How to Pay Taxes on Depop Sales?

If you’re selling on Depop, understanding how to pay taxes on your sales is crucial to staying compliant with tax laws and avoiding penalties. Whether you’re running a small side hustle or a full-fledged business, income from Depop sales is generally taxable and must be reported to the IRS or your local tax authority. This includes paying income tax, self-employment tax (if applicable), and potentially managing sales tax. The process involves tracking your earnings, deducting allowable expenses, and filing the appropriate forms. By learning how to handle taxes on Depop sales, you can ensure your online business runs smoothly while staying within legal guidelines.

Do You Have to Pay Taxes on Depop Sales?

The short answer is yes—if you meet certain thresholds. Here’s what you need to know:

1. Income Tax:

• Any profits made from selling items on Depop are considered taxable income. This applies whether you’re selling as a hobbyist or as a business.
• In the U.S., if you earn more than $400 in profit annually from self-employment activities (including Depop sales), you must report this income on your tax return.
• In the UK, profits over £1,000 in a tax year must be reported under the Trading Allowance rule.

1. Self-Employment Tax:

• If you’re selling regularly and treating Depop as a business, you’ll need to pay self-employment taxes in addition to income tax. This covers Social Security and Medicare contributions in the U.S.

1. Sales Tax:

• The good news is that platforms like Depop handle sales tax collection for you in most jurisdictions. This means buyers pay the sales tax at checkout, which Depop remits directly to the government.

How to Calculate Taxable Income from Depop?

Your taxable income from Depop is calculated as follows:

• Total Earnings: Add up all payments received from buyers.
• Deductible Expenses: Subtract costs related to your sales, such as:
• Cost of goods sold (e.g., thrifted items or inventory purchased for resale)
• Shipping fees
• Packaging materials
• Platform fees (Depop takes a 10% cut of each sale).

For example:
If you made $5,000 in total sales but spent $2,200 on inventory, shipping, and fees, your taxable income would be $2,800.

Forms You Need for Filing Depop Taxes?

Depending on your location and selling activity, you’ll need specific forms:

In the U.S.:

• Form 1099-K: Issued by payment processors like PayPal if you exceed $600 in transactions.
• Schedule C (Form 1040): Used to report profit or loss from business activities.
• Schedule SE: For calculating self-employment taxes.

In the UK:

• Self Assessment Tax Return: Required if profits exceed £1,000 annually.
• Keep records of all expenses and earnings for accurate reporting.

Quarterly Estimated Taxes

If you expect to owe more than $1,000 in taxes for the year in the U.S., you’re required to pay estimated quarterly taxes. These are due on April 15, June 15, September 15, and January 15 of the following year. This helps avoid a large lump-sum payment at year-end.

Tips for Staying Organized

• Track Your Earnings and Expenses: Use spreadsheets or accounting software to keep detailed records.
• Save Receipts: For all deductible expenses like shipping supplies and inventory purchases.
• Consult a Tax Professional: If you’re unsure about your obligations or deductions.

Common Mistakes to Avoid

• Assuming casual sales are always non-taxable. Even hobbyists must report income if it exceeds thresholds.
• Failing to deduct allowable expenses. Proper write-offs can significantly lower your taxable income.
• Ignoring quarterly estimated taxes if required.