Tax Deductions for Online Sellers: Etsy & eBay 2026

Selling online generates a paper trail most sellers never fully use. Every wholesale order, every roll of packing tape, every Etsy fee, and every mile to the post office is a deduction that either lowers your tax bill or quietly disappears. If you sell on Etsy, eBay, Amazon, Shopify, Poshmark, or your own store and you file a Schedule C, the IRS taxes your profit, not your sales, so the expenses you track are what set that profit. This guide covers the 2026 tax deductions that hold up for online sellers, how inventory and the bigger write-offs work, and where each one lands on your return. Every figure is current for tax year 2026 and tied to the rule it comes from.

What can online sellers write off on taxes?

Online sellers can write off nearly every ordinary cost of running the shop: the cost of inventory sold, platform and payment fees, shipping and packaging, advertising, software subscriptions, mileage, a home office, and the supplies and equipment used to photograph, store, and ship products. The rule under Section 162 is simple: an expense is deductible if it is ordinary (normal for your kind of selling) and necessary (helpful to the business). The trick is not knowing the categories, it is capturing the receipts.

The deductions that move the needle most for sellers are cost of goods sold, platform fees, and shipping, because they recur on every order. A seller doing 30,000 dollars in sales with 12,000 dollars of inventory, 3,000 dollars of fees, and 2,500 dollars of shipping is taxed on far less than the 30,000. Below is how each major category works.

How do I deduct inventory and cost of goods sold?

You deduct inventory through cost of goods sold (COGS), not as a regular expense, and you generally deduct an item the year you sell it, not the year you buy it. COGS is your beginning inventory plus purchases during the year minus ending inventory, and it flows from Part III of Schedule C to Line 4. So 8,000 dollars of stock bought but unsold at year end stays on the books until it sells.

Most online sellers are small enough to skip the complicated inventory rules. Under Section 471(c), a small business taxpayer with average annual gross receipts at or below 32 million dollars for 2026 (Rev. Proc. 2025-32) can treat inventory as non-incidental materials and supplies or follow its own books, which in practice lets many sellers deduct inventory as it is purchased and used rather than tracking every unit. Section 263A(i) also frees these small sellers from the uniform capitalization rules. If your sales are anywhere near a normal Etsy or eBay shop, you qualify. Items that go into the product (materials, blanks, components) and the cost of buying finished goods for resale are COGS; the box and tape you ship it in are supplies on Line 22.

Are Etsy and eBay seller fees tax deductible?

Yes. Platform and seller fees are fully deductible business expenses. That includes Etsy listing and transaction fees, eBay final value fees, Amazon referral and FBA fees, Shopify subscription and transaction fees, Poshmark commissions, and the payment processing fees from PayPal, Stripe, Etsy Payments, or Shopify Payments. These usually go on Line 10 (commissions and fees) or Line 27a (other expenses) of Schedule C.

This is one of the most commonly missed deductions because the fees are netted out of your payouts before the money hits your bank, so sellers never see them as an expense. Your platform reports gross sales, then takes its cut. You owe tax on the gross sales figure, which means you must deduct the fees separately to avoid paying tax on money you never kept. Pull the annual fee summary each platform provides and book the full amount.

Can I write off shipping and packaging costs?

Yes. Postage, shipping labels, boxes, poly mailers, bubble wrap, tape, tissue, thank-you cards, and label printer ink are all deductible. Shipping supplies you buy generally go on Line 22 (supplies), and postage can sit on Line 22 or in COGS for the goods sold. If you offer free shipping and eat the cost, that cost is still deductible; the buyer paying or not paying does not change your write-off.

Keep the platform shipping-label receipts and any Pirate Ship, Shippo, or USPS Click-N-Ship records. These add up fast for high-volume sellers and are easy to reconstruct from your account history if a receipt goes missing.

What is the 1099-K threshold for 2026?

For tax year 2026 the federal Form 1099-K threshold is more than 20,000 dollars in gross payments and more than 200 transactions, and both conditions must be met. The One Big Beautiful Bill Act (Pub. L. 119-21, Section 70432) repealed the 600 dollar threshold that was scheduled to phase in and restored the long-standing 20,000 dollar and 200-transaction rule, confirmed in the IRS Form 1099-K FAQs revised in October 2025.

So a smaller seller may not receive a 1099-K from Etsy, eBay, or PayPal at all in 2026. A handful of states set their own lower thresholds, so you may still get one based on where you live. Either way, the form is just an information return; it does not decide whether your income is taxable.

Do I have to report income if I do not get a 1099-K?

Yes. You must report all business income whether or not a 1099-K arrives. The 1099-K is a copy of what the platform reports to the IRS; the legal duty to report your sales income exists independently of the form. A seller under the 20,000 dollar threshold who receives no 1099-K still owes tax on the profit.

The upside is that the same return where you report the income is where you claim every deduction above, so honest reporting paired with complete expense tracking usually lowers the tax, not raises it. Reconstruct your gross sales from each platform's annual sales report so the income you report matches what the IRS can see.

Can I take the home office deduction as an online seller?

Yes, if you use part of your home regularly and exclusively for the business, which fits most sellers who pack, store inventory, photograph products, or manage listings from a dedicated space. The simplified method gives you 5 dollars per square foot up to 300 square feet, a 1,500 dollar maximum, set by Rev. Proc. 2013-13 and claimed on Line 30. The regular method on Form 8829 deducts the actual business percentage of rent, utilities, and insurance.

Exclusive use is the catch: a spare room used only as your packing and storage area qualifies, the kitchen table you also eat at does not. A separate, identifiable storage space used regularly to keep inventory can also count, even if it is not used exclusively, which is useful for sellers who store stock in a basement or garage. See our home office deduction guide for which method wins.

Can I deduct mileage for trips to the post office and suppliers?

Yes. Business driving is deductible, and for online sellers that means runs to the post office, UPS, suppliers, thrift stores and estate sales for resale inventory, and the bank. The 2026 standard mileage rate is 72.5 cents per mile (Notice 2026-10), and you can use it instead of tracking actual car costs. A reseller sourcing inventory who drives 4,000 business miles a year deducts 2,900 dollars.

You need a log with the date, miles, and business purpose of each trip; a phone app or a notebook in the car both work. Commuting does not count, but a home-based seller has no commute, so almost every business trip from home is deductible. Our vehicle expense deduction guide compares the mileage and actual-expense methods.

Can I write off a camera, computer, or shelving for my shop?

Yes. Equipment used for the business (a camera and lighting for product photos, a computer, a label printer, a heat press, shelving, a dedicated phone) is deductible. Small items are deducted in full right away: the de minimis safe harbor under Reg. 1.263(a)-1(f) lets you expense anything that costs 2,500 dollars or less per item in the year you buy it. Larger equipment can also be written off in full the year you place it in service using Section 179 (up to 2,560,000 dollars for 2026 under Rev. Proc. 2025-32, far above any seller's needs) or 100 percent bonus depreciation, which the One Big Beautiful Bill Act made permanent (Section 70301).

For mixed-use items like a personal laptop also used for the shop, you deduct only the business-use percentage. If you buy a 1,200 dollar camera used 80 percent for product shots, 960 dollars is deductible. Our breakdown of Section 179 versus bonus depreciation explains the choice for bigger purchases.

Do online sellers pay taxes on items they sell?

You pay income tax on your profit, not on each sale, and you do not separately pay tax on inventory you buy to resell. Buying 12,000 dollars of stock and selling it for 30,000 dollars means you are taxed on the 18,000 dollar gross profit minus your other expenses, not on the full 30,000. Sales tax is a separate matter handled below.

If you sell personal items at a loss (cleaning out a closet on eBay for less than you paid), that is not taxable income, though you also cannot deduct the loss. The tax rules here are for a business operated for profit, which is what regular, repeated selling looks like to the IRS.

Do online sellers need to collect sales tax?

On the big marketplaces, usually no, because marketplace facilitator laws make Etsy, eBay, Amazon, Walmart, and Poshmark collect and remit sales tax to the states for you. That tax is never your income and never your deduction; it passes through the platform and does not touch your Schedule C. This is why your payout reports and your sales-tax obligation rarely line up, and that is normal.

If you sell on your own site where the platform does not auto-collect (some Shopify setups in certain states), you may need to register, collect, and remit sales tax yourself. In that case the tax you collect is generally included in gross receipts and the amount you remit is deducted on Line 23 (taxes and licenses), or you net it out. Check the rules for the states where you have nexus.

How much is self-employment tax for online sellers?

Self-employment tax is 15.3 percent on your net profit, covering Social Security (12.4 percent) and Medicare (2.9 percent). You pay it on 92.35 percent of your net earnings, and the Social Security portion applies up to the 2026 wage base of 184,500 dollars, while Medicare has no cap. One useful break: you deduct half of your self-employment tax above the line, separate from your business deductions.

This is on top of income tax, which is why deductions matter so much; every dollar of profit you remove cuts both income tax and the 15.3 percent. Most profitable sellers also owe quarterly estimated taxes because no employer withholds for them. Our guide to self-employment tax and quarterly estimated taxes walks through the payment schedule. Many sellers also qualify for the 20 percent qualified business income deduction, made permanent for 2026 by the One Big Beautiful Bill Act (Section 70105), which applies below taxable income of 201,750 dollars single or 403,500 dollars married filing jointly.

Do I send a 1099 to contractors I hire?

If you pay a contractor (a virtual assistant, a photographer, a bookkeeper, a designer) 2,000 dollars or more during 2026 for business services, you generally must send a Form 1099-NEC. The One Big Beautiful Bill Act (Section 70433) raised the old 600 dollar threshold to 2,000 dollars starting in tax year 2026, with inflation indexing after that. Payments to corporations and amounts paid through a card or third-party processor (which the platform reports on a 1099-K) are excluded.

Collect a Form W-9 from any contractor before you pay them so you have the information ready in January. The labor itself is deductible on Line 11 (contract labor) whether or not a 1099 is required.

Do I need receipts to claim my deductions?

Yes. The IRS can disallow a deduction you cannot support, and for an online seller the records are mostly digital already: platform fee summaries, payout reports, shipping-label history, and supplier invoices all live in your accounts. The gap is usually the cash and in-person buys (thrift inventory, estate sales, supply runs) where a paper slip is the only proof.

The fix is to capture every receipt as it happens. Photograph paper slips on the spot and let a receipt scanner for the self-employed pull the date, vendor, and amount into a spreadsheet so nothing depends on a shoebox in March. You can convert receipts and statements to a clean spreadsheet and reconcile them against your payouts in minutes. To match deposits back to the platform reports, it helps to convert your bank statements to Excel, and wholesale suppliers who send PDFs can be run through an invoice OCR tool that extracts the line items. Sellers who keep books in QuickBooks can convert payout and bank statements to QuickBooks directly.

Where do online seller deductions go on the tax return?

Almost everything lands on Schedule C. Advertising and promoted listings go on Line 8, car and mileage on Line 9, platform and processing fees on Line 10, contract labor on Line 11, office expense on Line 18, shipping supplies and packaging on Line 22, business licenses and directly-remitted sales tax on Line 23, software and other costs on Line 27a, and the home office on Line 30. Inventory runs through Part III as cost of goods sold into Line 4.

The net profit from Schedule C carries to Schedule 1 and Form 1040, and self-employment tax is figured on Schedule SE. The cleaner your categorized records, the faster this is to fill in. See our guide to categorizing business expenses for taxes to set up the buckets, and use a receipt tracker built for small business to keep them current all year.

The bottom line for online sellers

The sellers who pay the least tax are not the ones with the cleverest write-offs; they are the ones who capture every fee, mile, and box. Sellers who stock machines on location rather than shipping to buyers run a different kind of inventory business, covered in our vending machine business tax deductions guide. Inventory comes off through cost of goods sold, platform and shipping costs are fully deductible, a home office and half your self-employment tax come off the top, and the restored 20,000 dollar 1099-K threshold plus the new 2,000 dollar 1099-NEC threshold cut your paperwork. The only thing between you and those deductions is the records. Snap receipts as you buy, keep them categorized, and let a tool that scans receipts for expenses handle the data entry so filing is a print job, not a scramble. If you sell through Fulfillment by Amazon, the storage and fulfillment fees deserve their own treatment, which we cover in Amazon FBA seller tax deductions. Tax rules change, so confirm specifics with a CPA for your situation, but the framework above is current for 2026.