Tax Deductions for Resellers: COGS, Fees, Mileage, and QBI

If you buy and resell physical goods, you file Schedule C and your deductible expenses fall into a predictable set of buckets: the cost of the inventory you sold, the fees the platform charged, outbound shipping and packaging, home office or storage space, mileage to source and ship, software and small equipment, and half of your self-employment tax. On top of those business expenses, you may also claim the qualified business income deduction, now 23% of net profit under the One, Big, Beautiful Bill Act. Together these tax deductions for resellers can take a meaningful bite out of what you owe, but only if you track them properly and report them in the right place on the return.¹

Cost of Goods Sold Is the Biggest One

Cost of Goods Sold (COGS) is almost always a reseller’s largest deduction, and it gets its own section on Schedule C (Part III) rather than being lumped in with other expenses.¹ The formula is simple: beginning inventory, plus purchases during the year, minus ending inventory. The result is the cost of what you actually sold, and it comes off your gross receipts before any other expense.

“Purchases” means more than the price you paid at the thrift store or supplier. It includes every cost of getting the item into sellable condition: inbound shipping to your location, cleaning supplies used to prepare the product, minor repairs, and authentication fees for items like handbags or sneakers. Those costs get folded into inventory value rather than deducted separately. The Schedule C instructions require you to capitalize direct costs and allocable indirect costs into inventory when you acquire property for resale.²

Because COGS depends on a beginning and ending inventory figure, accurate counts at the start and end of the tax year are essential. Without them, the whole calculation falls apart in an audit.

Platform Fees and Payment Processing

If you sell on eBay, Amazon, Poshmark, Mercari, Etsy, or similar marketplaces, the commissions and final value fees those platforms charge are deductible. These go in Part II of Schedule C (the expenses section), not in COGS, because they’re triggered by a sale rather than by acquiring inventory. Schedule C has a dedicated line for commissions and fees.¹

Payment processing charges from PayPal, Stripe, or marketplace-integrated checkout are a separate deductible expense. Monthly subscriptions for premium seller accounts and promoted listing fees fall into the same category. Platform fee structures change often and the amounts add up, so downloading each platform’s annual seller fee summary at year-end is the cleanest way to capture everything.

Shipping and Packaging

Outbound shipping is fully deductible. That covers postage labels from USPS, UPS, FedEx, or any carrier, plus delivery confirmation and insurance you add. If you offer “free shipping,” you’re absorbing the cost, and it’s still your deduction.

Packaging supplies are deductible in the year you use them, not necessarily the year you buy them. Boxes, poly mailers, padded envelopes, bubble wrap, packing tape, thermal label rolls — all qualify. If you buy in bulk and carry some into the next tax year, only the portion consumed during the current year counts for the current year.

Home Office and Inventory Storage

If you use part of your home exclusively and regularly as your principal place of business, you can claim the home office deduction.³ “Exclusively” is the word that trips people up. A spare bedroom used only for photographing, listing, and packing inventory qualifies. A kitchen table where you also eat dinner does not.

Resellers who store inventory at home get a helpful exception. The exclusive-use test does not apply to space used on a regular basis for storing inventory or product samples, as long as your home is the only fixed location of your selling business.³ A garage or closet stacked with inventory qualifies even if it also holds personal items.

You have two ways to calculate the deduction:

Simplified method: $5 per square foot of dedicated business space, up to 300 square feet, for a maximum deduction of $1,500.⁴
Actual expense method: Calculate the percentage of your home’s square footage used for business, then apply that percentage to total housing costs, including rent or mortgage interest, property taxes, utilities, insurance, and repairs.⁵

The actual expense method usually produces a larger deduction but requires tracking every housing cost. The simplified method trades a potentially smaller write-off for far less paperwork. You can switch methods year to year. Rent for an offsite storage unit is a separate business expense, independent of the home office deduction.

Vehicle Mileage

Driving to thrift stores, estate sales, retail arbitrage locations, or the post office counts as business use of your vehicle. You pick one of two methods:

Standard mileage rate: For 2026, 72.5 cents per business mile driven. The single rate is designed to cover gas, depreciation, insurance, and maintenance.⁶
Actual expense method: Track every vehicle cost for the year (gas, oil changes, tires, insurance, registration, depreciation), then multiply by the percentage of miles driven for business.

Either way, you need a mileage log showing the date, destination, business purpose, and odometer readings for each trip. The IRS expects entries recorded at or near the time of travel; a weekly log is generally acceptable, but a log reconstructed months later from memory raises red flags.⁷ Trips from your home office to sourcing locations or drop-off points are business miles, because your home qualifies as your principal place of business.

Software, Equipment, and Other Operating Costs

Tools that keep the operation running are deductible as ordinary and necessary business expenses. Subscriptions for inventory management, cross-listing services, bookkeeping programs, and tax preparation software all qualify.²

Small equipment purchases such as a shipping scale, label printer, ring light, or camera can typically be written off in full in the year you buy them under the de minimis safe harbor election. For businesses without audited financial statements, which covers virtually all individual resellers, the threshold is $2,500 per item or invoice. Anything above that generally needs to be depreciated over its useful life. You make the election annually by including a statement with your return.

Other commonly overlooked deductions:

Storage units: Rent for offsite inventory space.
Insurance: Liability or product insurance premiums for the business.
Professional fees: Amounts paid to an accountant for tax preparation or a lawyer for business-related advice.
Office supplies: Printer ink, paper, file folders, and similar consumables.

Half of Your Self-Employment Tax

Every dollar of net profit on Schedule C is subject to self-employment tax at a combined 15.3% (12.4% Social Security and 2.9% Medicare).⁸ Employed workers only see half that rate on their paycheck because the employer covers the rest. When you’re self-employed, you pay both halves.

Before the tax is calculated, your net earnings are reduced by 7.65% (multiplied by 92.35%) to approximate the employer-equivalent deduction. More importantly, you can deduct half of the self-employment tax you actually pay as an above-the-line adjustment to income on Form 1040. That reduces your adjusted gross income even if you don’t itemize, which in turn can lower your income tax bracket and affect eligibility for other deductions and credits. The self-employment tax itself is reported on Schedule SE, filed alongside Schedule C.

The 23% Qualified Business Income Deduction

Sole proprietors filing Schedule C may qualify for the qualified business income (QBI) deduction under Section 199A.⁹ The One, Big, Beautiful Bill Act, signed into law on July 4, 2025, made this deduction permanent and increased it from 20% to 23% of qualified business income starting in 2026. It’s claimed on your personal return and does not require itemizing.

For resellers with taxable income below roughly $201,750 (single) or $403,500 (married filing jointly), the calculation is simple: 23% of your net Schedule C profit, subject to certain limits. Above those thresholds, the deduction phases out and additional tests involving wages paid and property held by the business apply. The OBBBA also added a “qualifying entity” requirement: at least 75% of your gross receipts must come from a qualified trade or business. Standard reselling easily clears that bar.

The deduction is reported on Form 8995 (or Form 8995-A above the income thresholds), and it effectively shields nearly a quarter of your reselling profit from federal income tax. Income earned as a W-2 employee or through a C corporation doesn’t count.⁹

If the IRS Calls It a Hobby, You Lose Everything

The deductions above only exist if your reselling is treated as a business. If the IRS classifies the activity as a hobby, you must still report all revenue as income, but you cannot offset it with expenses, COGS, or losses. The miscellaneous itemized deductions that once allowed partial hobby expense write-offs were suspended by the Tax Cuts and Jobs Act starting in 2018, and the OBBBA made that elimination permanent. A hobby classification in 2026 means zero deductions against your selling income.¹⁰

The IRS applies a rebuttable presumption: if your activity shows a profit in at least three out of the last five tax years, it’s presumed a for-profit business.¹⁰ Failing the test doesn’t automatically make it a hobby, but it shifts the burden to you to prove profit intent. The IRS looks at whether you keep businesslike books, whether you’ve changed methods to improve profitability, whether you depend on the income, and whether losses stem from circumstances outside your control.¹¹ Keep detailed books, file Schedule C each year, and operate with genuine profit intent.

Records That Back Up the Deductions

Every deduction on Schedule C must be backed by documentation. The burden of proof is on you during an audit. Adequate records include original receipts, invoices, bank statements, and platform transaction histories showing the amount, date, and business purpose of each expense.¹²

A few categories need extra attention:

Inventory: a detailed count at the start and end of each tax year, since the COGS calculation collapses without them.
Mileage: a log showing the date, destination, business purpose, and distance for each trip, maintained close to the time of travel.⁷
Home office under the actual expense method: records of all housing costs plus a measurement of the business-use area.

Digital records are fine. The IRS has allowed electronic storage of books and records since 1997, as long as the system preserves legible, retrievable copies with reasonable controls against alteration.¹³ Photographing paper receipts and keeping them in an organized cloud folder meets the standard. The general rule is to keep records at least three years from the date you file or the due date, whichever is later.¹² If you underreport gross income by more than 25%, the IRS has six years to assess, so keeping records for six years is safer.¹⁴ Using a dedicated business bank account and credit card is the single most effective step you can take, because it draws a hard line between personal and business transactions without constant manual sorting.

1
Internal Revenue Service. Schedule C (Form 1040) – Profit or Loss From Business
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Internal Revenue Service. 2025 Instructions for Schedule C (Form 1040)
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Internal Revenue Service. Topic No. 509, Business Use of Home
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Internal Revenue Service. Simplified Option for Home Office Deduction
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Internal Revenue Service. Publication 587 – Business Use of Your Home
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Internal Revenue Service. 2026 Standard Mileage Rates
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Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses
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Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
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Internal Revenue Service. Qualified Business Income Deduction
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Office of the Law Revision Counsel. 26 USC 183 – Activities Not Engaged in for Profit
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Internal Revenue Service. Is Your Hobby a For-Profit Endeavor?
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Internal Revenue Service. Topic No. 305 Recordkeeping
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Internal Revenue Service. Revenue Procedure 97-22 (Electronic Storage of Books and Records)
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Internal Revenue Service. How Long Should I Keep Records