Hobby or business? What the IRS says about eBay selling.

The IRS draws the line by purpose. In its tax tip on the subject, it says businesses operate to make a profit while hobbies are for pleasure or recreation, and that no single factor decides which one an activity is.¹ Whether a particular seller's activity is one or the other is a question about that seller's own facts. This page does not say which category any reader is in, and a qualified tax professional is the place to ask.

The IRS tip lists these questions. They are descriptions of what the IRS looks at, and none of them is a test with a score:¹

• Does the taxpayer run the activity in a businesslike manner, with complete and accurate books and records?
• Does the taxpayer put in time and effort that point toward making a profit?
• Has the activity made a profit in some years, and how much?
• Is the taxpayer expecting the assets used in the activity to appreciate in value?
• Does the taxpayer depend on income from the activity?
• Are losses due to circumstances beyond the taxpayer's control, or normal for the start-up phase of a business?
• Has the taxpayer changed methods of operation to improve profitability?
• Do the taxpayer and the taxpayer's advisors have the knowledge needed to carry on the activity as a successful business?

Because no single factor decides the question, the answers are read together. Records that relate to these questions include dated sales, purchase receipts, and mileage logs for buying trips. Records are one input among many, and they do not decide how an activity is classified. For where business income and expenses appear on a return, see the Schedule C overview.

The Treasury regulations on activities not engaged in for profit (Treas. Reg. 1.183-2) also list factors, and this page has not reproduced that list. A tax professional can explain how the regulation applies to specific facts.

Section 183(d) of the Internal Revenue Code says an activity is presumed to be engaged in for profit if its gross income exceeds its deductions in 3 or more of the 5 consecutive tax years ending with the current year, unless the Secretary establishes otherwise.² The statute sets a different period, 2 of 7 years, for activities that consist of breeding, training, showing, or racing horses.²

That wording describes a presumption that the IRS can rebut, not a result a seller reaches by meeting a count. The IRS tip above does not mention it. How the presumption applies to a given seller is a question for a tax professional.

The IRS says that all income, no matter the amount, is taxable unless the tax law says it is not, whether or not a Form 1099-K is received.³ For income from a nonbusiness activity, the 2025 Schedule C instructions refer the reader to the Schedule 1 instructions for line 8j.⁴ Line numbers change from year to year, so the instructions for the relevant tax year are the place to confirm the line. This page does not describe how expenses of a hobby are treated, because that point is for a tax professional to confirm.

The IRS says a third-party settlement organization is not required to file a Form 1099-K for a payee unless the gross amount of reportable payments exceeds $20,000 and the number of transactions exceeds 200. Both conditions apply, and the IRS says the One, Big, Beautiful Bill reinstated that threshold.³⁵ For payment card transactions, the IRS says there is no threshold amount that must be met to receive a Form 1099-K.³ States can set lower thresholds, and the 1099-K guide covers the form in full.

The amount on the form is a gross payment total. It is not a profit figure, and it does not indicate whether an activity is a hobby or a business. A seller's own records are what show costs, fees, and refunds behind the total.

The IRS FAQs on common situations describe reporting the combined Form 1099-K amounts in the entry space at the top of Schedule 1 (Form 1040). They also say that when reporting sales of personal items at a loss, a taxpayer may instead report the transactions on Form 8949, which carries to Schedule D.⁶ The earlier 2022 and 2023 instructions used a different place on Schedule 1, so the instructions for the tax year matter.⁶

Inventory bought to resell is a different matter. The Schedule C instructions describe tracking the cost of goods sold for a business that sells products, and the cost of goods sold guide covers that side.⁴ Strooply keeps purchase receipts linked to items, so the cost side of each sale is on file. See the eBay profit tracker for how costs sit next to sales and eBay charges. How a particular sale is classified depends on the facts, and a tax professional can advise.

Strooply is record-keeping software. It does not prepare or file tax returns, refund claims, or other filings, it is not a tax preparer, and its figures are estimates to check against your own records.

• How do the IRS's listed questions apply to my selling, given my records and history?
• How does the three-of-five-years presumption apply, if at all, to my situation?
• Which of my sales were personal items, and which were inventory bought to resell?
• How should I reconcile the Form 1099-K total with my own sales records?
• Where does income from a nonbusiness activity go for my tax year, and how are its expenses treated?
• What records would be useful to bring?