So, you’ve spent the weekend clearing out your closet or scouting vintage gems at the local thrift store. Whether you’re a casual Poshmark seller or an aspiring Depop mogul, the extra cash hitting your bank account feels great, until you start wondering about the IRS.
If you’re feeling a bit of tax-season anxiety, don’t worry. Here’s a down-to-earth guide on how online clothing resale income works and, more importantly, how to keep more of your hard-earned money through smart deductions.
The Big Question: Do I Actually Owe Taxes?
The short answer is: it depends on your intent.
If you are just having a “virtual garage sale,” meaning you’re selling your old clothes for less than you originally paid for them, you generally don’t owe taxes on those sales. Since you’re selling at a loss, there’s no profit to tax.
However, things change the moment you start selling for a profit. If you’re buying items specifically to flip them, the IRS views this as a business. Even if you don’t consider yourself a “business owner” yet, the IRS looks at how frequently you sell and if you’re trying to make a steady income.
Understanding the “$400 Rule”
The $400 rule marks the specific threshold where your net profit, calculated as total income minus your business expenses, becomes subject to self-employment taxes.
Once your earnings from platforms like Poshmark or Depop cross this line, the IRS treats the activity as business income, requiring you to file a tax return to cover Social Security and Medicare contributions.
Tax forms: Sell on Depop? They use Stripe to file 1099 tax forms to report your earnings. Sell on Poshmark? If so, you can download your 1099-K here
Top Tax Deductions for Depop, Poshmark, Resellers
The best way to lower your tax bill is to make sure you’re tracking every single dollar it costs to run your shop. If an expense is “ordinary and necessary” for your business, it’s likely deductible.
1. Inventory (Cost of goods sold)
This is your biggest win. You can deduct what you paid for the items you actually sold. This includes:
- Thrift store or estate sale finds
- Wholesale inventory
- Cleaning or repair costs to get an item ready for a buyer (like dry cleaning or shoe polish)
2. Platform and Payment Fees
Those fees Poshmark and Depop take off the top? You don’t pay taxes on that money. You can deduct:
- Platform selling fees (Poshmark fees and Depop fees)
- Payment processing fees (PayPal, Stripe, etc.)
- Promoted listing charges
3. Shipping and Packaging
Everything you use to get the package to the buyer counts:
- Boxes, poly-mailers, and tissue paper.
- Packing tape, thermal labels, and printer ink.
- Shipping scales and label printers.
- Thank-you cards or stickers you include in the box.
4. Business Equipment and Home Office
If you have a dedicated space in your home used only for your business or for storing inventory, you might qualify for a home office deduction. You can also deduct:
- Photography supplies (ring lights, backdrops, mannequins).
- The business portion of your cell phone and internet bill.
- Subscription apps for cross-listing or photo editing.
5. Mileage and Travel
Do you go thrifting for vintage cloths? If so, Don’t forget your travel costs! For example, you can track and deduct the mileage driven to source inventory at thrift stores or to drop off packages at the post office. Just be sure to keep a log so you can back it up if you’re ever audited.
Tip: Train fare to the city may be deductible when the trip is primarily for sourcing inventory for your Depop or Poshmark business. Keep the ticket and receipts from the thrift stores, but only deduct the business portion if the trip also included personal activities.
Clothing Resellers: Tips for a Stress-Free Tax Season
- Keep Your Receipts: Whether it’s a digital screenshot or a paper slip from Goodwill, you need documentation to stand up to an audit.
- Track Sales Tax: The good news is that platforms like Poshmark and Depop are “marketplace facilitators,” meaning they usually automatically collect and pay the sales tax for you.
- File a Schedule C: This is the form you’ll use to report your resale income and all those great deductions we just talked about. You can also download your 1099-K forms directly from Depop and Poshmark
- Set Aside Cash: If you expect to owe more than $1,000 in taxes, it’s a smart move to look into quarterly estimated tax payments to avoid a big surprise in April
Depop & Poshmark Seller Tax FAQs
Usually not. If you sell personal clothing for less than you paid, there is no taxable profit, but the loss is not deductible.
Online marketplaces generally issue Form 1099-K when payments exceed $20,000 and 200 transactions. Taxable resale income must still be reported even if you do not receive the form.
Subtract inventory costs and business expenses, such as platform fees and shipping, from total sales. Net self-employment earnings of $400 or more are generally subject to self-employment tax.
Common deductions include inventory costs, platform fees, shipping supplies, business mileage, home-office expenses, and cross-listing or bookkeeping software.
Final Thoughts on Clothing Resale Income & Taxes
Whether you’re just clearing out your closet or building a full-blown vintage resale empire, understanding the difference between a casual hobby and a profit-seeking business is the first step to staying stress-free at tax time. Remember that keeping detailed records of your original purchase receipts, shipping costs, and platform fees isn’t just about compliance; it’s the secret to maximizing your tax deductions and keeping more of your hard-earned profit.
While platforms like Poshmark and Depop take a lot of the weight off your shoulders by automatically handling state sales tax for most orders, the responsibility for accurately reporting your final earnings to the IRS still rests with you. By staying organized from your very first sale and tracking every expense, you can focus less on the paperwork and more on finding that next great item to resell!
Thanks for stopping by Nifty Taxes!