You snagged a vintage windbreaker for $8 at the thrift store and sold it for $60 on Poshmark. A $52 profit — except it isn't. Poshmark kept $12, the mailer and label cost $6, you drove 14 miles round-trip to source it, and you ran it through the wash twice to get the thrift-store smell out. Your real profit is closer to $30, and at tax time the IRS will only let you deduct the costs you actually tracked. Every undocumented mile and forgotten fee is money you earned but get taxed on anyway.
This is the bookkeeping gap that quietly eats reseller margins. Here's how to close it: what counts as your true cost of goods sold, how to track inventory without drowning in spreadsheets, and the 2026 tax rules that apply to online sellers.
Your True COGS Has Five Layers, Not One
Most new resellers record one number per item — the price on the thrift-store tag — and call it their cost. Your real per-item cost has five layers, and the sticker price is usually the smallest one.
1. Acquisition cost
This is the sticker price plus any sales tax you paid at checkout. Sourcing from thrift stores, garage sales, and estate sales means you almost always pay sales tax on inventory (those sellers won't accept a resale certificate), so bake it into the item's cost basis from the start. For wholesale or liquidation-pallet purchases where a supplier does accept your resale certificate, you pay no tax at purchase — but then you owe the full accounting of collecting it at sale.
Keep every receipt. Cash purchases at garage sales with no receipt are still deductible costs, but only if you log them: date, seller, amount, and what you bought. A photo of the haul with a notes app entry takes ten seconds and survives an audit far better than memory.
2. Get-it-ready costs
The jacket doesn't list itself. Laundry, stain treatment, minor repairs, replacement buttons, lint rollers, a steamer's electricity — these preparation costs are part of what it takes to make the item sellable. Track them per item when they're significant (a $12 dry-cleaning bill on a $40 blazer matters) or as a monthly supplies total when they're trivial (a shared bottle of stain remover across fifty listings).
Photography props and backdrops are equipment or supplies, not per-item COGS — but they still reduce your taxable income as ordinary business expenses on Schedule C.
3. Sourcing travel
The drive to the thrift store, the estate sale across town, the bins outlet two suburbs over: all deductible business mileage. For 2026, the IRS standard mileage rate is split — 72.5 cents per mile for miles driven January 1 through June 30, and 76 cents per mile for miles driven on or after July 1. That split rate makes a dated mileage log non-negotiable this year: a single annual total with no dates can't prove which miles qualify for the higher rate.
Log every sourcing trip with the date, destination, business purpose, and miles. Parking fees and tolls go on top of the mileage rate. If you fly to a vintage expo or drive to an out-of-state sourcing trip, those travel costs — flights, hotels, meals at 50% — are deductible too, as long as the trip is primarily for business.
4. Platform and payment fees
Fees aren't technically COGS — they're selling expenses — but they come out of the same sale, so your per-item profit math must include them. And they vary wildly by platform in 2026:
- eBay: roughly 13.25% final value fee in most categories, plus a $0.30 per-order fee.
- Poshmark: 20% commission on sales of $15 or more, or a flat $2.95 on sales under $15.
- Depop (US): no selling commission; payment processing of 3.3% plus $0.45 per transaction.
- Etsy: 6.5% transaction fee, plus 3% plus $0.25 payment processing, plus a $0.20 listing fee per item.
- Mercari: 10% selling fee.
That $60 windbreaker nets $48 on Poshmark but about $57.50 on Depop — a $9.50 swing on the same item. This is why cross-listing strategy is a bookkeeping decision as much as a marketing one: record fees per sale so you can see which platform actually earns you the most per category, not just which one moves inventory fastest.
5. Shipping and packaging
If you offer free shipping to stay competitive, every cent of the label, mailer, tissue paper, thank-you card, and tape is your cost. Even when the buyer pays shipping, the packaging materials are yours. A postage scale, a thermal printer, and polymailers bought in bulk are deductible supplies; allocate the per-package material cost (typically $0.50–$1.50) to each sale for honest profit numbers.
The Inventory Rule That Trips Up New Resellers
Here is the single most misunderstood tax rule in resale: you can only deduct the cost of inventory you actually sold during the year. The formula is:
COGS = Beginning inventory + Purchases − Ending inventory
If you started the year with $2,500 of unsold clothes, spent $6,000 sourcing more, and ended the year with $3,000 still hanging in the death pile, your deductible COGS is $5,500 — not $6,000. The unsold $3,000 is an asset sitting in your closet, not a deduction. Deducting the full $6,000 in purchases is the fastest way to overstate your deductions and invite an IRS notice.
The good news: small resellers get simplified inventory accounting. Under Section 471(c), businesses under the inflation-adjusted $30 million average-gross-receipts threshold — which covers essentially every clothing reseller — can treat inventory as non-incidental materials and supplies or simply follow the method used in their books, and can use the cash method of accounting. You don't need a formal accrual inventory system. You do need a credible year-end count: physically count (or spreadsheet-total) your unsold inventory at cost on December 31, and keep that record with your tax file.
Track inventory per item or per batch — whichever you'll actually maintain. A simple spreadsheet with columns for date sourced, item description, total cost basis (all five layers you can attribute), list price, sale date, platform, and net payout beats an elaborate system you abandon by March. Do a full physical count at year-end and reconcile it to the spreadsheet; the gap between the two is shrinkage, giveaways, and items you forgot you owned.
The 1099-K Situation in 2026: Don't Confuse Reporting With Taxability
After years of whiplash, the 1099-K threshold is settled: the One Big Beautiful Bill Act permanently restored the original rule, so platforms only send you (and the IRS) a Form 1099-K if your gross payments exceed $20,000 AND you have more than 200 transactions in the calendar year — both conditions. Most casual resellers won't receive one.
That changes nothing about what you owe. Income tax applies to your net profit whether or not a form shows up. And if you do cross the threshold, expect the 1099-K gross to be much higher than what hit your bank account: it reports gross sales before fees, before shipping costs, including sales tax the platform collected and remitted, and generally before refunds. Reconcile it line by line — gross sales, minus platform fees, minus shipping, minus refunds, minus your COGS — and keep that reconciliation with your return. When the IRS computers match a $32,000 1099-K against a $32,000 gross receipts line but your bank deposits were $24,000, your reconciliation is the document that makes the numbers agree.
Sales Tax: The Platform Handles It — Until It Doesn't
For marketplace sales, you're largely covered: every state with a sales tax now has marketplace facilitator laws requiring eBay, Poshmark, Etsy, Depop, and Mercari to collect and remit sales tax on your sales. You generally don't need a seller's permit for platform-only sales, and you don't remit what the platform collected.
The gap opens the moment you sell direct: your own website, Instagram DM sales, local meetups, flea markets, or a booth at a vintage fair. Those sales make you the collector, which means registering for a seller's permit in states where you have nexus and filing returns — even if the amounts are small. If direct sales are growing, that registration is one of the highest-leverage compliance steps you can take, because uncollected sales tax comes out of your pocket plus penalties when the state finds it.
Separate the Money and Make It a Habit
The resellers who survive tax season with their sanity intact share the same boring habits:
- Separate bank account and card for the business, even as a sole proprietor. Commingling personal and resale money turns every reconciliation into archaeology.
- A weekly 30-minute bookkeeping block. Categorize transactions, log cash purchases, update the inventory sheet, and photograph receipts into your accounting records while the week is still fresh.
- Consistent categories. Call it "sourcing mileage" every time, not "gas" one week and "travel" the next. Consistent labels compound into trustworthy annual totals.
- A tax reserve. Set aside 25–30% of net profit in a separate savings account for quarterly estimated taxes. Resale income has no withholding, and the April surprise is brutal the first year.
- An accountant check-in before year-end. A one-hour November review — inventory method, estimated payments, whether an S election makes sense at your scale — costs little and catches planning opportunities that expire December 31.
Record-keeping doesn't require fancy software. Many resellers run a two-layer setup: a spreadsheet or reseller-specific tracker for per-item inventory and platform performance, plus a general ledger for bank reconciliation and financial statements. If you prefer plain-text tools, the Beancount documentation shows how to keep that ledger layer transparent and version-controlled.
Mistakes That Cost Resellers Real Money
- Deducting purchases instead of COGS. Only sold items' costs are deductible this year. Count ending inventory.
- Forgetting fees in profit math. A 20% commission means a $50 sale is a $40 sale. Price and evaluate accordingly.
- An undated mileage log. With 2026's split rate, dateless miles default to the lower 72.5-cent figure. Date every entry.
- No quarterly estimates. Owing $4,000 in April plus an underpayment penalty stings; quarterly payments smooth it out.
- Treating the business as a hobby. If you're consistently unprofitable and can't show a profit motive, the IRS can invoke the hobby-loss rules and disallow losses. Real records — separate accounts, profit tracking, businesslike effort — are your best defense.
Keep Your Resale Books as Organized as Your Inventory Racks
As your sourcing runs get bigger and your cross-listing spreads across platforms, maintaining clear financial records is what separates a profitable resale business from an expensive hobby. Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data — no black boxes, no vendor lock-in. Get started for free and see why developers and finance professionals are switching to plain-text accounting.
