You only pay taxes on selling personal items if you make a profit (gain), meaning you sell it for more than you bought it for; selling at a loss, or for what you paid, isn't taxed, but you must report gains as capital gains. The key is tracking your original cost and reporting profits, even without a Form 1099-K, which payment apps send for gross sales over certain thresholds.
If you made a profit or gain on the sale of a personal item, your profit is taxable. The profit is the difference between the amount you received for selling the item and the amount you originally paid for the item.
This is a very popular misconception - the reality is that any online or offline selling activity in which the main motive is to make a profit is deemed by the IRS to be a business - this applies no matter how much you are making in revenue.
The federal self-employment tax is 15.3%, so you could save money if your income from an activity or pastime qualifies as hobby income. And if your activity generates less than $400 in 2025, you don't need to pay self-employment taxes, even if your income doesn't qualify as hobby income.
The "3-year hobby rule," or IRS Hobby Loss Rule, is a tax guideline stating that if an activity makes a profit in three out of five consecutive years, the IRS presumes it's a legitimate business for tax purposes, not a hobby, allowing for business expense deductions; otherwise, it's presumed a hobby, and losses can't offset other income. The IRS examines factors like business-like operations, expertise, and time spent, but the profit test is a strong indicator, with exceptions for horse-related activities (2 of 7 years).
“The 5 hobby rule is related to the five different categories that hobbies can fall into,” says Papa. These include “hobbies that 1.) can make you money, 2.) keep you active, 3.) help you be creative, 4.)
Getting Form 1099-K from eBay
If your sales hit the payment threshold, eBay must prepare and send 1099-K copies to the IRS and to you by January 31 of the following year. IRS 1099-K payment reporting thresholds by year: $5,000 in 2024. $2,500 in 2025.
The IRS does not actively monitor every Venmo account 1-(855)(518)(9622). However, Venmo may report certain transactions to the IRS if they meet federal reporting requirements 1-(855)(518)(9622). This typically applies to income-related payments, not casual personal transfers 1-(855)(518)(9622).
On Schedule 1 (Form 1040): Enter the Form 1099-K gross payment amount (Box 1a) on Part I – Line 8z – Other Income: "Form 1099-K Personal Item Sold at a Loss, $21,000" Offset the Form 1099-K gross payment amount (Box 1a) on Part II – Line 24z – Other Adjustments: "Form 1099-K Personal Item Sold at a Loss $21,000"
Use your business account for business purposes and your personal account to receive payments for personal transactions. Otherwise, personal payments will end up on your business's Form 1099-K, and you or your tax professional will then have to sort out personal and business payments when preparing your tax return.
If you're selling second-hand personal items of significant worth on eBay, you should be aware of your liability to pay CGT. Any personal possessions that you sell (with the exception of your car – check HMRC for more details on this process) that are worth more than £6,000, you'll need to pay Capital Gains Tax.
If you made a profit from selling personal items: Report the gain on your tax return. Use Schedule D and Form 8949 if the item qualifies as a capital asset.
Common LLC mistakes include commingling funds, skipping an operating agreement, ignoring compliance (annual reports, taxes, registered agent), using a home address for business, and mismanaging tax planning, all of which risk losing liability protection and creating legal/financial issues, emphasizing the need for separate accounts, clear documentation, and professional advice.
Generally, you must pay self-employment taxes if your net profits are $400 or more. Self-employment taxes are Social Security and Medicare taxes. Use Schedule SE with your tax return to help you determine how much tax to pay.
Public liability insurance is not a legal requirement, however, some craft fair organisers will want to see evidence of the craft sellers' insurance. This is because during the craft fair, you will be interacting heavily with the public.
The biggest tax mistakes people make include filing late, math errors, incorrect personal info (like Social Security numbers), forgetting deductions/credits (like EITC), misreporting income, not signing forms, and making errors with bank details for direct deposit, all leading to delays, penalties, or missed savings, with using tax software or professionals helping avoid these common pitfalls.