Schedule C for eBay Sellers, Line by Line

Most US eBay sellers who run the business as themselves, or through a one-owner LLC that has not elected corporate tax treatment, report it on Schedule C, "Profit or Loss From Business", attached to Form 1040. The form was written for every kind of sole proprietor, so nothing on it says "eBay fees go here" or "this is where a dropshipper's supplier bills land". You have to translate your seller records into the IRS's categories yourself.

This guide walks the form in the order you should fill it in, not the order it prints: identity boxes, income, cost of goods sold, expenses, vehicle and home office, then the result. Every line number and rule comes from the IRS's 2025 Schedule C form and instructions, the current versions when we checked in October 2026. The 2026 form, which you will use when you file in 2027, may renumber lines (the 2025 form already added lines 27a and 27b), so treat the numbers as a map and confirm them against the new form.

1. Who files Schedule C, and what counts as a business

The Schedule C instructions say it is for income or loss from a business you operated as a sole proprietor, and that an activity qualifies as a business if your primary purpose is income or profit and you are involved with continuity and regularity. They give three examples of things that do not qualify: a sporadic activity, a not-for-profit activity and a hobby. Income from a nonbusiness activity is reported differently (the instructions point to Schedule 1, line 8j).

Where is the line for an eBay seller? The IRS lists factors it weighs, and says no single factor decides the matter: whether you run the activity in a businesslike way with complete and accurate books and records, whether your time and effort show an intent to profit, whether you make a profit in some years, whether you depend on it for your livelihood, whether losses are normal for a start-up, whether you change operations to improve profitability, and whether you have the knowledge to run it as a success. Its own summary is that businesses operate to make a profit while hobbies are for pleasure or recreation.

Profit from selling goods, including personal items, is taxable income that must be reported, according to the IRS; the hobby-versus-business question decides which form and which deductions apply, not whether the profit is taxable. A paper trail that looks like a business (separate bank account, costs-based pricing, supplier records) is your evidence.

Which entity types use Schedule C

• Sole proprietor. You own an unincorporated business by yourself. Schedule C is the form.
• Single-member LLC. IRS Publication 334 says that, generally, a single-member LLC is disregarded as separate from its owner for income tax and the owner may use Schedule C. The same page notes you are a sole proprietor for income tax purposes if you are the sole member of a domestic LLC unless you elect to have it treated as a corporation. We cover what an LLC does and does not protect in our LLC versus sole proprietor guide.
• Spouses running it together. Publication 334 says spouses who jointly own and operate an unincorporated business and share profits and losses are generally partners and file Form 1065, not Schedule C. It names two exceptions: community property states (it lists Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), and a qualified joint venture election for spouses who each materially participate and file jointly.

2. The boxes at the top: lines A to J

Lines A and B: what you do

Line A is a short description of the principal activity and line B is a six-digit business code from the chart at the end of the instructions. For nonstore retailers the instructions say to choose the code by the primary product the establishment sells, so pick from the chart for what you mainly sell.

Line D: the EIN

The instructions say to enter the EIN issued on Form SS-4, not your Social Security number, and to leave the line blank if you have none. They say you need an EIN only if you have a qualified retirement plan, must file employment, excise, alcohol, tobacco or firearms returns, or are a payer of gambling winnings. A single-member LLC uses the EIN issued to the LLC in its legal name, if it has one for those purposes. Our guide to getting an EIN covers the application.

Line F: your accounting method

The instructions say you can generally use the cash method, an accrual method or another permitted method, provided it clearly reflects income. Unless you are a "small business taxpayer", you must use an accrual method for sales and purchases of inventory items. A small business taxpayer has average annual gross receipts of $31 million or less for the three prior tax years (indexed for inflation) and is not a tax shelter. A seller below that figure has the choice described in section 4. Changing accounting method generally requires Form 3115, so pick one deliberately in your first year.

Lines G, H and I

Line G asks whether you materially participate; the instructions list seven tests, including more than 500 hours in the year, or more than 100 hours and at least as much as anyone else. A seller who does the listing, shipping and customer service personally will normally meet one. If you answer "No" the activity is passive and losses can be limited through Form 8582. Line H asks whether you started the business this year. Line I asks whether you made payments that require Forms 1099; the 2025 instructions for lines 10 and 11 say a Form 1099-NEC is required for $600 or more paid to a contractor in the year. Publication 334 adds that for reportable payments made after 2025 the information reporting threshold increases to $2,000, so check the current figure for the year you are in.

3. Part I: income, lines 1 to 7

Line 1: gross receipts

The instructions tell you to enter gross receipts from your trade or business and to check any Forms 1099 you received for business income, naming 1099-MISC, 1099-NEC and 1099-K. If the box 1 amounts on your 1099-NEC forms exceed line 1, attach a statement explaining the difference. The IRS page on Form 1099-K is explicit that whether or not you receive one, you must still report your income.

What does eBay's 1099-K actually contain? eBay's help page says the gross amount reflects payments processed in the calendar year, which may differ from when you received the funds, and excludes credits, discounts, fees, refunds and other adjustments; sales tax and canceled transactions are also excluded. eBay adds that because the gross amount does not reflect adjustments, it may not be your final reportable income. The breakdown is in Seller Hub under Taxes (1099-K details) or under Payments in My eBay.

The IRS says the One, Big, Beautiful Bill retroactively reinstated the older threshold, so a third-party settlement organization must file only when gross reportable payment transactions exceed $20,000 and the number of transactions exceeds 200. eBay's help page gives the same figures for 2025. The IRS's general FAQs add that a platform may still send a 1099-K for lower amounts and that your state may have a lower threshold. Income is taxable whether or not a form arrives. We unpack the timeline in our 1099-K guide, and sales tax in our overview of eBay seller taxes.

The safest way to build line 1 is to start from your own sales records, then compare the total with the 1099-K gross and the Seller Hub reports. If they differ, find the reason (December/January timing, refunds, canceled orders, sales tax, a second account under one tax ID) and write it down.

Sales tax and line 1

The instructions for line 23 draw a distinction that matters. Sales taxes imposed on you as the seller are deductible, and if you collected that tax from the buyer you must also include it in gross receipts. Sales taxes imposed on the buyer that you were required to collect and pay over are not in gross receipts and are not a deductible expense. Which applies depends on state law, so ask a preparer about your state. eBay's help page says that where it collects sales tax it calculates, collects and remits it with no action required from the seller.

Line 2: returns and allowances

The instructions say to report sales returns and allowances as a positive number. A sales return is a cash or credit refund to customers who returned defective, damaged or unwanted products; a sales allowance is a reduction in the selling price instead of a refund. Refunds and partial refunds you gave buyers belong here. Do not also deduct them as an expense, which would count them twice.

The cost side of a return is separate. Publication 334 says you must deduct all purchase returns and allowances from total purchases, so a credit from your supplier reduces purchases rather than counting as income.

Line 3, line 4, line 5

The form defines these: line 3 is line 1 minus line 2; line 4 is cost of goods sold from line 42; line 5 is gross profit, line 3 minus line 4. Publication 334 suggests a check for retailers: divide gross profit by net receipts and compare the percentage with your intended markup. A large gap may show you did not accurately figure sales, purchases or inventory.

Line 6: other income

This is business income not reported elsewhere in Part I. The instructions list items such as scrap sales, interest on notes and accounts receivable, recovered bad debts, prizes and awards related to the business, and other miscellaneous business income. Publication 334 gives income from an interest-bearing checking account as an example.

Line 7, gross income, is line 5 plus line 6. Part II expenses are subtracted from it.

4. Part III: cost of goods sold, lines 33 to 42

This is the part sellers skip and then regret. Publication 334 says you must determine gross profit before you deduct business expenses, and the form puts cost of goods sold in Part III on page 2 even though it feeds line 4 on page 1. The instructions say that if producing, buying or selling merchandise is an income-producing factor, you must in most cases take inventories into account at the beginning and end of the tax year. A reseller buys merchandise to sell, so this applies.

The exception for small business taxpayers

The instructions say a small business taxpayer can choose not to keep an inventory but must still use a method that clearly reflects income. You are not treated as failing that test if your method treats inventory as nonincidental materials or supplies, or conforms to your financial accounting treatment. Under the first route you deduct the cost of inventoriable items in the year they are first used or consumed in your operations. If you do keep an inventory you must generally value it each year. The instructions send you to Publication 538 for the full rules.

For an eBay seller there are two defensible shapes. If you stock goods, you either keep a year-end count and run the Part III arithmetic, or use the small business taxpayer route and deduct stock as it is used up. If you dropship, you buy from your supplier only after the buyer pays, so little or nothing is on hand at year end and the cost of goods sold is simply what you paid. Either way, choose, document and stay consistent: Publication 334 says inventory practices must be consistent from year to year, and changing method needs Form 3115.

The lines

What counts as a purchase

Publication 334 gives several rules for line 36:

• Trade discounts. Use the price you actually paid, not the list price, and do not show the discount separately as income.
• Cash discounts (for paying a supplier early). Either deduct them from purchases or credit them to a discount account that counts as income, using the same method every year.
• Purchase returns and allowances. You must deduct all of them from total purchases for the year.
• Personal use. If you take merchandise for yourself, your family or as personal gifts, exclude that cost from purchases.
• Freight-in. Freight, express and cartage charged to bring merchandise to you is part of cost of goods sold. Delivering a parcel to your buyer is different; see section 5.
• Sales tax you paid. The Schedule C instructions say that state and local sales taxes on property purchased for use in your business are not deductible as taxes; treat them as part of the cost of the property.

Line 40 is lines 35 to 39 added; line 42 is line 40 minus line 41. Publication 334 recommends inventory count sheets with description, quantity, unit price and value, kept as a permanent record, because the closing figure has to be supported.

5. Part II: expenses, lines 8 to 27b

An expense is deductible on Schedule C if it is ordinary and necessary. Publication 334 defines an ordinary expense as one that is common and accepted in your field, and a necessary expense as one that is helpful and appropriate for your business; it does not have to be indispensable. If an expense is partly business and partly personal, the same publication says to separate the two and that the personal part is generally not deductible. Expenses that belong in cost of goods sold or must be capitalized do not go in Part II.

The table below maps common eBay costs to lines. Where the IRS instructions are explicit, it says so; where they are silent, it says that too.

The table follows the IRS's own wording and is not a promise about how a preparer will classify a borderline item. A deduction you cannot document is one you can lose in an examination, which is what section 10 is about.

Equipment and start-up costs

Equipment that lasts well beyond a year, such as a label printer, camera or computer, may need depreciating rather than deducting at once: the line 22 instructions say that if usefulness extends substantially beyond a year you must generally recover the cost through depreciation, on line 13 with Form 4562 attached in the cases the instructions list. Part V adds the de minimis safe harbor: tangible property up to $2,500 per item or invoice without an applicable financial statement ($5,000 with one). Start-up costs are separate: up to $5,000 can be deducted, reduced (not below zero) by the amount total start-up costs exceed $50,000, with the rest amortized over 180 months. Line 24b meals are generally 50 percent of the actual cost, and entertainment is not deductible.

Taxes you cannot deduct on line 23

The instructions say you do not deduct federal income taxes, including self-employment tax, on line 23, though one half of self-employment tax is deductible on Schedule 1, line 15. Sales tax you paid on business property is added to the cost of the property instead. Our guide to self-employment tax and the QBI deduction covers the half-deduction.

6. Car and truck expenses: line 9 and Part IV

Sellers who drive to pick up stock or to a storage unit can deduct vehicle costs, by actual expenses or the standard mileage rate. You must use actual expenses if you used five or more vehicles at the same time, and the standard rate for an owned vehicle is available only if you used it in the first year you placed the vehicle in service.

With the standard rate, the instructions say to multiply business miles by the rate, add parking fees and tolls, and enter the total on line 9, without deducting depreciation, rent or lease payments, or actual operating expenses. Their example for 2025: 1,250 business miles at 0.70 equals $875.00.

The rate changes. The IRS mileage rates page, checked in October 2026, lists 70 cents per mile for 2025 and, for 2026, 72.5 cents for January 1 to June 30 and 76 cents for July 1 to December 31. Apply the right rate to the miles in each period, so keep a dated log.

Part IV asks when you placed the vehicle in service, your total, business, commuting and other miles, whether it was available for personal use off duty, and whether you have evidence to support the deduction. The instructions say travel between work locations when your home is your principal place of business is deductible business travel, not commuting. IRS Topic 510 says you need adequate records or sufficient evidence.

7. Business use of your home: line 30

If you list, photograph and pack from a room of your house, you may be able to deduct part of your home costs. The instructions say you use Form 8829 for actual expenses, or elect the simplified method: the area used regularly and exclusively for business (or regularly for storage of inventory or product samples) times $5, capped at 300 square feet, so the maximum is $1,500. You choose each year, and an election for a year, once made, is irrevocable.

The worksheet's gross income limitation starts from your line 29 tentative profit, so the home deduction cannot create a loss. If you itemize, mortgage interest and real estate taxes go on Schedule A as if the home were not used for business. Our home office deduction guide covers the exclusive-use test and the inventory-storage rule. Enter the result on line 30.

8. The bottom of the form: lines 28 to 32

• Line 28 is the total of lines 8 through 27b. Note that line 27a is the energy-efficient commercial buildings deduction and line 27b is the total of other expenses from line 48 in the 2025 form.
• Line 29 is the tentative profit or loss: line 7 minus line 28.
• Line 30 is the home office deduction.
• Line 31 is net profit or loss: line 29 minus line 30.
• Line 32 asks about the at-risk rules: 32a if all your investment is at risk, 32b if some is not (the instructions give nonrecourse loans and amounts protected by guarantees as examples).

The instructions say to enter the net profit or loss on line 31 and include it on Schedule 1 (Form 1040), line 3, and on Schedule SE, line 2. They also note that you can deduct one half of your self-employment tax on Schedule 1, line 15, that net profit is earned income for the earned income credit, and that if you have a loss you may need to apply the at-risk and passive-loss rules before entering it. A loss may also be an excess business loss, which uses Form 461. IRS Topic 407 says a sole proprietor with net earnings of $400 or more from Schedule C must file Schedule SE.

Losses in the early years

New sellers often have a first-year loss because stock and tools are bought before sales arrive. Publication 334 says that if you do not carry on the activity to make a profit, deductions are limited and you generally cannot use the loss to offset other income. That is the cost of being classified as a hobby, and why a pricing method, supplier comparisons and a record of changes you made to improve results are not decoration. We found no safe number of loss years in the IRS sources, so we state none.

9. A worked example, line by line

The figures below are illustrative, not typical, and they use the 2025 form's line numbers and the 2025 mileage rate of 70 cents. The seller keeps some stock and also dropships a few items, sells in a state where eBay collects the sales tax, uses the cash method with a year-end inventory count, and works from a spare room of 120 square feet.

On $38,400 of receipts the seller's net profit is $3,645, about 9.5 percent, because $20,900 went on goods and $11,355 on running costs. That ratio belongs to this made-up case and is not a benchmark. The point is the order of operations: gross profit first, then expenses. Net profit is over the $400 threshold, so it goes to Schedule SE, and the $600 home deduction is allowed in full because the profit before it is $4,245.

Our eBay fee calculator and pricing formula guide use the same fees that end up on line 10, and our fees explainer lists what eBay charges.

10. Records, deadlines and what to keep

The IRS page on how long to keep records gives the general rule: keep records supporting an item until the period of limitations for that return expires, which is three years in the default case. It is six years if you left out income of more than 25 percent of the gross income shown, and indefinitely if you did not file or filed a fraudulent return.

For an eBay business, a workable folder per tax year contains:

1. The Form 1099-K (if any), the Seller Hub transaction report and the payout report for the year.
2. Supplier invoices and proof of payment for every purchase, including freight-in.
3. A year-end inventory sheet showing description, quantity, unit cost and value, which Publication 334 recommends as support.
4. Receipts for postage, packing, software, advertising and fees.
5. A mileage log with date, destination, purpose and miles, plus parking and tolls.
6. The square footage of any room used for a home office deduction.
7. A short note of each accounting choice (cash or accrual, inventory method, where you put shipping costs) so next year matches.

Open a separate business bank account if you have not. Publication 334 suggests one as part of a proper system for balancing receipts, and it keeps personal and business spending apart.

When Schedule C is not the end of it

Schedule C produces a profit figure; it does not pay tax by itself. The profit flows into your income tax and self-employment tax. State income tax, state sales tax registration and local business licenses are separate again, and the instructions remind you that you may be subject to state and local taxes and other requirements such as business licenses and fees. Our seller tax overview covers the wider picture.

11. Common mistakes

• Treating the 1099-K as profit. It is a gross figure that, per eBay's own page, is not reduced by fees, refunds or credits. Start from your own books and reconcile.
• Deducting refunds twice. Refunds to buyers go on line 2. They are not also an expense.
• Deducting every purchase without choosing a method. Unsold stock belongs in closing inventory unless you have properly chosen the small-business treatment in section 4. Pick deliberately.
• Forgetting personal withdrawals. Items you keep, use or give away come out of purchases.
• Using one mileage rate all year. The 2026 rate changed on July 1.
• Claiming the home office without exclusive use. A spare room that doubles as a bedroom is the usual trouble.
• Ignoring 1099-NEC duties. If you paid a contractor at or above the reporting threshold ($600 on the 2025 form; Publication 334 says $2,000 for payments made after 2025), a Form 1099-NEC is required and line I should say "Yes".
• Calling a loss-making hobby a business. Keep the records that show a profit motive.

Worth remembering: Schedule C is arithmetic on three piles: what buyers paid you (lines 1 to 3), what the goods cost (Part III), and what it cost to run the business (Part II). If you keep those three piles separate all year, the form takes an afternoon.

Sellhelm, the eBay dropshipping software this blog belongs to, prices every listing from your real fees, which keeps the line 10 numbers predictable. It does not replace the books described above.

Sources and how we checked

Facts in this guide were checked against these official pages in October 2026. Rules and figures change, so confirm anything that affects a decision. This is general information, not legal or tax advice.

• Instructions for Schedule C (Form 1040), 2025 (IRS)
• Schedule C (Form 1040), 2025 form (IRS)
• Publication 334, Tax Guide for Small Business (IRS)
• Topic no. 407, Business income (IRS)
• Topic no. 510, Business use of car (IRS)
• Standard mileage rates (IRS)
• IRS FAQs on the Form 1099-K threshold (IRS)
• Understanding your Form 1099-K (IRS)
• Form 1099-K FAQs: General information (IRS)
• Hobby or business: what to know about that side hustle (IRS)
• How long should I keep records? (IRS)
• Form 1099-K and other US tax forms (eBay Help)
• Taxes and import charges (eBay Help)

Questions people ask