Received a 1099-K from Poshmark but have better records ourselves - Do I need to report the 1099-K amount?

My husband runs a small clothing resale business on Poshmark, and this year for the first time we received a 1099-K from them. I'm kind of stressed about it because the numbers don't match our own records at all. The 1099-K shows gross sales of $16,450, but that amount includes shipping fees, platform discounts, and other costs that Poshmark handles. It's basically just the total transaction volume processed through their payment system. We've been filing Schedule C for the past 5 years and have meticulously tracked everything ourselves. We keep detailed spreadsheets showing which items were personal possessions sold at a loss versus inventory purchased specifically for resale. We track actual costs, real profit margins, and everything else needed for accurate tax reporting. My question is: Do I have to use the 1099-K numbers on our tax return even though our own records are more accurate? Can I just ignore the 1099-K and report based on our detailed records? Or do I need to somehow reconcile our accounting with their inflated numbers to avoid raising flags with the IRS?

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21 comments

Sofia Perez

•8M

You don't need to ignore the 1099-K, but you also don't need to report the gross amount as your income. The 1099-K simply reports the total transaction amount processed by the platform, not your actual business income. On Schedule C, you'll report your gross receipts (which should match or reconcile with the 1099-K), but then you'll deduct all your valid business expenses - including the platform fees, shipping costs, and cost of goods sold. This will reduce your net business income to the correct amount. The IRS is aware that 1099-K forms show gross transactions and not net profit. The important thing is to be able to explain the difference if asked. Keep your detailed records showing how you get from the gross 1099-K amount to your actual business income.

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Sofia Perez

•8M

No, it won't look suspicious as long as you can properly document the difference. The IRS fully understands that platform sellers have significant expenses that reduce their gross sales to a much lower net income. What often triggers audits isn't the gap itself, but rather when sellers can't substantiate their expenses or when the reported profit margin is unusually low compared to industry standards. Keep your receipts for inventory purchases, take screenshots of Poshmark fees, and maintain organized records of shipping costs.

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ElectricDreamer

•8M

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ElectricDreamer

•8M

It handles inventory across tax years really well. You can mark items as inventory purchased in the previous year, and it will correctly apply that to your cost of goods sold calculation without double-counting expenses. No, it's definitely not just marketing hype. I was initially worried too, but it actually prevented me from making a huge mistake. I was going to just report my net profit without reconciling to the 1099-K, which could have flagged my return. Using taxr.ai showed me how to properly document everything so that my return matched the 1099-K amount while still only paying taxes on my actual profit.

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Miguel Diaz

•8M

I was so skeptical about taxr.ai when I first heard about it, but I decided to give it a try because I was completely confused about my Etsy 1099-K. I've been selling for years but never got one before the threshold changed. Honestly, it was a game-changer. The system guided me through exactly how to report my gross receipts to match the 1099-K, then how to properly deduct all my costs (including Etsy fees, shipping, and materials). It even helped me create a reconciliation worksheet that shows exactly how I got from the 1099-K amount to my actual business income. The peace of mind alone was worth it. Now if the IRS ever questions the difference between my 1099-K and taxable income, I have perfect documentation to explain every penny.

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Zainab Ahmed

•8M

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Zainab Ahmed

•8M

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Yara Abboud

•8M

I have to eat my words. After seeing that post about Claimyr, I decided to try it as a last resort since my tax deadline was approaching and I had this exact same 1099-K issue with my eBay sales. I couldn't believe it actually worked. Got a call back from the IRS in about 90 minutes. The agent walked me through exactly how to handle the discrepancy between my 1099-K gross amount and my actual net income. They confirmed I should report the full 1099-K amount on Schedule C line 1, then deduct platform fees as commissions, shipping as shipping expenses, and my inventory costs as cost of goods sold. Cannot overstate how helpful it was to get this information directly from an IRS representative instead of just guessing or relying on random internet advice.

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PixelPioneer

•8M

Just wanted to add something important that nobody's mentioned yet - make sure you're keeping track of your beginning and ending inventory values each year! This is super important when dealing with 1099-K reporting. If you bought inventory in previous years that you're selling this year, you need to properly account for that in your Cost of Goods Sold calculation. Same for any inventory you bought this year but haven't sold yet. This can make a huge difference in properly reconciling your 1099-K amount with your actual business income.

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PixelPioneer

•8M

Schedule C has a dedicated section for Cost of Goods Sold (Part III). You'll report your beginning inventory value on line 35, purchases during the year on line 36, labor costs if any on line 37, materials and supplies on line 38, and other costs on line 39. Add those up for line 40, then subtract your ending inventory value on line 41 to get your total COGS on line 42. This is specifically designed for situations like yours where you're buying and selling inventory. Properly tracking beginning and ending inventory ensures you're only deducting the cost of items you actually sold during the tax year.

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Ava Hernandez

•5M

One thing I'd add to all this great advice - don't stress too much about the gap between your 1099-K and net income. It's actually really common for resellers to have large differences because platforms report gross payment processing volume, not actual profit. I've been selling vintage items on multiple platforms for 3 years now and my 1099-K amounts are always 3-4x higher than my actual business income after expenses. The key is just keeping good records like you're already doing. Make sure you're tracking platform fees separately from shipping costs though - they go on different lines of Schedule C. Platform fees like Poshmark's 20% commission go under "Commissions and fees" while shipping you pay out of pocket goes under "Other expenses" with a description. Your detailed spreadsheets sound perfect for this - you're already ahead of most sellers who get these forms!

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