Have you ever wondered how Poshers are filling out their income tax return forms? Do you know whether or not you should be claiming your earnings to the IRS? Most of you are probably already Poshmark savvy and know that filling out your income tax return forms can be a hassle because of the side earnings we receive from Poshmark. However, if you are anything like me, it is hard to find anything online about this topic. It comes to no surprise that many Poshers like Gina are looking for some “Posh expert tax advice”. Many Poshers don’t know what they should know about Poshmark income. So, if you fall under this category, you’re not alone!
As I was browsing around the internet trying to find the answers to all my questions, I found my answers in a hard-to-find place… a Poshmark post. Well, here’s to Google who couldn’t answer my questions for once! I came to find out that I was not the only one who had all sorts of questions about what to do, or if I should even worry about it. In fact, Gina made a great point, “we need some Posh expert tax advice”. Indeed! If you are someone who sells stuff online (that being eBay or any other platform) you would know that normally, you can request a 1040 form that summarizes and gives all the money details you need to fill out your taxes. I know for sure that PayPal does this. However, Poshmark is not a company that does this; but before you start freaking out, ask yourself whether or not you should claim your earnings to the IRS or not. Don’t know? No problem. With the help of other Poshers, I was able to gather this information; so, here’s some great details.
Ok, so how do I find out if I should be claiming my Poshmark earnings?
You should file IF:
- You are profiting from your sales. In other words, if you are selling items that you bought as wholesale or for a cheaper price and then reselling them for a higher price, then you are considered to be a sort of small online business. Therefore, you are profiting.
Example: Let’s say that you went to T.J. Maxx and bought a Michael Kors bag for a whole lot less than it’s retail price. Let’s say the bag was $180, but the retail price on the Michael Kors tag was $400. Then you post it on Poshmark for less than retail, but more than what you paid for; say, $300 or $280. At this moment, if a customer buys the bag for your listed price, or any price above what you originally paid for the bag ($180), then you have made profit and you should report these earnings to the IRS.
Don’t worry about it IF:
- You are NOT profiting from your sales. If you are selling your items on Poshmark for prices less than what you paid for originally, then you are considered to be no different than having a garage/yard sale. Thus, you are not really making profit.
Example: Let’s say that your closet is just overflowing with clothes, shoes, hats, belts, and jewelry. You have no idea what to do with so much stuff! You decide to sell it on Poshmark to make some money while you are making room in your closet. One of the items you sell is a pair of Zara ankle boots. You originally paid $130 for them at retail price, but since they have been used and you just want to get rid of them, you list the price for $80. You are obviously not going to make any profit and you don’t have to report your earnings to the IRS.
One of the great things about Poshmark is that as a community, we all help answer each others questions. Some Poshers have even made posts on Poshmark about this topic. Yet, because it is not always easy to know where to look or how to find these posts when you are a new Posher, I have decided to write about it hoping that others would find this helpful.
Thanks to Christine and Wenrella who did a little research online about this topic, I think it is fair to say that we can now lay back and relax from reporting our Poshmark earnings to the IRS. Christine says, “I wondered the same thing. Well I did some research and asked my tax guy and this is what I [found].” Christine shared with the community what I consider the ultimate link to the IRS website that all Poshers should read: IRS Tax Tips for Online Auction Sellers.
Wenrella gives us a little more detail about how Poshmark works. She states that “PM… are the ones making profit from us by charging 20% of our sale of USED items that we already paid taxes on when we purchased new.” In other words, Poshmark as a company pays taxes for their business, and anyone who doesn’t make profit by selling on Poshmark does not have to worry about claiming their earnings to the IRS. Poshers making profit are considered entrepreneur “Poshinistas that are using PM as a business”.
Basically, if anything you have sold on Poshmark is equivalent to selling something at a garage sale, then you should not report it. Why? Because you have no profit to claim. You paid for your items more than what you sold them for.
On the other hand, if you are making profit, then you are considered to be a small online auction business. Thus, if you are buying, say, wholesale items and sell them on Poshmark to make profit (sell them for more than what you paid for), then you should be reporting your end-of-year earnings to the IRS.
Ok, it seems I am going to have to claim my earnings. Now what?
Do you have any clue about what to do on your tax form? For starters, you have to go into your Poshmark account and figure out how much profit you have really made. This is the number that Poshmark provides as how much you have earned that is located in your Closet Stats section. Let’s break it up:
- You must go through every listing you have sold over the year. (I know, how devastating!) JUST KIDDING- but not really kidding! Although Poshmark already provides you with a number of total earnings you have made, it does not include the Poshmark fee, nor is it broken down by year. So, if you have been on Poshmark for 2 years, that number reflects your total earnings for the past 2 years. It would be easier if you have been keeping track of your profit gains over the year. If you haven’t, you must do so now and in the future avoid this hassle by keeping track. Here’s a good link that the IRS provides that you might find helpful: How to find the cost of goods sold.
- Remember to take into consideration the fees that Poshmark takes for selling through them. You can find that information HERE in their FAQs page, but here’s a breakup:
- Sales under $15- Flat 2.95 fee per sale
- Sales $15 or more- Posh fee is 20% of the sold price.
- Have you been saving your receipts? Yes, you can claim purchases used towards your “business”. Things like:
- tissue paper/wrapping paper/etc.
- scissors/tape/etc.
- pens/markers/etc.
- freebies(compact mirrors, pencils, lotions, notepads, etc.)
- thank you cards
- the receipts for the items you buy to sell
- gas receipts (for going to the post office and shopping)
- Posh Fest expenses (gas, airplane tickets, hotel, etc.)
- Any other expenses that would count towards your business
- Create a Microsoft Excel or any type of spreadsheet to keep track of all the expenses you made that contributed to your business on Poshmark. The name of your business would be the name you have chosen for your closet. **You can change this if you want on Poshmark settings.
- If it is your first time claiming your profit gains as a small online auction business to the IRS, I would suggest to go with a professional tax person. Ask questions. Learn how to fill out your own forms. When you learn, then you don’t have to pay someone to do it for you and you can do it at home.
Fabulous! What about handmade items?
I’m going to disclaim here: I am not entirely sure if I am correct, so anyone is welcome to correct me, but the statements below is what I understand according to the IRS website. 
If you are familiar with selling on Etsy, well, then you know the answer to this question. If you’re not, its ok. Handmade goods that you sell should be claimed because you are making profit. Obviously, you have bought materials to make something and you sell it for more to make profit. A lot of times we want to think, “well, I didn’t really sell that much anyway. So, maybe I don’t have to claim it”. I think this is where most Etsy sellers got penalized by the IRS. To assume that you don’t have to claim any earnings is the same thing as breaking the law, according to the government. Many people sell handmade food for profit, but receive payments in cash. These are called underground businesses; and its against the law to not claim those earnings and pay taxes. Yet, if you are selling handmade items on Poshmark that you personally made (scarves, jewelry, custom painted shoes, etc.) then you have to realize that you are not getting paid cash. This means that you can’t hide the fact that you have been receiving funds that might look suspicious to the IRS. Thus, the next thing you know is you were knitting a pretty little scarf and suddenly your mailman brought you a letter to your door from the IRS about how you will be audited for suspicious activity. UH-OH. So whether you are not making much, I think it is safe to say that you should be claiming any handmade goods that you are selling on Poshmark.
But what if I spent more on materials this year than what I sold?
From my understanding, it doesn’t matter. This is one of the disadvantages of being a small business. Everything is at risk. You invest in something hoping that it will help you make money; help your business grow, or make some profit. A little harsh, right? I think that people should know that we are all responsible for paying taxes. Whether we sold five scarves in one year or we sold 500. In the end, you might not have to end up paying taxes if you didn’t earn much anyway, but it is a person’s responsibility to claim your earnings if you were profiting.
If you still feel like there is a way around it, then by all means go ahead. I really like what Gloria says about being a small business: “I obtained a business permit and file reports on a quarterly basis … when in doubt always check with an accountant or tax expert”. I am no tax expert. I am simply sharing some thoughts on the handmade business. I myself have sold some handmade items in my Poshmark closet like head warmers and 
scarves, so I know what it is like to invest on materials and not sell right away due to competition. I will definitely be asking my tax guy this year about all of this.
Questions? Thoughts? New info? Leave a comment below! 🙂
