Yes, eBay fees can be tax-deductible under specific circumstances.
In 2026, the IRS expects to receive 44 million reports of online seller income – a staggering jump due to new $600 reporting rules that pull even casual eBay sellers into the tax net.
- 💰 Maximize Deductions: Learn how eBay fees and other selling costs can become tax write-offs for hobbyists, side hustlers, and businesses.
- 🔍 Hobby vs Business: Discover the crucial differences between casual selling and running an eBay business – and why it matters for your taxes.
- 🗺️ Federal & State Rules: Get clarity on IRS rules, Schedule C, 1099-K forms, and a state-by-state breakdown of tax nuances for online sellers.
- 📊 Real Examples & Tips: See real-world scenarios, comparisons, and easy-to-read tables that illustrate how deducting fees impacts your bottom line.
- ⚠️ Avoid Pitfalls: Find out what mistakes trigger IRS attention, learn from key tax court cases, and get pro tips on staying compliant and profitable.
IRS Rules: When Are eBay Fees Tax Deductible?
Under U.S. federal tax law, you can deduct eBay fees only if your selling activity is considered a trade or business. The IRS allows “ordinary and necessary” business expenses to be written off against income. All the various fees that eBay charges – from listing fees to final value fees, store subscriptions, and payment processing charges – qualify as ordinary business expenses if you are operating with a profit motive. In plain terms, if you’re actively selling on eBay to make money (even as a side hustle or small business), those fees reduce your taxable income.
Hobby or Business? The key factor is whether your eBay sales are a business (aimed at earning a profit) or just a hobby/personal endeavor. A business seller gets to deduct expenses like eBay fees from their revenue on their tax return. A hobbyist or casual individual selling personal items cannot claim those fees as tax deductions (because personal and hobby expenses aren’t deductible under current IRS rules). We’ll explore the hobby-versus-business distinction in detail shortly, but the takeaway is: only bona fide business expenses are deductible.
For those who do qualify as a business, eBay fees become valuable tax write-offs. Suppose you sold $10,000 worth of goods on eBay in a year and paid $1,200 in eBay fees. As a business, you’d report the $10,000 as income but also deduct the $1,200 as a cost of doing business, leaving you with $8,800 of taxable profit (before other expenses). You’re not taxed on the money that went to eBay’s platform fees – that portion is subtracted from your gross income and can significantly lower your tax bill (especially when combined with other expenses like shipping, inventory costs, or home office use).
It’s important to note that business deductions for eBay fees apply across all business entities. A sole proprietor or single-member LLC will typically deduct eBay fees on Schedule C (Profit or Loss from Business) of their Form 1040. If you operate as a partnership or multi-member LLC, the fees are deducted on the partnership tax return and flow through to your personal taxes.
Similarly, corporate sellers (S corporations or C corporations) deduct eBay fees on their corporate tax returns, reducing the business’s taxable income. In every case, the fundamental principle is the same: eBay fees are subtracted from sales revenue to determine taxable profit.
Self-Employment Tax Angle: Deducting eBay fees doesn’t just reduce your income tax – it also lowers your self-employment tax if you’re self-employed. For sole proprietors and LLC owners taxed as sole props or partnerships, net profit from eBay sales is subject to self-employment tax (the ~15.3% tax for Social Security and Medicare). By deducting allowable expenses like eBay fees, you shrink that net profit number, thereby cutting both your income tax and self-employment tax obligations.
From the federal perspective, eBay fees are tax-deductible when tied to a profit-driven selling activity. If you’re running an eBay business, the IRS expects you to report all your income and allows you to deduct the associated costs (like fees) to arrive at the true profit. However, if you’re just occasionally selling items for fun or to declutter (without a true profit motive), you won’t get to deduct those fees – they’ll simply reduce the cash you pocket from the sale, and any income might still be taxable without offset. The distinction between hobby and business is crucial, which we’ll dive into next.
Who Can Deduct eBay Fees? Scenarios for Individuals, Hobbyists, and Businesses
Understanding your seller status is critical, because the ability to deduct eBay fees differs for casual individuals, hobby sellers, and business sellers. Let’s break down how tax treatment works for each category of seller:
Casual Individual Sellers (Personal Items) – Can You Deduct Fees for Personal Sales?
If you’re an individual occasionally selling your personal items on eBay (think one-off garage sale-type listings), you generally cannot deduct eBay fees on your taxes. These sales are treated as personal transactions, not business income, and most casual sellers end up selling items at a loss compared to what they originally paid. For example, selling your used guitar for $200 (originally bought for $500) results in a $300 personal loss – not deductible, but also not taxable since it’s a personal sale. In personal sales, eBay fees simply reduce the cash you receive; there’s no mechanism to write those fees off on a tax return because the activity isn’t considered a business.
What if you do happen to make a profit on a personal item? Say you find a vintage toy in your attic for free and sell it for $100, incurring $13 in eBay fees. Technically, that $100 is a taxable gain since you have no cost basis (it would be reported as a capital gain on personal property). In such cases, you can subtract the $13 fee from your proceeds when calculating the gain – effectively, you’d report an $87 profit after fees. But there’s no separate deduction for the fees; they’re simply part of the selling costs that reduce your gain. Bottom line: eBay fees on personal sales aren’t tax-deductible, and unless you sell an item for more than you originally paid (a rare scenario), you won’t have any taxable income to worry about from casual eBay transactions.
Hobby Sellers – Are Your eBay Fees Tax Deductible?
Hobby sellers occupy a middle ground between casual and business. Maybe you sell handmade crafts or collectibles on eBay in your spare time, not as a full-fledged enterprise but to earn a bit of extra cash. The IRS defines a hobby as an activity you pursue for recreation or pleasure, not primarily for profit. You still have to report income from hobby sales on your tax return, but — crucially — you cannot deduct eBay fees or other expenses to offset that income. In the past, hobby-related expenses were deductible up to the amount of hobby income (as miscellaneous itemized deductions), but current tax law has eliminated that deduction (through at least 2025), meaning if you bring in $1,000 from your eBay hobby sales and spend $350 on eBay fees, shipping, and supplies, you’re on the hook to pay income tax on the full $1,000 – with no write-off for those costs.
However, hobby income isn’t subject to self-employment tax since you’re not running a formal business. You’ll report it as “other income” (or as capital gains for items like collectible coins) and pay regular income tax on the profit. This treatment is often worse than being classified as a business, because you’re paying tax even on money that went toward fees and supplies. It’s one big reason that if your eBay selling is more than very occasional, it makes sense to establish it as a business so you can claim deductions. The IRS has guidelines to distinguish a business from a hobby – for example, whether you carry on the activity with a genuine intent to make a profit, keep business-like records, and have a history of earning profit in some years. If you meet those criteria, you can classify your selling as a business and start deducting your eBay fees and other expenses.
Side Hustlers (Sole Proprietors) – Deducting eBay Fees on Schedule C
A large portion of eBay sellers fall into this category: individuals running a side hustle as a sole proprietor. You might not have an official business name or a registered company, but if you’re sourcing or creating items to resell with the intent to turn a profit, the IRS views you as a business. The good news is that as a business (even a one-person operation), all those eBay fees become tax-deductible. You will typically file a Schedule C with your Form 1040 to report your eBay income and expenses. On Schedule C, you list your gross sales revenue and then subtract all the costs of running your eBay venture – including eBay seller fees, PayPal or payment processing fees, shipping postage, packaging supplies, and the cost of the goods you sold (inventory).
By deducting these expenses, you’re taxed only on your net profit. For example, if you sold $20,000 worth of goods and eBay charged $2,500 in fees, you would report $20,000 in gross income but then deduct the $2,500 in fees (along with any other expenses). That means you’d only pay tax on the remaining $17,500 (minus other deductions like materials or shipping costs). EBay fees often fall into the “Commissions and fees” category on Schedule C, but any way you categorize them, the result is the same – your taxable income is reduced by the amount of those fees.
Remember that as a sole proprietor, you pay income tax and self-employment tax on your net earnings. Self-employment tax is roughly 15.3% (covering Social Security and Medicare) on top of your income tax, so deducting expenses like fees is critical to minimize not just your taxable income but also these additional taxes. It’s wise to keep thorough records: save your eBay statements or download transaction reports that show the fees you paid. If your sales are above a certain threshold, eBay or its payment processor will send you a Form 1099-K (for example, over $5,000 in total sales for 2024, with the threshold dropping in future years). That form reports your gross payments received from buyers before fees. To avoid overpaying taxes, you must account for the fees by claiming them as expenses on Schedule C. In short, being a sole proprietor eBay seller lets you write off all the costs of selling – and if those costs (including eBay fees) end up exceeding your sales in a given year, you can often claim a business loss to offset other income (subject to certain limits for very large losses).
LLC Sellers – Does an LLC Change Your eBay Fee Deductions?
Many eBay entrepreneurs consider forming a Limited Liability Company (LLC) for their business. From a pure tax perspective, an LLC does not change which expenses you can deduct – eBay fees are still fully deductible, just as they are for any business. If you’re the only owner (a single-member LLC), the IRS by default treats your business the same as a sole proprietorship. You’ll file Schedule C and deduct eBay fees in exactly the same way as described above. If you have a multi-member LLC, the business will file a partnership tax return (Form 1065), and the eBay fees get written off there and then passed through to your personal tax return via a Schedule K-1. Either way, the presence of an “LLC” after your name doesn’t give you extra tax write-offs – it’s simply a different legal structure for the same underlying business activity.
The primary reasons to form an LLC typically involve legal protection and business credibility, not tax savings. An LLC can shield your personal assets from business liabilities (like debts or lawsuits connected to your eBay sales). It can also make your operation appear more professional to suppliers or customers. But when it comes to taxes, you won’t get any special deduction for having an LLC. You’ll still deduct eBay fees, shipping, and other costs as normal business expenses. Do note that some states charge extra fees or minimum taxes on LLCs (for example, California’s franchise tax). Those payments are themselves deductible business expenses, but they add to your overhead cost.
Some LLC owners choose to elect S corporation status for tax purposes once their profits grow large, mainly to reduce self-employment taxes. Even in that scenario, eBay fees remain deductible – you’d just be deducting them on the S corp’s tax return instead of on Schedule C. The key point is that no matter what business structure you use (sole prop, LLC, S corp, etc.), you can write off the fees that eBay charges as long as you’re indeed running a business. Choose your entity type based on legal and management considerations, and rest assured that the tax treatment of your eBay fees will allow those costs to come off your taxable income.
Incorporated Businesses (S Corps and C Corps) – How eBay Fee Deductions Work
If your eBay venture has grown into a corporation, the tax principles are still similar – eBay fees are deductible business expenses at the corporate level. In an S corporation, you (as an owner-employee) draw a salary and/or distributions from the company, but the company’s profits (passed through to you) are calculated after deducting all expenses including eBay fees. The S corp files Form 1120-S annually, writing off the eBay fees and other costs just like a sole proprietorship would on Schedule C. The end result is that only the net income flows through to you as taxable income on your personal return.
For a C corporation, the company itself pays corporate income tax on its net earnings. Here again, eBay fees paid by the business are written off on the corporate tax return (Form 1120) as ordinary and necessary expenses. They directly reduce the corporation’s taxable profit. If, for example, a C corp earned $50,000 in gross revenue from eBay sales and paid $5,000 in eBay fees, it would only be taxed on $45,000 of profit (minus any other deductions). And if a corporation’s deductions (including hefty eBay fees) ever exceed its income, it can generate a net operating loss to potentially carry forward to future years – underscoring that those fees are never wasted from a tax perspective.
One important distinction with corporations: the deductions happen on the company’s tax return, not on your personal 1040. As the owner, you don’t directly deduct eBay fees on your personal tax return because you’re likely drawing salary or dividends from the company after expenses. In other words, the company’s accounting has already reduced its income by all the fees and other expenses before profits get distributed to you. By the time any money reaches you from the business, the eBay fees have done their job of lowering the taxable income at the entity level. If you’ve gone through the effort to incorporate, you probably have a tax advisor or accountant involved, but it’s reassuring to know that every dollar in eBay fees still translates into a deduction somewhere – it will save your business money by cutting its taxable profit, whether you operate as an S corp or a C corp.
In summary, here’s a quick comparison of different seller types and whether they can deduct eBay fees:
Quick Comparison of Seller Types and Deductibility:
| Seller Type | Can eBay Fees be Deducted? |
|---|---|
| Casual personal seller | No. These are personal, non-business transactions. You can’t deduct eBay fees for selling your own used items. (Usually, no tax is owed either if you sold at a loss.) |
| Hobby seller | No. You must report hobby income to the IRS, but you cannot deduct any related fees or expenses. (You pay tax on the full income, since deductions are disallowed for hobbies.) |
| Side hustle sole proprietor | Yes. All eBay fees and other selling expenses are deductible on Schedule C. You’ll be taxed on net profit only (and owe self-employment tax on that profit as well). |
| Single-member LLC | Yes. Same as a sole proprietor, since a one-owner LLC is taxed like a sole proprietorship by default. Deduct all ordinary expenses (fees, shipping, etc.) on Schedule C. |
| Multi-member LLC / Partnership | Yes. Deductible at the partnership level. The LLC/partnership writes off eBay fees on Form 1065, reducing the income passed through to partners. |
| S or C Corporation | Yes. Deductible at the corporate level. The corporation claims eBay fees as business expenses on its corporate tax return, which lowers its taxable profit (and in an S corp, the taxable income flowing to owners). |
State Tax Nuances: Deducting eBay Fees in Different States
Federal tax rules are uniform across the U.S., but state taxes can vary. The good news is that most states generally follow the federal treatment for business expenses – if eBay fees are deductible on your federal return, they’re usually deductible on your state return too. However, there are a few state-specific nuances to be aware of, from states with no income tax to those with special business taxes. The table below highlights some major state-by-state nuances affecting eBay sellers:
| State / Category | Tax Nuance for eBay Sellers |
|---|---|
| No Income Tax States (FL, TX, etc.) | No state income tax on eBay profits. You only owe federal tax. These states do not tax individual business income, so deducting eBay fees is purely a federal matter (though you may still have other state business obligations). |
| Gross Receipts Tax States (WA, OH, NV) | Some states with no income tax impose gross receipts or business privilege taxes. For example, Washington charges a small B&O tax on gross revenue from business activities. eBay sellers in such states might owe a tax on total sales (before deducting fees), since it’s not an income tax. Deducting eBay fees doesn’t reduce these gross receipt taxes, because they’re based on gross sales. |
| High-Tax States (CA, NY, NJ) | High state income tax rates on business profits. Your net eBay income (after deducting fees and expenses) will be subject to state tax that can reach 8–13% or more. Good recordkeeping is vital, as state tax agencies may scrutinize business deductions. The same eBay fee deductions you take federally typically apply for state tax calculations, reducing your taxable income in these states. |
| Marketplace Sales Tax (Most States) | Sales tax vs. income tax: Most states now require eBay to collect sales tax from buyers on your behalf. This simplifies sales tax for you, but note that any sales tax collected and remitted by eBay is not part of your taxable income. (If a Form 1099-K includes amounts that were sales tax, you should back those out – either by not counting them as income or by deducting an equivalent amount as a business expense.) |
| State Business Filing | If you’ve formalized your eBay selling into a business, remember to comply with state requirements. You may need a state sales tax permit (even though eBay remits the tax) and to file state business income tax returns. Some states also charge annual franchise taxes or fees for LLCs and corporations (e.g. California’s $800 LLC fee), which are themselves deductible expenses on your federal return. Be aware of these additional state costs as part of doing business. |
As the table shows, while deducting eBay fees is largely governed by federal rules, your overall tax picture can differ depending on your state. If you live in a state with income tax, any profit from your eBay business (after deductions) will typically be taxed by the state. In contrast, if you’re in a no-income-tax state, you won’t owe state tax on that profit at all. And if your state has unique taxes (like gross receipts taxes or mandatory LLC fees), those will affect your bottom line but don’t change the fact that eBay fees reduce your taxable income in every jurisdiction. Always check your state’s specific tax guidance for small businesses or online sellers to avoid surprises.
Pros and Cons of Treating Your eBay Selling as a Business
If you’re on the fence about whether to declare your eBay activity as a business (and thus deduct expenses like fees), consider the following pros and cons:
| Pros of Business Classification | Cons of Business Classification |
|---|---|
| Fees and costs lower your taxable income. You only pay tax on your profit, not on gross sales, which can significantly reduce your tax bill. | Self-employment tax applies. Business income is subject to ~15.3% self-employment tax (in addition to income tax), which hobby income isn’t. This can eat into your earnings. |
| Can deduct losses to offset other income. If your eBay business has a bad year (expenses > sales), you may claim a loss and reduce your overall taxable income from other sources. | More paperwork & record-keeping. Running a business means tracking expenses, keeping receipts, and filing additional tax forms (Schedule C, etc.). It’s a bit more work than ignoring expenses as a hobby. |
| Save on taxes beyond income tax. Deductions like eBay fees also reduce the income base for self-employment tax. Plus, you can access other business write-offs (home office, mileage, etc.) that can further cut taxes. | Risk of IRS scrutiny. Declaring a business that consistently loses money or looks more like a hobby can draw IRS attention. You need to show a genuine profit motive to sustain those deductions long-term (to avoid the “hobby loss” rules). |
| Professional growth. Treating your selling as a business may encourage better accounting and scalability. It also means you’ll get official forms (1099-K) which help in preparing accurate returns. | Potential state taxes/fees. As a business, you might be subject to state business taxes or fees (like annual LLC fees, business license requirements, or sales tax filings). These add minor costs and obligations (though often deductible themselves). |
If you’re turning a profit or aiming to, the advantages of deducting your eBay fees (and other expenses) usually outweigh the downsides. You keep more of your earnings after tax. Just be prepared to do things “by the book” – maintain good records and pay the necessary self-employment taxes and any required state fees. By contrast, if your selling is truly casual or marginal, you might choose not to formalize it as a business. But you’d then miss out on valuable deductions and could end up paying tax on income that a business seller would legally shelter with expenses.
Pitfalls to Avoid and Lessons from Tax Court Cases
Even well-intentioned sellers can run into trouble if they handle taxes incorrectly. Here are some common mistakes to avoid when it comes to eBay income and fee deductions:
- Not reporting income under the new thresholds: With the IRS lowering the Form 1099-K reporting threshold (eventually to $600), even small-scale sellers will be on the IRS’s radar. Don’t assume that just because you made only a few hundred dollars, you can ignore it. All income from sales is technically taxable, whether or not you receive a 1099 form. Failing to report eBay earnings can lead to IRS notices and penalties. It’s always safer to report what you made (and deduct the fees and expenses you’re entitled to) than to omit it and risk an audit.
- Mixing personal and business items: Be careful not to deduct fees for purely personal sales. If you sold your old furniture or used items and took a loss, you can’t claim those fees as a business expense. Deduct only the fees related to your profit-driven selling activity. Keep your personal sales (selling items you already owned for personal use) separate from inventory you purchased to resell. If you blur the lines, you could face trouble in an audit — the IRS could disallow deductions that aren’t clearly tied to a bona fide business.
- Poor record-keeping (especially cost basis): One of the biggest pitfalls is not tracking what you paid for items (your cost basis) and the fees you incurred. Without records, you can’t substantiate your deductions or prove if a sale was at a loss. There’s a famous case where an IRS revenue officer (ironically, a tax collector herself) failed to report nearly $42,000 in eBay sales. She had no records of her costs, so the IRS and Tax Court treated the entire amount as taxable income — and she was hit with taxes and penalties on all of it. The lesson: keep receipts or documentation for your inventory purchases and expenses. If you sell personal items, note what you originally paid. Good records can prevent the IRS from overestimating your taxable profit.
- Assuming eBay/PayPal taxes you automatically: Some sellers mistakenly believe that since eBay or PayPal withhold fees (or since eBay collects sales tax from buyers), they’re “handling the taxes.” In reality, eBay does not withhold income taxes for you. It’s your responsibility to report your net income on your tax return. The sales tax eBay collects is separate (and remitted to states) — it doesn’t satisfy any income tax obligations. Similarly, payment processing fees and eBay fees are not automatically reported as deductions; you must claim them. Don’t ignore your own bookkeeping thinking that online platforms have taken care of everything.
- Missing estimated tax payments: If your eBay business is profitable, remember that no one is withholding income tax from that money during the year. You may need to pay estimated taxes quarterly to avoid an IRS underpayment penalty. This includes both income tax and self-employment tax on your earnings. A pitfall for new entrepreneurs is getting a big tax bill in April because they didn’t set aside funds for taxes on their eBay profits. Plan ahead by calculating your expected tax and paying quarterly if needed.
Key Tax Court takeaways: The IRS and courts will look at whether you’re running your eBay selling like a real business. Keep businesslike records, report all your income, and only deduct legitimate expenses. If you show a pattern of losses year after year without ever making money, the IRS might reclassify your activity as a hobby (disallowing future deductions). Conversely, if you have a reasonable expectation of profit and treat it professionally, the law is on your side to allow all ordinary and necessary expenses. Real cases have shown that those who fail to report income or substantiate expenses can face steep consequences, while those who follow the rules can reap significant tax benefits by deducting their eBay fees and other costs.
Frequently Asked Questions (FAQs)
Can I deduct eBay fees if I’m not a business?
No. If your selling activity isn’t a for-profit business, eBay fees aren’t deductible. Only sellers operating as a business (with intent to profit) can write off those fees on their taxes.
What tax form do I use to deduct eBay fees?
Sole proprietors use Schedule C (Form 1040) to write off eBay fees as a business expense. LLCs or corporations deduct eBay fees on their respective business tax returns (partnership Form 1065, S corp 1120-S, etc.).
Are eBay fees included in the 1099-K or do I deduct them?
Form 1099-K reports gross sales (before fees). You should report that full amount as income, then deduct eBay fees separately as business expenses so that you’re only taxed on your net profit.
Do I pay taxes on money that went to eBay fees?
Not if you properly deduct the fees. You only pay tax on your net profit. By claiming eBay fees as expenses, you ensure you aren’t taxed on money you never actually received.
What if I only sell a few items a year?
If it’s just occasional personal sales at a loss, you likely owe no tax and can’t deduct fees. But any profit from selling items (even small) is taxable under IRS rules.
Is there a minimum income that must be reported from eBay sales?
No – any profit is technically taxable. The $600 threshold is for triggering IRS reporting forms. Even if you don’t receive a 1099-K, you’re required to report and pay tax on profitable sales.
Should I form an LLC for my eBay selling to deduct fees?
It’s not necessary just for tax purposes. You can deduct eBay fees as a sole proprietor. An LLC provides legal protection but doesn’t create new tax deductions – you’ll still deduct fees the same way.
Can I deduct PayPal fees and shipping costs too?
Yes. Any fees or costs directly related to your eBay sales (payment processing fees, shipping postage, packaging, etc.) are deductible business expenses if you’re treating your selling as a business.
Where do I enter eBay fees on my tax return?
On Schedule C for sole proprietors, you can include them under “Commissions and fees” or list them as an “Other expense.” The key is to include all eBay fees paid as a deductible expense.
What if my eBay business expenses exceed my sales?
If you have a net loss from your eBay business, you can deduct that loss against other income to reduce your tax. Just ensure you’re aiming for profit so it’s not deemed a hobby.