New Tax Rules for Online Sellers: What You Need to Know to Stay Compliant

Big Changes to Taxes for Online Sellers: What You Need to Know

If you sell things online—whether it’s old clothes, handmade crafts, or services—there are some new tax rules you need to know about. Starting in 2024, more people who sell online will have to report their income to the government. These changes could affect a lot of sellers, even if you only sell as a side hustle or a hobby. Don’t worry—this guide will explain everything in simple terms so you can be prepared and avoid any surprises.

What’s Changing for Online Sellers?

The government has updated how they track income for people selling online. If you earn money on platforms like Etsy, eBay, Amazon, PayPal, or even apps like Venmo and CashApp, these rules might apply to you. Here’s the timeline for the changes:

2024: If you earn more than $5,000 from selling online, you’ll get a tax form called a 1099-K from the platform you use. This form tells the IRS (the government agency that handles taxes) how much money you made.
2025: The threshold will go down to $2,500. So, if you earn over $2,500 in 2025, the platform will send a 1099-K to you and the IRS.
2026: By 2026, the threshold will drop to $600. That means most people selling online—even if it’s just a hobby—will need to report their income.

What is a 1099-K Form?

The 1099-K form is used to report money you make through online sales. It’s like a receipt that tells the government how much income you earned. You’ll get this form if you meet the income threshold for the year. For example:

If you sell handmade jewelry on Etsy and make $6,000 in 2024, Etsy will send you a 1099-K.
If you sell old furniture on Facebook Marketplace and earn $700 in 2026, Facebook will send you a 1099-K.

It’s important to know that the 1099-K only reports your gross income. That’s the total amount of money you made before subtracting any expenses, like shipping costs or fees charged by the platform.

Why Are These Changes Happening?

The government made these changes to help close the “tax gap.” The tax gap is the difference between the taxes people owe and the taxes that actually get paid. By lowering the reporting thresholds, the IRS hopes to make sure everyone is paying their fair share of taxes. While this might sound a little frustrating for small-time sellers, it’s part of the government’s effort to track income more closely.

Who Will Be Affected?

These changes will affect many types of online sellers, including:

Casual Sellers: If you occasionally sell items, like old clothes or furniture, and make more than the threshold, you’ll need to report your earnings.
Side Hustlers: If you sell crafts, baked goods, or services as a part-time gig, you’ll also need to report your income.
Small Business Owners: People who run full-time businesses online already report their income, but they’ll need to pay extra attention to the lower thresholds.

Even if you’re just cleaning out your garage and selling items on eBay, you might be required to report those sales starting in 2026 if you make over $600.

Do You Have to Pay Taxes on All Online Sales?

Not all sales are taxable. Here’s how to figure out what you owe:

Personal Items Sold at a Loss: If you sell something for less than what you paid for it, you don’t owe taxes on that income. For example, if you bought a couch for $500 and sold it for $200, you don’t have to pay taxes on that $200.
Items Sold for Profit: If you sell something for more than you paid, you’ll need to pay taxes on the profit. For instance, if you bought a collectible for $50 and sold it for $200, the $150 profit is taxable.
Business Income: If you’re selling goods or services as part of a business or side hustle, all your earnings are taxable.

How to Prepare for the New Rules

If you sell online, here are some simple steps to get ready for these changes:

1. Keep Track of Your Sales

It’s important to track all the money you make from selling online. You can use a notebook, a spreadsheet, or an app to write down:

What you sold
How much money you made
The date of the sale

2. Save Your Receipts

If you buy items to resell or spend money on supplies (like packaging or shipping), keep your receipts. These expenses can reduce the amount of income you have to pay taxes on. For example:

If you sell a handmade scarf for $50 and spent $20 on yarn, your profit is $30. You only pay taxes on the $30 profit.

3. Set Aside Money for Taxes

Depending on how much money you make, you might owe both federal and state taxes. A good rule of thumb is to set aside 20–30% of your income for taxes. That way, you’re prepared when it’s time to file your return.

4. Use Accounting Tools

Apps and software like QuickBooks, Wave, or even Excel can help you track your sales and expenses. These tools make it easier to stay organized and calculate your profits.

5. Talk to a Tax Professional

If you’re not sure what you need to do, talk to a tax expert. They can help you figure out your responsibilities and make sure you’re not overpaying.

What Happens If You Don’t Report Your Income?

If you don’t report your online sales income, you could face penalties from the IRS. The IRS might charge you extra fees, interest, or even audit your finances. It’s always better to report your income correctly to avoid these issues.

Benefits of Following the Rules

While these changes might feel overwhelming, there are some benefits to keeping your online sales organized and reporting your income:

Avoid Penalties: You won’t have to worry about fines or audits from the IRS.
See Your Business Grow: By tracking your sales and expenses, you’ll get a clearer picture of how much money you’re really making.
Qualify for Loans: If you report your income, it’s easier to show proof of earnings when applying for loans or other financial assistance.