Do I Have to Pay Taxes on My Depop Sales?

Depop has become one of the most popular mobile marketplaces for buying and selling second-hand fashion items. Depop is a great place for selling your hobby items and for full-time sellers selling vintage accessories.

The platform is popular with the younger generation, and around 90% of users are under 26 years old. Many people are turning to Depop to sell their used accessories, clothes and other items because of Depop's garage-sale-like format.

As a Depop seller, it's important to understand your legal and financial responsibilities, including income taxes. As a seller, it’s up to you to keep track of your Depop income and pay taxes on that income.

What is Depop?

Depop was founded back in 2011 and works on a peer-to-peer selling business model. It allows independent sellers to list, market and sell items to individual buyers on its e-commerce website. The platform has seen exponential growth since it came into existence, with more than 30 million users. In 2021, the brand was acquired by another e-commerce giant Etsy.

How can I start selling on Depop?

Depop makes it easy for anyone in the US to start selling on the platform. You just need a smartphone and some items to sell. You can also download the Depop app and manage most of your sales and listings from your phone.

As a seller, you are considered self-employed and are responsible for reporting your income to the IRS. You’ll need to keep accurate records of your sales and expenses for taxes. One way to keep track of your Depop income is by using FlyFin. It helps you find all your income and expenses from your account and organize it in easy-to-review format.

Many users are minors, and the responsibility to manage Depop taxes falls on their parents. One thing to keep in mind is the $400 IRS threshold for Depop earnings. When you earn more than $400 in a year, you'll have to file Depop taxes. This also applies to minors because every Depop seller is considered self-employed, as per FlyFin's expert accountants and the IRS.

Do I get taxed on my Depop earnings?

Yes. You'll have to pay taxes if you earn more than the minimum threshold amount in the federal income tax brackets. The minimum tax filing requirement is $12,950 for single filers for the 2022 tax year. Even if you earned less than this amount, you’ll still need to report this income to the IRS.

When paying taxes on your Depop sales, you'll have to look into the volume of the items, the amount of inventory you sell and how much you make from the sale. You can find this information, look at your Depop income and pay taxes either as a hobby or as a full-time Depop seller. The deciding factor if your Depop income is considered from a hobby is that your main source of income is some other job or business. This means if Depop is your primary source of income, you should pay taxes as a full-time seller.

Depop taxes if you’re selling as a hobby

If you’re a full-time employee and use Depop occasionally to get rid of your old and aging stuff, it’s considered your hobby. For example, you might be into leather boots and jackets, and have a collection of 15 pairs of shoes and 7 jackets. Since you travel a lot for work, most of this stuff is sitting in your closet. At the end of the year, you decide to sell 6 of your boots and 4 of your jackets on Depop to earn some extra cash. This case only qualifies you as selling as a hobby.

If you have a Depop virtual garage sale a couple of times a year, you can only be considered a part-time seller since your income from the Depop sale is still much less than your main income source. For this reason, you can't include your Depop expenses as business deductions on your tax return. You might have bought some supplies to go about your hobby of selling your old used accessories or clothes, like the shipping supplies or a new camera, but the cost needs to come out of your own pockets.

If you made more than $400 in 2022 in Depop sales, you'll have to include this income on your tax return. To report this, you can use the Schedule C of Form 1040.

Depop taxes as a full-time seller

As a full-time Depop seller, there are three main taxes that you'll need to pay on your income tax return.

Income tax: These are taxes you pay on income earned from Depop sales; even if you sell on Depop as a hobby you’ll have to pay it. As a full-time seller, you can factor in business expenses and lower your taxable income, like writing off photography expenses for snapping pictures of the vintage items you will list on the Depop website. You can use a tax bracket calculator to find your estimated tax amount.

You can also use FlyFin to find the income and expenses from your account automatically. FlyFin is a smart A.I.-enabled tax app with 24/7 excerpt CPA support.

Self-employment tax: Every self-employed individual has to cover their own Self-Employed Care Act tax, aka SECA tax. This is 15.3% of your total taxable income and includes a Social Security contribution and Medicare tax. You can deduct 50% of SECA taxes from your taxable income since it’s considered an employer share, and a self-employed individual is both an employer and an employee.

Sales tax: When selling individual second-hand items, there will be sales tax on every sale. The good news is that your sales tax will be collected from the person buying the item. To make things easier, the sales tax part is taken care of by Depop, which will include the tax based on the laws of individual states. If you live in one of the five states that do not collect sales tax, then even Depop won't collect them.

What is the Depop 1099 Form?

When Depop pays you for all your sales on the platform, you’ll need to report these payments to the IRS. These payments will be reported on the 1099-K form, and Depop will also send you a copy at the end of the year if you made more than $20,000 in income and at least 200 sales in the same year. There was a new proposal from the IRS to change the requirements for the 1099-K, and if you made $600 or more in sales you would receive this form. As of now, the IRS has not implemented these changes for the tax year, and will stick with the current requirements.

The general rule is that when you receive a payment from a third-party app like Depop, PayPal, or eBay, these payments will be reported on the 1099-K form. So, based on the payment channel, you might receive one or more 1099-Ks from all the platforms that pay you.

Depop Schedule C: This section of the 1040 form is used to calculate your profit or loss to calculate your accurate taxable profit. You’ll need to include all your income information listed on any 1099-Ks here, along with your expenses.

Important quarterly tax payment deadlines for Depop taxes

It's a well-known fact that every self-employed individual has to pay quarterly estimated tax when they expect their yearly tax liability to be at least $1,000. To avoid late payment tax penalties on your Depop taxes for the 2023 tax payments, you'll have to pay on or before these deadlines:

1. Apr 15, 2023
2. Jun 15, 2023
3. Sep 15, 2023
4. Jan 15, 2024

You can also use FlyFin app as a tax deadline reminder and use  expert accountant advice to file a 100% accurate tax return. There are many tax resources that help guide you on the IRS’ tax filing process.