What counts as COGS
- Purchase price of items that sold
- Auction or estate sale sourcing costs
- Wholesale order costs (for units sold)
- Import fees on goods that sold
- Materials used in handmade goods (Etsy)
Deduction guide
Every deduction side hustlers and resellers can take.
Most eBay and Etsy sellers leave money on the table because they don't know which expenses are deductible. This guide covers every write-off available to self-employed sellers — then lets you run the numbers in the calculator below.
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Estimated tax on side hustle profit
$2,687.29
Profit after deductions: $13,323.00
Total deductions$2,677.00
Self-employment tax$1,882.48
Federal income tax$0.00
State estimate (CA)$804.81
Effective rate16.8%
Quarterly payment target$671.82
Next four due dates
Q1 due April 15, 2026
Income earned Jan 1 to Mar 31, 2026
Q2 due June 15, 2026
Income earned Apr 1 to May 31, 2026
Q3 due September 15, 2026
Income earned Jun 1 to Aug 31, 2026
Q4 due January 15, 2027
Income earned Sep 1 to Dec 31, 2026
Before you file
Set aside $671.82 each quarter so this estimate does not become a deadline surprise.
Tax filing handoff
TaxSlayer Self-Employed is the stronger next step once the estimate turns into a real filing number.
Use the calculator to set your target, then move into a filing flow built for Schedule C income, self-employment tax, quarterly payments, and common 1099 forms.
This site may earn affiliate commissions from links on this page. We only recommend software we'd use ourselves.
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Cost of Goods Sold (COGS)
COGS is usually your biggest deduction. It's the amount you paid to acquire the inventory that sold during the year. For resellers, that means purchase price from thrift stores, garage sales, wholesale suppliers, or retail arbitrage — only for items you actually sold, not items still sitting in your stockroom.
What doesn't count as COGS
- Inventory you bought but haven't sold yet
- Shipping supplies (separate deduction)
- Tools and equipment you'll use across many items
- General business software
Platform Selling Fees
Every dollar you pay in marketplace fees is a deductible business expense. For eBay sellers, that's final value fees (typically 13.25%), listing fees, and any store subscription charges. For Etsy sellers, it's the transaction fee (6.5%), listing fees ($0.20 per item), and payment processing fees. These add up fast — a seller with $30,000 in gross sales might pay $3,000–$4,000 in fees alone.
Track platform fees separately from COGS
Marketplaces report gross sales on your 1099-K, not net. Your deductible fees should be itemized separately on Schedule C — don't lump them into cost of goods sold.
Home Office Deduction
If you use a dedicated space in your home exclusively and regularly for your side hustle, you can deduct it. The simplified method lets you deduct $5 per square foot, up to 300 square feet — that's up to $1,500 per year without any complicated allocation math.
Simplified method (easiest)
$5 × dedicated square footage, max 300 sq ft. No receipts needed — just measure the space. The calculator above uses this method.
Regular method (bigger deduction)
Actual percentage of home expenses (rent/mortgage, utilities, insurance) based on the ratio of office square footage to total home size. Requires more recordkeeping.
Business Mileage
Every mile you drive for business — sourcing trips, post office runs, bank deposits, supply store visits — is deductible at the IRS standard mileage rate. For 2025, that rate is 70 cents per mile. 500 sourcing miles alone is worth $350 in deductions.
Log miles contemporaneously
The IRS requires a mileage log with date, destination, business purpose, and miles driven. Apps like MileIQ or a simple spreadsheet work — retroactive estimates are hard to defend in an audit.
Shipping Supplies
Boxes, poly mailers, bubble wrap, packing tape, labels, a scale, a label printer — all deductible. If you buy in bulk from a supply company or Amazon, deduct the full amount in the year you buy it (not spread over time). Postage paid on business shipments is also fully deductible.
Phone and Internet
You can deduct the business-use portion of your phone and home internet. If you use your phone 60% for business (photographing items, communicating with buyers, managing listings), deduct 60% of the monthly bill. Most side hustlers deduct 30–80% depending on how central the device is to their operation.
Business Software and Subscriptions
Any software or subscription you use to run your side hustle is deductible. Common ones for resellers:
- eBay Store subscription ($4.95–$349.95/month)
- Etsy Pattern site ($15/month)
- Listing management tools (List Perfectly, Vendoo)
- Accounting software (QuickBooks, Wave)
- Tax software (Keeper Tax, TurboTax)
- Photo editing apps used for product photos
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Returns and Refunds
Refunds you issue reduce your taxable income. If you paid $2,000 in refunds during the year, that's $2,000 less in gross income. Marketplaces often handle this automatically in your payout reports, but verify the net figure matches what you report on Schedule C.
Frequently Asked Questions
Can I deduct expenses even if I did not get a 1099-K?
Yes. Deductions apply to all reportable self-employment income, with or without a 1099-K. The reporting form does not control what is deductible.
Do I need receipts for every deduction?
Keep receipts whenever possible. For small expenses, logs and account statements help, but stronger documentation is safer if records are ever reviewed.
Can I deduct a phone bought for the business?
Usually yes, based on business-use percentage. If business use is substantial, many sellers deduct the business portion in the purchase year.
How is the 1099-K threshold different from hobby rules?
The 1099-K threshold only affects form reporting. Hobby-versus-business treatment is a separate IRS determination that depends on profit intent and recordkeeping.
What is the easiest way to track deductions during the year?
A dedicated business bank account and card plus monthly reconciliation is the simplest baseline. Category rules in bookkeeping software make this easier.
Read next
Stop missing deductions
TaxSlayer Self-Employed is the stronger next step after you’ve identified the deductions that can cut your tax bill.
Most side hustlers miss write-offs because their filing workflow is messy. Move from the deduction checklist into software built for Schedule C income, 1099 forms, and quarterly payments.
This site may earn affiliate commissions from links on this page. We only recommend software we'd use ourselves.