Do I Have to Pay Taxes on My Depop Sales?

by
Chloe Bryan
Updated 
November 3, 2022
November 2, 2022
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Reviewed by
Sarah York, EA
Icon check
Reviewed by
Sarah York, EA

Sarah is a staff writer at Keeper and has her Enrolled Agent license with the IRS. In 2022, she was named one of CPA Practice Advisor’s 20 Under 40 Top Influencers in the field of accounting. Her work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. Sarah has nearly a decade of public accounting experience, and has worked with clients in a wide range of industries, including oil and gas, manufacturing, real estate, wholesale and retail, finance, and ecommerce. Sarah has extensive experience offering strategic tax planning at the state and federal level. During her time in industry, she handled tax returns for C corps, S corps, partnerships, nonprofits, and sole proprietorships. Sarah is a member of the National Association of Enrolled Agents (NAEA) and maintains her continuing education requirements by completing over 30 hours of tax training every year. In her spare time, she is a devoted cat mom and enjoys hiking, painting, and overwatering her houseplants.

Do I Have to Pay Taxes on My Depop Sales?
by
Chloe Bryan
Updated 
November 3, 2022
November 2, 2022
Icon check
Reviewed by
Sarah York, EA

Depop isn’t just a resale app where you can find Y2K graphic tees at low-to-moderate prices. It’s also a solid place to grow a side hustle — as long as you have the time and the inventory.

If you’re new to the online marketplace grind, you might be wondering whether you have to pay taxes on what you earn there. The answer is: It depends on whether you sell regularly, or just offload the occasional item you’re no longer feeling. 

Here’s what you need to know about Depop taxes — including how to find write-offs that will make your life easier when tax time arrives.

Contents

Do you have to pay taxes on your Depop sales?

Probably. As a rule of thumb, online sellers who make $400 or more in a year in profit should assume they owe taxes. (More on the profit part later.)

There are two special circumstances you should know about: “virtual garage sales” and hobby selling.

Virtual garage sales aren’t taxed

Let’s say you finally take Marie Kondo’s advice and KonMari your closet, then log on to Depop to list the clothes and accessories that don’t spark joy. This is basically a Depop garage sale — you’re hosting a one-off event to get rid of your old stuff. 

In this case, you’re not on the hook for taxes, according to the IRS. But if you find yourself holding virtual garage sales on a regular basis, you probably have a small business on your hands. And that means taxes.

Hobby income is taxed — and deductions are limited

You might be thinking, “Selling thrifted Mudd jeans on the internet doesn’t really feel like a business. It feels like more of a hobby.”

That’s a fair point if you’re not actually in it for the money. And the IRS does have rules for determining if a money-making activity counts as a business or a hobby. But you’re still required to report and pay income taxes on your hobby earnings.

In addition, hobby sellers aren’t able to claim write-offs. So you’re getting a pretty raw deal here: kind of like a dry-clean-only skirt that you discover is also from Shein.

How Depop taxes work for minors

90% of Depop’s 26 million users are under 26, according to company information, and a sizable portion of those are teenagers. This means sellers under 18 — and their parents — might find themselves in a confusing situation.

No matter their age or dependent status, Depop sellers should plan to file their own tax returns for the year if they make $400 or more. 

“They are considered self-employed,” says Bill Hampton, a Georgia-based tax consultant. “They’re considered contractors.”

With Keeper, you can track business expenses (more on those later) and file your taxes right on your phone — even if it’s your first time. If you run into problems or have questions, Keeper’s team of tax assistants is ready to help.

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Do Depop sellers have to pay sales tax?

The good news: You don’t have to deal with sales tax on what you sell. Depending on where you live, though, your buyers might have to foot the bill.

There are five states that don’t have sales tax: 

  • Alaska
  • Delaware
  • Montana
  • New Hampshire
  • Oregon

Everywhere else, your buyer will pay the appropriate sales tax for the state they live in. 

Depop handles sales tax for you

You, the seller, won’t have to do anything. Congrats!

According to Depop’s blog, the platform “will calculate and collect this tax according to the rules in your buyer’s state. The state sales tax will be automatically charged to the buyer and included in your buyer’s purchase breakdown.” 

The TL;DR: Depop will handle sales tax from buyers on the government’s behalf. You don’t need to calculate the tax or account for it when posting your items. Concentrate on arranging the perfect backdrop for those vintage clogs instead.

What taxes do you have to pay on your Depop sales?

The taxes you’re on the hook for as a Depop seller depend on the kind of selling you’re doing. If your store is a bona fide business, you’ll have to pay income tax and self-employment tax. If you’re a hobbyist seller, you’ll just have to pay income tax.

Income tax

Whether your store is a business or a hobby, you’ll have to pay income tax on your Depop sales. It won’t get taken out automatically like it would with a W-2 job.

Want to get an idea of how much you’ll owe (or — fingers crossed — how much your refund will be)? Check out Keeper’s free income tax calculator. If you have a W-2 position in addition to your freelance work, it’ll even estimate your withholding.

Self-employment tax

All freelancers and sole proprietors have to pay self-employment tax on top of income tax — including online sellers who run their stores as businesses. (Sorry.) 

Hobbyist sellers, however, don’t have to pay self-employment tax, just income tax.

How self-employment tax works

This tax is also called FICA (Federal Insurance Contributions Act). It helps fund Social Security and Medicare. 

All workers are on the hook for FICA taxes, including W-2 employees. (The “workers” part is why hobbyists don’t pay them.)

Unfortunately, freelancers have to pay double what W-2 workers pay. Traditional employees split the 15.3% tax rate with their employer, meaning each party pays 7.65%. But self-employed workers are on the hook for the full amount.

How write-offs can lower your self-employment taxes

One advantage self-employed people do have is the ability to write off business expenses — something hobby sellers don’t get to do.

Here’s how it works. Like other self-employed people, Depop sellers only get taxed on profit: the amount of money you earn on the app, minus what it cost you to earn that money.

If your buyers paid you a total of $5,000 for the year, you shouldn’t pay taxes on the whole $5,000 — you didn’t get to pocket all of it. Instead, you should subtract what you spent to run your shop. (That process, of subtracting business expenses from income, is what people mean when they talk about “writing something off.”)

Say your write-offs come out to $2,200, for your packaging materials, the thrifted clothes you sold, and more. That makes your actual taxable income $2,800.

These write-offs can save you a lot on taxes, but you have to tell the IRS about them — and find them. How do you find write-offs? We’re so glad you asked.

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How to lower your Depop taxes with business write-offs

Your write-offs as an online seller will vary, depending on how big and involved your Depop operation is. But here are a few suggestions. (We combed through r/Depop for inspiration, then had our accountant fact-checker take a look.)

  • 📦 Shipping materials: Do you buy padded envelopes, boxes, packing tape, tissue paper, Sharpies, or bubble wrap to package your products for shipment? Those are write-offs. (Plenty of buyers prefer sellers to reuse packaging they already have, though — no shame in the sustainability game.)
  • 👚 Inventory expenses: Speaking of inventory, that’s deductible, too. Think: The cost of items you’ll resell, the cost of repairing items, or the cost of getting clothing laundered before selling
  • 📱Phone bill: Depop sellers will naturally conduct most of their business from their phones. Generating shipping labels, posting new items, editing photos, dealing with the never-ending stream of lowball offers — these are all tasks that you’ll likely need your phone for. If you (or your child) is on a family plan, you can still deduct the portion used for work. Learn more about that in Keeper’s guide to deducting your cell phone bill
  • 📸 Photography expenses: Do you spend money on backdrops, props, ring lights, or fancy photo editing apps? Congrats, you are truly committed to your shop’s aesthetic — and those supplies are write-offs
  • 🚗 Transportation: If you drive to the post office to drop off parcels, or to the Goodwill bins to source inventory, those expenses can be written off. Calculating the business-use percentage of your car can be a little tricky, so check out Keeper’s guide to writing off car expenses to get started 
  • 🧺 Home office and storage: Your dedicated workspace, whether that’s where you stage photos or where you store inventory, can be written off, too
  • 💰Depop and PayPal fees: They can add up. Luckily, they’re also deductible!

Can you write off the cost of a Depop shipping label?

Yes! This is true whether or not you you “ship with Depop” (that is, use a Depop-generated, flat-rate label). No matter what kind of label you use, shipping is a business expense and can be deducted.

Just make sure you’re the one who’s paying. If your item is marked “free shipping,” the buyer’s paying, and it’s not a write-off. 

Keeper can help you track shipping costs and other tax deductions right on the app. It’ll scan for transactions that might be Depop write-offs, saving you time and money (and spreadsheet maintenance) in the process.

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How to file taxes as a Depop seller

If you owe taxes on your Depop income, you’ll need to know about a few forms. They are:

  • 1099-K
  • Schedule C

Here’s how to handle each of them, step by step.

Get your 1099-K form

If you make over $600 on Depop in a single year, you’ll automatically get a 1099-K form from the company.

What is a 1099-K?

The 1099-K is a version of the 1099 form for independent contractors who are paid via debit card, credit card, or third-party platforms (like PayPal or Venmo).

It’ll detail the gross income you earned from your shop. That’s helpful for figuring out what you’re working with when you subtract your write-offs.

Who will you get a 1099-K from?

If you used both Depop Payments and PayPal to collect payment from your buyers, you’ll likely get two 1099 forms: one from Depop and one from PayPal.

Keep in mind that the 1099 from PayPal will include all the income you’ve received on the platform. So if you also sell on Poshmark or eBay using PayPal those transactions will be there, too.

When (and how) do you get your 1099-K?

Companies are required to send the form by January 31. You’ll get it in the mail, which means it might arrive in February or even March.

What should you do if you don’t get a 1099-K?

If, for whatever reason, you don’t receive it, don’t panic — you don’t absolutely need it to file. (You can also see your sales history, including gross totals, when you access Depop’s Selling Hub.)

Unfortunately, not receiving a 1099-K doesn’t mean you don’t have to pay taxes. Remember: If you make over $400 in self-employment income, you should plan to file. (Yes, that’s different from the $600 threshold to receive a 1099 form — thanks, IRS!)

What if you see problems with your selling history or 1099-K?

If you notice errors in your selling history, want to check in on your 1099-K form, or run into other issues, you can contact Depop customer service at support@depop.com.

You can also reach out to Depop using this community support form.

How has the 1099-K form changed?

Before 2022, sellers would only receive a 1099-K form if they made over 200 sales and $20,000 in gross income. The American Rescue Plan Act of 2021 changed this threshold to the current $600, and eliminated the “number of sales” rule entirely. 

That means you should take extra care when using platforms like PayPal for personal reasons, like, for example, splitting a dinner bill with a friend or sending a birthday gift. If you accidentally select “paying for an item or a service,” that money could erroneously count towards the recipient’s $600.

In light of the 2022 changes, Hampton, the tax consultant, encourages filers to monitor transactions on third-party platforms closely — “there may be some glitches,” he says, as the system is still relatively new.

Fill out your Schedule C

When you’re ready to report your income and deductions to the IRS, you’ll use Form Schedule C

Part I of the form is for reporting your “gross receipts or sales,” which is basically your income before you claim any deductions.

part 1 of form schedule C, "income"

Part II of the form is for recording your deductions. These are the business expenses that will lower your taxable income — and lower the amount you owe. Not sure where to start? Keeper has a comprehensive guide to Schedule C, so you can maximize your savings at tax time.

You can also use the Keeper app to track and record your business expenses. It’ll even fill out Schedule C for you!

When to file taxes as a Depop seller

Your packages are sent, your expenses are tracked, and your five-star reviews are rolling in. What else is there to deal with? Well, maybe quarterly taxes.

Online sellers are required to pay estimated quarterly taxes if they expect to owe more than $1,000 for the year. Use Keeper’ estimated quarterly tax calculator to find out if that’s you! If so, that means you’ll have to file four times per year, on the following dates:

  • April 15
  • June 15
  • September 15
  • January 15

Sound like a headache? It doesn’t have to be. In the long run, quarterly taxes can be kind of nice — you’re less likely to get hit with a big, unexpected tax bill come April 15. It lets you plan ahead, so you can concentrate on figuring out what decade those excellent plaid pants are from — not your taxes.

Chloe Bryan

Chloe Bryan

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Chloe is a staff writer at Keeper and a writer, editor, and journalist. She previously reported on internet culture and lifestyle trends for Mashable, where she also led the shopping section. In her free time, she enjoys reading and writing poetry, traveling, watching the Mets, and hanging out with her dog Pete.

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At Keeper, we’re on a mission to help people overcome the complexity of taxes. That sometimes leads us to generalize tax advice. Please email support@keepertax.com if you have questions.