Facebook Marketplace has become an increasingly popular way for people to buy and sell used items. With its huge user base and ease of use, Facebook Marketplace makes it simple to list items for sale and connect with interested buyers. As a result, many people are using Facebook Marketplace as a way to make some extra money by selling items they no longer need or want. However, an important question arises – is the money you make by selling items on Facebook Marketplace considered taxable income?
The short answer
Yes, generally speaking, any profits you earn from selling items on Facebook Marketplace would be considered taxable income. The IRS considers income from the sale of used items to be taxable if you are doing it in a business-like manner with the intent to earn a profit.
When Facebook Marketplace sales are taxable
The key factors that would make your Facebook Marketplace sales subject to income tax are:
- You are selling items with the intent to earn a profit
- You are selling items on a frequent and regular basis throughout the year
- You have a substantial number of sales and a significant total dollar amount earned
Essentially, if you are using Facebook Marketplace like a business to generate income, the IRS will consider your proceeds as taxable income. Some key examples include:
- Purchasing inventory to resell at a higher price
- Selling a high volume of items repeatedly throughout the year
- Making thousands of dollars from Marketplace sales each year
When Facebook sales may not be taxable
On the other hand, there are some scenarios where your Facebook sales may not need to be claimed as income:
- You are selling personal household items sporadically at a loss to declutter
- You only have a few sales per year totaling less than $600
- You are selling items at a loss or break-even price compared to the original purchase
If you are simply using Facebook to occasionally sell some used personal items “as-is” to clean out your closet or garage, the IRS likely would not consider those to be taxable sales. But if your Marketplace activities start to look more like a business, then you should claim it as income.
How to report Facebook Marketplace sales on your taxes
For federal income taxes, any taxable sales from Facebook Marketplace should be reported on Schedule C (Form 1040) as miscellaneous income. Schedule C is used for reporting income and expenses from self-employment or a small business. Here are some tips for reporting Marketplace sales:
- Track your sales and expenses throughout the year. Keep records of what you originally paid for items.
- On Schedule C, report your total sales. Deduct allowable expenses like marketplace fees, shipping costs, and the original purchase cost of inventory sold.
- The net profit left over after deducting expenses is your taxable Marketplace income.
- You may need to pay self-employment tax on this income by completing Schedule SE.
- Consider estimated quarterly tax payments if you expect to owe over $1,000 in taxes for the year.
Remember that any sales totaling over $600 from a single buyer may trigger a Form 1099-K which will also be reported to the IRS. So it’s best to keep detailed records of all your marketplace transactions.
Other tax considerations
Here are some other important tax implications to keep in mind:
- Sales tax – If your state requires charging sales tax on Marketplace transactions, make sure you are collecting and remitting those taxes appropriately.
- Business deductions – Expenses directly related to your Marketplace sales may be deductible. But be prepared to prove the validity of any deductions claimed.
- Personal use – If you sell an item for less than you originally paid, the loss cannot be deducted if it was for personal use.
- Inventory – If unsold inventory remains at year-end, that can be reported as a business expense or deduction.
Examples of taxable Facebook Marketplace income
To illustrate when Marketplace sales need to be reported as income, here are some examples:
Frequent seller earning sizable profits
- Jane regularly sells crafts, toys, and clothes on Marketplace that she purchases from clearance sales and thrift shops.
- In 2022, Jane had $15,000 in sales and $8,000 in related expenses.
- Jane would report $7,000 as taxable income from self-employment on Schedule C.
Occasional decluttering sales at a loss
- Matt sold a chair, TV, and coffee maker on Marketplace in 2022, originally purchased for his home.
- Matt received $450 but had originally paid $700 for the items.
- Matt would not report these sporadic sales of used personal items on his taxes.
Supplementing income through reselling
- Amanda sells beauty products and clothing she purchases wholesale or gets through subscription boxes.
- In 2022 Amanda had $3,200 in marketplace sales and $1,500 in inventory costs.
- Amanda must claim the $1,700 profit as taxable income from self-employment.
As you can see, the frequency, dollar amounts, and intent are key factors in determining when Marketplace sales become taxable income. Keep detailed records and follow IRS guidance.
Conclusion
Money earned from Facebook Marketplace sales can often be considered taxable income if you are operating in a continuous, business-like manner with the intent to profit. Any sales totaling over $600 from an individual buyer may generate a 1099-K reporting that income to the IRS. Sporadic sales of used personal belongings may not need to be claimed. To stay compliant, carefully track sales and expenses, report income on Schedule C, pay any applicable self-employment taxes, and maintain records in case of an audit. With some prudence and organization, paying taxes on Marketplace earnings can be straightforward.