Many people use Facebook as a platform to sell products or services. This can be anything from handmade crafts, to garage sale items, to services like photography or web design. Selling on Facebook provides a large potential customer base and an easy way to connect with buyers.
However, once sales on Facebook reach a certain threshold, you are required to report that income and pay taxes on it. So how much can you sell on Facebook before you have to worry about paying taxes? Let’s take a look at the requirements.
Requirements for Reporting Facebook Sales
The requirements for reporting income from Facebook sales depend on a few factors:
1. You must report income if you exceed $600 in total sales
If the total amount you receive from sales on Facebook exceeds $600 in a calendar year, you are required to report this income on your tax return. This includes sales from Facebook Marketplace, Facebook buy/sell groups, and any goods/services sold through Facebook Shops or ads.
So if you sell $500 worth of items on Facebook Marketplace, and then another $150 through a buy/sell group, you would be required to report the $650 total as income. The $600 threshold applies to your total sales, not each individual transaction.
2. You must report if Facebook issues you a 1099-K form
Facebook will issue a 1099-K form if you exceed $20,000 in sales and 200 transactions in a calendar year. This 1099-K will be sent to you and the IRS with the total amount you received through Facebook payments.
So even if your total sales are under $600 for the year, if you surpass the 200 transaction and $20,000 sales thresholds, you will receive a 1099-K that must be reported.
3. Business pages may have different requirements
If you are selling through a Facebook business page or Facebook Shop rather than your personal profile, the income reporting requirements may differ. In many cases, the $600 and 200/20,000 thresholds still apply. But check with a tax professional to ensure you meet any separate business page tax requirements.
Examples of Taxable Facebook Sales
To better understand when you are required to report income from Facebook, here are some examples:
Example 1
Jane sells homemade jewelry through her personal Facebook profile. In 2022, she sells $550 worth of jewelry to friends and family on Facebook.
Because Jane did not exceed $600 total for the year, she does NOT need to report the $550 as income on her 2022 taxes.
Example 2
Bob sells used furniture on Facebook Marketplace just as a side hobby. In 2022, Bob sells $300 worth of furniture in January, $150 worth in May, and $200 worth in September.
Even though no single sale exceeded $600, Bob’s total sales for the year reached $650. Therefore, Bob DOES need to report the $650 as income on his 2022 tax return.
Example 3
Jennifer has a Facebook Shop where she sells handmade crafts and other homemade goods. In June 2022, Jennifer’s Facebook Shop processes 350 separate transactions totaling $22,000 in sales.
Because Jennifer exceeded 200 transactions and $20,000 in sales, Facebook will issue her a 1099-K. Even though Jennifer’s total sales are under $600, she still MUST report the income from the 1099-K on her 2022 taxes.
How to Report Facebook Income on Your Tax Return
If you do meet the requirements for reporting income from Facebook sales, how exactly should you go about reporting it? Here are some tips:
1. Document all transactions
Be sure to keep detailed records of all your Facebook sales. This includes sales dates, item descriptions, buyer information, and sale amounts. Facebook does provide records of your transactions, but having your own documentation is also helpful.
2. Report income on Schedule C or Schedule C-EZ
For regular tax returns, income from Facebook sales should be reported on Schedule C or Schedule C-EZ. These forms are for income from self-employment or side businesses. Complete one of these forms and include it with your 1040 when filing.
3. Pay self-employment tax
Income from Facebook sales is generally considered self-employment income. So in addition to income tax, you also have to pay a self-employment tax which is 15.3% of your net earnings. The self-employment tax covers Social Security and Medicare taxes. Make sure to calculate this correctly on Schedule SE when filing.
4. Use Form 1040-ES to pay estimated quarterly taxes
If you expect to owe $1,000 or more in taxes from self-employment income, you typically need to make estimated quarterly tax payments. Use Form 1040-ES to calculate and pay these quarterly payments. This helps avoid penalties for underpayment when you file your tax return.
5. Claim applicable deductions
As a self-employed seller, you can claim applicable business deductions to reduce your taxable income. This includes things like product costs, selling fees, mileage, home office expenses, advertising, and other business expenses. Make sure to keep receipts and track expenses.
Penalties for Not Reporting Facebook Income
What happens if you don’t report your Facebook income? Let’s look at some potential penalties:
Up to 25% of unpaid taxes
If the IRS determines you failed to report self-employment income, you may face a penalty of up to 25% of the unpaid taxes. This penalty is in addition to having to pay back taxes and interest.
Facebook reporting to IRS
Keep in mind that Facebook itself reports sales over $20,000 and 200 transactions to the IRS. So if you don’t report income that Facebook has reported to the IRS, your chances of audit and penalties increase.
Criminal prosecution
Intentionally failing to report significant income from Facebook sales could potentially lead to criminal prosecution for tax evasion. But this is very rare and usually only happens in extreme cases of deliberately hiding income.
Loss of selling privileges
Facebook may ban sellers who deliberately avoid taxes and reporting requirements from using their platforms and services for sales activities. This could mean losing access to Facebook Shops, Marketplace, ads, and more.
Tips to Stay Compliant with Facebook Income Tax Requirements
Here are some tips to help you easily stay compliant with tax requirements for Facebook sellers:
Set up a separate business account
Use a dedicated Facebook business or seller account for all sales rather than your personal profile. This helps track business income separately.
Save receipts and transaction records
Keep detailed records of all your Facebook sales and expenses. This provides the documentation you need for taxes.
Track costs of goods sold
Calculate your exact product costs so you can properly deduct them as business expenses. Keep supplier invoices and receipts.
File and pay quarterly estimated taxes
Make quarterly estimated tax payments on your Facebook income to avoid penalties for underpayment.
Consider accounting software
Use small business accounting tools like QuickBooks to easily manage income, expenses, record keeping, and tax payments.
Explore tax prep services
Consult a tax professional or self-employed focused tax service to ensure you maximize deductions and proper reporting.
Set aside income for taxes
When you receive payments through Facebook, set aside a percentage for taxes rather than spending it all. This makes tax time easier.
Conclusion
Selling products and services on Facebook can provide excellent income opportunities. But once your total sales exceed $600 for the year or you surpass 200 sales and $20,000, you must take steps to properly report that income and pay applicable taxes.
Keeping detailed records, following IRS reporting requirements, paying quarterly estimated taxes, claiming deductions, and working with a tax pro can help you stay compliant and avoid penalties. With some focus on taxes, you can sell successfully on Facebook while also meeting your income tax obligations.