If you are running a side hustle or full-time business flipping vintage clothing, sneakers, or handmade goods on Depop, understanding the ins and outs of the Depop Sales Tax Guide is absolutely critical to avoiding unexpected bills and potential audits from the IRS. As one of the fastest-growing peer-to-peer resale platforms, Depop has become a goldmine for Gen Z and millennial entrepreneurs, but with that success comes the responsibility of navigating the complex world of sales tax collection, income reporting thresholds, and quarterly estimated tax payments. The good news is that Depop automatically collects and remits sales tax on behalf of sellers in most U.S. states, meaning you don’t have to manually calculate or charge tax to buyers—the platform handles it seamlessly at checkout based on the buyer’s shipping address and local tax rates. However, the platform does not take care of your federal income taxes, self-employment taxes, or business expense deductions, which means you are still on the hook for tracking your profits, keeping receipts for inventory purchases, and potentially filing a Schedule C if your sales cross the $600 reporting threshold that triggers a 1099-K form from Depop’s payment processor. Whether you are a casual seller unloading items from your closet or a professional reseller sourcing inventory from thrift stores and estate sales, this guide will walk you through the key tax obligations, explain which expenses you can write off to lower your tax bill, and clarify the difference between “hobby income” and “business income” so you can stay compliant without overpaying.
Does Depop Charge Sales Tax Automatically?
Yes, Depop has been automatically collecting and remitting sales tax on transactions since 2020 in states where marketplace facilitator laws apply. This means that when a buyer in California purchases your vintage band tee, Depop calculates the exact sales tax for that specific city and county, adds it to the buyer’s total at checkout, and then sends that tax money directly to the California Department of Tax and Fee Administration. You never see this money in your payout, and you never have to file a sales tax return for those transactions. This is a huge relief for sellers because it eliminates the nightmare of registering for sales tax permits in 40+ states and filing monthly or quarterly returns.
Income Tax: What You Actually Owe The IRS
While Depop handles sales tax, they do not withhold or pay your federal or state income taxes. Every dollar you earn on Depop (after fees) is considered taxable income. If you made more than $600 in gross payments through Depop in a calendar year, the platform’s payment processor will issue you a 1099-K form, which is also sent to the IRS. This form reports your total sales volume, and the IRS will be looking for that income on your tax return. Even if you don’t receive a 1099-K (because you earned less than $600), you are still legally required to report all income.
Business Expenses You Can Deduct
The silver lining of paying taxes on your Depop income is that you can deduct legitimate business expenses to reduce your taxable profit. Common deductions include:
- Cost of Goods Sold (COGS): The amount you paid for inventory at thrift stores, garage sales, or wholesalers.
- Shipping Supplies: Poly mailers, boxes, tape, and printer ink for labels.
- Depop Fees: The 10% transaction fee and payment processing fees.
- Marketing Costs: Paid promotions, Instagram ads, or hiring a photographer.
- Mileage: If you drive to thrift stores or the post office for business purposes, track those miles (67 cents per mile in 2026).
- Home Office: If you use a dedicated space in your home for inventory storage and listing photos, you may qualify for a home office deduction.
Keep every receipt, take photos of your inventory, and use a bookkeeping app like QuickBooks Self-Employed or even a simple spreadsheet to track everything.
Hobby Vs. Business: The IRS Distinction
The IRS classifies sellers into two categories: hobbyists and business owners. If you sell occasionally and don’t make a profit (or barely break even), you might be considered a hobbyist. Hobbyists cannot deduct business expenses beyond the cost of goods sold, and they report income on Schedule 1 (Line 8z). However, if you are actively trying to turn a profit, operate regularly, and treat Depop like a business, you are a business owner and must file a Schedule C with your Form 1040. This classification is important because business owners pay self-employment tax (15.3% on profits) but get to deduct far more expenses.
Quarterly Estimated Tax Payments
If you expect to owe more than $1,000 in taxes for the year, the IRS requires you to make quarterly estimated tax payments using Form 1040-ES. The deadlines are April 15, June 15, September 15, and January 15 of the following year. Missing these payments can result in penalties, so set aside 25-30% of your profits as you go.
State-Specific Considerations
While Depop handles sales tax, some states have unique rules about income tax for online sellers. For example, if you live in a state with no income tax (like Texas, Florida, or Washington), you only worry about federal taxes. But if you live in California or New York, you will also file a state income tax return and may owe additional taxes on your Depop profits.
Frequently Asked Questions (FAQs)
Q: Do I have to pay taxes if I only made $200 on Depop?
A: Yes, all income is taxable, even if it’s under the 1099-K reporting threshold of $600.
Q: Does Depop send me a 1099 form?
A: If you earned over $600 in gross payments, you will receive a 1099-K from Depop’s payment processor by January 31st.
Q: Can I deduct the clothes I donate that didn’t sell?
A: No, you can only deduct inventory that was purchased for resale purposes and actually sold or discarded as part of your business operations.