Do You Need to Pay Taxes for Reselling Under $600? What Small Sellers Should Know

Many new resellers hope that small-scale online sales—say under $600 in a year—escape IRS attention or tax obligations. The reality, however, is more nuanced. Below, we explore the rules, recent changes, and best practices so you know when you do need to report income, how 1099-K thresholds work (or don’t), and how to stay compliant even with modest sales.

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1. Federal Tax Basics: Is All Income Taxable?

Yes — under U.S. federal tax law, most income is taxable, unless specifically excluded by law. That includes revenue from selling goods, services, or online items.

• Even small amounts—like $100 or $500—must be reported if they come from selling items at a gain or as part of a trade or business.

• If you sell a personal item at a loss (i.e., for less than you originally paid), that loss usually cannot be deducted. IRS+1

• The fact that you don’t receive a 1099 form doesn’t mean the income is not taxable. The IRS still expects you to report it.

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2. What Is Form 1099-K?

• Form 1099-K is a document that third-party payment networks (like PayPal, Venmo, and marketplaces) issue to people who receive payments for goods or services. IRS+2IRS+2

• It reports gross payments before expenses, refunds, or fees. You use it to help fill out your tax return. IRS+1

• But having a 1099-K doesn’t automatically mean you owe tax — it’s just an informational form.

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3. Reporting Thresholds: Past, Present, and Future

The rules around when a 1099-K must be issued have shifted several times and remain complex. Here’s a timeline and current law:

👉 Bottom line: For 2025 and forward, 1099-K reporting is back to the higher threshold (unless further legislative changes happen). But regardless of whether you receive a 1099-K, tax obligations on gain still apply.

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4. Does Under $600 Mean No Taxes Owed?

Not necessarily. Here’s what you need to know:

• The $600 number is often associated with Form 1099-NEC / 1099-MISC thresholds for reporting payments for services, not general income exclusion.

• For resale income, even $1 of profit is subject to taxation.

• The $600 threshold you might have heard about is tied to specific forms in certain contexts, but does not exempt you from reporting income from selling goods.

• If you sell items at a loss or break even, there’s usually no net taxable income — but the sales must still be reported (or at least captured in your books).

In short: Even under $600, if you made a profit, that profit is taxable.

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5. State & Local Tax Rules

States and local jurisdictions may have their own rules that differ from federal ones:

• Some states use lower thresholds for reporting or require sales tax registration for small sellers.

• For example, many states require a reseller or sales-tax permit regardless of revenue level, especially if you're doing business in that state.

• Be sure to check your state’s Department of Revenue or equivalent for specific rules relating to casual sellers and small-scale e-commerce.

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6. Hobby vs Business: How the IRS Views Small Sellers

The classification matters, even for small-scale reselling.

A. Hobby Income

• If your activity is inconsistent, occasional, and not profit-driven, the IRS may treat it as a hobby.

• Hobby income is still taxable, but you can’t deduct business expenses beyond gross income in most cases.

B. Business (Self-Employment)

• If you sell regularly, aim for profit, and operate with some business structure, the IRS would more likely classify you as a self-employed business.

• You can deduct ordinary and necessary business expenses (shipping, supplies, platform fees, etc.).

• Business income is reported on Schedule C of your Form 1040 (if you’re a sole proprietor).

Even small resellers who “just do a few sales a year” are often considered self-employed in tax terms if they have profit motive.

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7. How to Report Your Income (Even Small Amounts)

Step 1: Keep Good Records

• Track every sale, cost of goods sold (COGS), fees, shipping costs, and refunds.

• Save invoices, receipts, and platform reports.

Step 2: Customarily Fill Out the Right Tax Forms

• If business: Use Schedule C (or Schedule C-EZ) to list income and expenses.

• If you received a 1099-K: Include gross receipts, then subtract all allowed expenses to determine your net profit.

• If selling a personal item at a gain: Use Form 8949 / Schedule D for capital gains reporting. IRS

Step 3: Pay Self-Employment Tax

If your net profit (from Schedule C) is $400 or more in a year, you owe self-employment tax (Social Security and Medicare).

Step 4: State Tax Considerations

• Some states require a Sales/Use Tax Permit even for small sellers.

• Report your earnings and abide by your state’s rules.

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8. Case Study: A Micro Reseller’s Tax Journey

Meet “Jess” — a side-hustle reseller making $500–$700 per year selling used books and small electronics.

• She believed she didn’t owe taxes because her sales were “under $600.”

• Around 2024, she received a Form 1099-K from a marketplace that had met the $5,000 threshold under the lowered reporting.

• She consulted a tax advisor and discovered:

  1. Even though she got a 1099-K, she only owed tax on her net profit (sales minus cost of goods, fees, and shipping).

  2. Because Jess had some years with no profit, she had zero net income those years.

  3. She decided to keep treating her side sales as a small sole-proprietorship and file Schedule C each year.

  4. She began tracking every expense more diligently, separating personal vs business activity in her payment accounts.

Outcome: Jess stayed compliant, avoided penalties, and had better tracking for her side business going forward.

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9. Best Practices for Small Sellers & Resellers

1. Separate personal & business accounts — avoid mixing transactions.

2. Record every sale, no matter how small.

3. Track all expenses — they reduce your taxable profit.

4. Issue invoices or keep platform reports for backup.

5. Stay updated on rules, especially the evolving 1099-K thresholds.

6. Consult a tax professional if you’re unsure — it’s cheap insurance.

7. Use accounting or resale tools (like Closo, QuickBooks, or others) to automate tracking.

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Final Thoughts & Next Steps

• There is no blanket exemption from taxes simply because your resale income is under $600.

• The 1099-K reporting thresholds have changed multiple times — currently for 2025, the threshold has reverted to $20,000 and 200 transactions under the new law. Avalara+2CPA Practice Advisor+2

• Always report net profit — not gross sales — and maintain clear, well-organized records.

• Even small resellers can benefit from automation tools and accounting systems to stay ahead of compliance.