is slow and labor-intensive. Sellers often find themselves buried under endless tasks:

Matching individual eBay transactions with payouts.
Breaking down fees like final value fees, promoted listing costs, and shipping charges.
Tracking refunds and reconciling chargebacks.

If you’re processing dozens—or even hundreds—of orders each week, manual bookkeeping can quickly eat up valuable time you could spend growing your business or improving sales.

As your eBay business scales, manual methods simply don’t keep up. You’ll fall behind on your records, leading to rushed, error-prone work come tax season.

3. Missed Deductions and Tax Breaks

Good bookkeeping isn’t just about keeping your records tidy, it’s also about maximizing deductions to reduce your tax liability. However, manual processes make it easy to overlook expenses that could save you money, including:

eBay seller fees (e.g., insertion fees, final value fees).
Shipping costs and packaging supplies.
Advertising expenses, like promoted listings.

Missing these deductions means paying more tax than you need to. Automating your bookkeeping ensures every fee and expense is recorded and categorized accurately, helping you claim every deduction you’re entitled to.

4. Complex Fee Structures

eBay’s payout system is anything but simple. Each transaction includes multiple components:

Sales income
Refunds and chargebacks
Shipping charges
eBay fees (final value fees, listing fees, promoted listing fees)
Sales tax collected and remitted by eBay

Manually identifying and categorizing each of these components takes time and invites errors, especially when reconciling them against your bank deposits.

If you fail to correctly separate these amounts, your financial records can become inaccurate, leading to reporting issues during tax season.

5. Bank Feed Mismatches

eBay payouts rarely align perfectly with individual transactions, which causes confusion when reconciling them in your bank feed. For example:

A single eBay payout might include multiple sales, refunds, and fees.
The total deposit in your bank account doesn’t reflect individual line items, making it difficult to match transactions.

Sellers often spend hours trying to “untangle” their payouts, manually splitting or adjusting entries to match their financial records.

These mismatches waste time, increase frustration, and can lead to unbalanced books if not handled correctly.

6. No Scalability for Growing Sellers

Manual processes might work when you’re handling just a few transactions, but they simply don’t scale as your business grows. Sellers processing hundreds or thousands of orders each month will find manual bookkeeping unmanageable and unsustainable.

Growing businesses need systems that can keep up with their pace. Manual methods create bottlenecks that slow down operations and result in incomplete or delayed records.

FAQ on reporting eBay sales on taxes

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Will eBay send a 1099-K?

Yes, eBay will send a 1099-K if your sales exceed $600 in 2025.

How much can you sell on eBay before paying taxes?

All income must be reported, but eBay will issue a 1099-K if you exceed $600 in sales.

How does Link My Books handle sales tax and VAT?

Link My Books applies the correct tax rates and ensures all sales tax or VAT amounts are recorded accurately in your accounting software.

Key takeaways for reporting eBay sales on taxes

Manual reconciliation might seem like an option when you’re just starting out, but it quickly becomes a costly, time-consuming bottleneck. Errors, mismatches, and missed deductions can cause headaches that no seller wants to deal with, especially during tax season.

Most sellers go wrong with eBay taxes because they’re either overwhelmed by the details or relying on outdated, manual processes. Between IRS rules, sales tax compliance, and keeping clean records, it’s easy to feel lost.

But the solution is simple:

Understand Your Tax Obligations: Know if you’re a hobbyist or a business, and report accordingly.
Keep Clean Records: Automate your bookkeeping to avoid errors and save time.
Leverage Tools Like Link My Books: Automatically sync your eBay sales, fees, refunds, and taxes into your accounting software for accurate, hassle-free reporting.

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Automate your eBay accounting with Link My Books

Link My Books removes roadblocks by automating your entire accounting process, ensuring your eBay transactions are accurate, organized, and tax-ready.

It allows you to: