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How to File Your Poshmark Taxes

How to File Your Poshmark Taxes
Accounting and TaxesJanuary 18, 2024

Poshmark is one of the most popular apparel marketplaces online, with a whopping 80 million members in 2023. Whether you’re planning to build a retail empire or simply make some space in your closet, Poshmark can help you make it happen.

However, selling on the platform has implications for your taxes, and figuring them out can be tricky. Fortunately, you don’t have to do it alone. This guide to Poshmark taxes will help you understand your responsibilities and how to stay on top of them.

Understanding Poshmark Taxes

To file your Poshmark taxes correctly, the first thing you should do is to determine which of the following describes your activities on the platform:

  • Selling personal items

  • Practicing a hobby for fun

  • Running a business for profit

The tax treatment of your Poshmark income and expenses will vary significantly depending on your answer. Let’s review what each of these categories means and how they affect your Poshmark taxes.

Selling Personal Items

Selling personal items is the simplest way to use Poshmark and has the least impact on your taxes. It refers to people merely using the platform to dispose of items they no longer want.

For example, you have a thick jacket in your closet that you no longer need after moving from Boston to California. You sell it on Poshmark for $100, then make no other sales on the platform during the calendar year.

Most people end up selling these items for less than they originally cost, making the difference a non-deductible loss. In that case, you don’t typically owe any taxes on the proceeds from your sale.

However, if you sell one of these items for more than it cost you, the difference between the two amounts (your profit) is generally considered a taxable gain.

If you owned the item for at least a year before selling, it will be taxable at 0%, 15%, or 20%, depending on your total income. Otherwise, the gain will be taxable as ordinary income. Federal rates range from 10% to 37%, while state rates vary.

Whether you have a gain or loss on the sale, you should still report these transactions on your tax return. We’ll discuss how to do that in a later section.

Business Operated for Profit

Things get more complicated if you do more on Poshmark than rehome personal items you no longer want. In that case, the IRS recommends considering nine factors to determine whether your activities constitute a business or a hobby.

For example, those include:

  • How much time and effort you put into the activity

  • Whether you make money from the activity or operate at a loss

  • Whether you depend on income from the activity for your livelihood

These all boil down to whether or not you’re selling goods on Poshmark with the intent to generate a profit. If you are, then you’re generally considered a business owner. If not, then your activities are probably just a hobby.

When running a Poshmark business, any profit you have left after subtracting your tax-deductible expenses is taxable. It will generally be subject to ordinary income and self-employment taxes. The self-employment tax is a flat 15.3%.

Hobby Done for Recreation

If your activities are beyond the scope of selling personal items, but you don’t do them for profit, you fall into the hobby category. In that case, any income you earn will be taxable, and you won’t get to deduct any expenses you incur.

However, your earnings will only be subject to federal and state income taxes. Since you’re not a business owner, you won’t have to pay the self-employment tax on your earnings.

What About Poshmark Sales Tax?

As a seller, you never have to pay sales tax. Only the customer is on the hook for it in the United States. You’re typically only responsible for collecting and sending the funds to the appropriate government agencies.

Fortunately, Poshmark handles this process automatically in most states. As a result, you typically shouldn’t have to worry about calculating, collecting, or remitting sales taxes as a seller.

However, that doesn’t mean you have no sales tax responsibilities, even if you live in a covered state. For example, you may still need to file a sales tax return. Consider hiring a Certified Public Accountant (CPA) to make sure you’re in compliance.

Poshmark Tax Forms

Now that you understand the different types of Poshmark activities you can engage in, let’s discuss the tax forms you should use to report them.

Sale of Personal Item Tax Forms

Fortunately, reporting the sale of a personal item is pretty easy, especially if you have a net loss. In that case, you only need to use Form 1040, Schedule 1.

Report the sale proceeds on Line 8z, Other Income, using the description "Personal Item Sold at a Loss." Next, report your costs (up to the proceeds amount) on Line 24z, Other Adjustments using the same description.

If you sold a personal item at a gain, you must report the details on Form 8949 and Form 1040, Schedule D. Refer to the instructions on each tax form for guidance.

Business Tax Forms

If your Poshmark activities constitute a trade or business, you must generally report your net income or loss on Form 1040, Schedule 1, Line 3. You must also break down your income and expenses on Form 1040, Schedule C.

That assumes you file your Poshmark taxes as a sole proprietor. That's the default for self-employed people, including sellers doing business on the platform.

If you don't know your tax status, you’re probably still a sole proprietor. Changing to a corporation or limited liability company (LLC) requires filing paperwork and paying hundreds of dollars, so you’d remember doing it.

Hobby Tax Forms

Finally, sellers whose Poshmark activities are just a hobby generally report their income on Form 1040, Schedule 1. In this case, you can use Line 8j, Activity Not Engaged in for Profit Income.

Since your activities don’t constitute a business, you don’t get to claim any expenses associated with your hobby. However, at least you don’t have to worry about keeping track of them.

Poshmark Income

Whatever category your Poshmark activities belong to, you must record your income and report it on the tax forms we discussed. Fortunately, the platform does most of the work for you.

You should be able to access your sales history from the Poshmark website or mobile app at any time. Just navigate to your account details and look for My Sales Report.

If you meet certain requirements, you should also receive a Form 1099-K. That’s a tax form that reports your annual gross income to you and the IRS, similar to the Form W-2 employees receive.

For tax year 2023, you must have at least $20,000 worth of sales and no less than 200 transactions to qualify. However, the IRS intends to lower the threshold to just $5,000 in sales in 2024 and eventually to $600.

By default, the platform will mail your Poshmark 1099 by January 31. You should receive it sometime in January or February. Alternatively, you can update your account settings and elect to receive a downloadable copy, which should come sooner.

Your sales history and 1099-K form can help you confirm your annual earnings. However, you should also keep your own records and double-check that you agree with Poshmark’s numbers to avoid any mistakes.

Poshmark Tax Deductions

As mentioned above, you can “write off” tax-deductible expenses if you run a Poshmark business. That reduces your taxable earnings, indirectly lowering the income and self-employment taxes you owe.

However, only certain expenses qualify as tax-deductible. Generally, they must be “ordinary and necessary,” which is basically a reasonableness test. The costs should be typical for your industry and logical for your business model.

For example, some common Poshmark tax deductions include:

  • Poshmark fees and commissions

  • Packing and shipping expenses

  • Payments to suppliers for materials

  • Labor costs to make products ready for sale

  • Inventory management and storage costs

  • Marketing costs (like professional product pictures)

  • Rent for an office space or the home office deduction

  • Business portion of internet and phone costs

  • Business portion of travel and vehicle expenses

If you’d like help figuring out which expenses you can deduct, that’s another good reason to hire a CPA. Fortunately, any fees you pay them are also considered tax-deductible professional service costs.

How to Make Quarterly Estimated Tax Payments

If you sell on Poshmark for profit, you’re generally considered self-employed. As a result, you owe income and self-employment taxes, but Poshmark won’t withhold them from your earnings like an employer would for their employee.

Instead, you must make quarterly estimated tax payments throughout the year. Aim to pay 25% of your projected tax bill via the IRS portal by the following dates:

  • April 15

  • June 15

  • September 15

  • January 15 (of the next year)

If you're not sure what you'll owe in taxes, use your best estimate. You won't incur any penalties if you pay at least 90% of the taxes you owe for the current year or 100% of the taxes you owed in the previous year.

How to File Poshmark Taxes

We’ve covered how to classify your Poshmark activities, keep accurate records of them, and report them on the proper tax forms. You should have everything you need to file your Poshmark taxes!

If you made your estimated tax payments, you should also be safe from underpayment penalties. To avoid late filing penalties, which tend to cost even more, file your tax return or an extension by April 15.

Extending gives you six more months to file, pushing the due date to October 15. However, it’s important to note that the extension doesn’t give you extra time to make your estimated tax payments or pay any remaining tax balance.

You should be able to e-file your Poshmark taxes yourself without too much trouble, but the easiest strategy is to hire a CPA. They’ll take the information you’ve tracked all year and finalize everything for you. And remember, any fee you pay them is tax-deductible.

Another great way to streamline the filing of your taxes is to use Found. Every aspect is designed to make all things tax-related easy for the self-employed. It's also significantly cheaper than a CPA’s services. In fact, you can try it for free!

Sign up for Found today and let its powerful features simplify your Poshmark taxes.

FAQ

Do You Have to Pay Taxes on Poshmark?

Generally, you have to pay taxes on the income you earn through Poshmark unless you’re selling personal items at a loss. However, the amount of income that’s taxable and which taxes the amount is subject to depends on the circumstances.

If your activities qualify as a trade or business, you can subtract tax-deductible expenses from your gross income to reduce the taxable amount. However, you’ll owe income and self-employment taxes.

If you only sell things on Poshmark as a hobby, you don’t get to claim any write-offs. However, the amount you earn is only subject to income taxes. You don’t have to pay self-employment taxes.

Finally, those who sell personal goods at a gain must pay taxes on the difference between their proceeds and what they paid for the item. However, the amount is only subject to capital gains taxes.

Does Poshmark Send 1099 Forms?

The IRS requires that Poshmark send 1099-K forms to sellers who meet certain reporting thresholds. For tax year 2023, that includes those with at least $20,000 in gross income and 200 or more transactions on the platform.

Sellers who live in states with lower qualifying thresholds will also receive a 1099 if they meet the local requirements. In both cases, a copy of your Poshmark 1099 will also go to the IRS.

Disclaimer: The information on this website is not intended to provide, and should not be relied on, for tax advice.

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