The core difference between a hobby and business on eBay is the profit motive and consistency. Hobbyists sell occasionally for fun or to declutter, while businesses operate regularly to generate profit, often sourcing inventory. Businesses can deduct expenses like fees and shipping costs on tax returns, whereas hobbyists generally cannot.
It depends on the type of income you've made selling on Etsy or eBay, whether for a hobby or business. The difference is profit motive. If you're selling personal items for fun (and usually at a loss), it's hobby income. If you're selling to make money as a side gig, it's business income.
These factors are whether:
The taxpayer carries out activity in a businesslike manner and maintains complete and accurate books and records. The taxpayer puts time and effort into the activity to show they intend to make it profitable. The taxpayer depends on income from the activity for their livelihood.
Cons
Business accounts have more sales opportunities and can leverage the features available on eBay to generate more eBay sales. On the other hand, personal accounts have lower restrictions on the number of products you can list. These restrictions are much lower if you are a new account owner.
Not all sales are taxed. Occasional sales of second-hand items do not necessitate reporting, especially when such items are sold for less than the original purchase price. However, if selling on eBay is done regularly for profit, the IRS considers it a business. So, income should be reported.
As a UK resident, when you sell over £1,707 or more or complete 30 or more sales transactions within a calendar year, eBay is obliged to report certain personal or business information to HMRC in accordance with the UK digital sales reporting legislation. eBay will notify you when you have crossed these thresholds.
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 "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).
Three-of-five test is a rebuttable IRS presumption that a business venture that does not make a profit during three out of the last five consecutive years of operation is a hobby and is not a business for the purposes of assessing tax - per [Section 183 (d)].
For a $100 sale on eBay, expect fees around $14 to $16, primarily a 13.6% Final Value Fee on the total sale (item + shipping + tax), plus a $0.40 per-order fee, varying slightly by category (e.g., higher for media, lower for some electronics/sneakers). So on a $100 item with $10 shipping ($110 total), you'd pay roughly $14.40-$15.84 in fees, leaving you with around $94-$95, depending on the exact category.
Effective February 2025, ebay will hold private sellers funds for 14 days if the order is posted with an un-tracked delivery service (such as Royal Mail 2nd Class).
2024 tax year Form 1099-K threshold
For tax year 2024, eBay and other online payment platforms are only required to report transactions to the IRS once you hit an annual threshold of $5,000 in gross payments with no transaction minimum. Prior to 2024, the threshold was $20,000 and at least 200 transactions.
When you can ask eBay to step in. Once the buyer has let you know that they have an issue, you have 3 business days to respond with a resolution. After that, if the matter hasn't been resolved, either of you can ask us to step in and help.
IRS regulations require all payers, including online marketplaces like eBay, to issue a Form 1099-K for all sellers who meet the reporting threshold, namely more than $20,000 and 200 transactions in 2025.
Selling limits are designed to help you grow your business in a manageable way and ensure you can give your buyers great service. As you get more comfortable meeting buyer demand, we'll increase your limit.
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.
For the 2025 tax year, you'll generally receive a Form 1099-K from platforms like eBay, Etsy, and payment apps if you have over $20,000 in gross payments AND more than 200 transactions, but you must report all income (even small amounts) if it's for goods/services, as you're taxed on profit, not just when you get a 1099-K, with lower state thresholds possible.
If your eBay activity is classified as a business, you may be able to deduct a number of business expenses, including the costs to purchase or repair items you sell, advertising expenses, and the portion of your phone and internet charges related to your business.
Can You Sell on eBay Without an SSN? Now that you know why eBay requires sellers to provide their SSNs, you might be curious if you can still sell on eBay without one. The rule clearly states that you must provide your SSN if you earn more than $6,000 per year in product sales.
Key takeaways
Whether or not you have to pay income taxes on eBay sales depends on the nature of your sales. If your eBay gross sales add up to more than $20,000 and 200 transactions in a year, eBay will send you a Form 1099-K, which lists the total amount of payments you received throughout the year.