What tax deductions can I claim for my clothing reselling side hustle?

This is super helpful, thanks! Quick question - for the home office deduction, does it matter if I occasionally use that spare bedroom for guests staying over? Like maybe 3-4 times a year? Also, do I need to register as a business somewhere first, or can I just claim these deductions as an individual?

For the home office deduction, the "exclusive use" requirement is pretty strict - if you use the room for guests, even occasionally, it technically disqualifies that space. Some people get around this by dedicating a portion of the room exclusively to business (like having shelving units for inventory in one clearly defined area). Just be aware that home office deductions are one area the IRS scrutinizes. You don't need to formally register as a business to claim these deductions. You'll file a Schedule C with your personal tax return, reporting your business income and expenses as a sole proprietor. However, depending on your state, you might need a business license or resale certificate, especially if you're buying inventory wholesale.

Does it connect directly with the selling platforms to import fees and earnings? I'm making like $800-1000/month reselling and I'm worried about tracking all those individual sales and platform fees.

I'm a little skeptical about tax tools. How does it handle the home office situation if you use the space for multiple things? I technically use my "office" as both storage for inventory and occasionally as a guest room.

It doesn't automatically connect to selling platforms yet, but you can upload the CSV sales reports from Poshmark and Depop, and it will process all the transaction data, including separating out the platform fees from your earnings. Makes tracking those hundreds of small transactions so much easier. For mixed-use spaces, it actually has a guided questionnaire that helps determine what percentage of your space qualifies as exclusive business use. It explains that areas with dual purposes generally don't qualify, but helps you identify portions of rooms that might be 100% business-dedicated, like wall shelving units that only hold inventory. It also suggests alternatives if you don't qualify for the home office deduction.

Wait, how does this actually work? Does it just keep calling for you or something? The IRS phone system is the absolute worst.

Yeah right. Nothing gets you through to the IRS faster. They're deliberately understaffed to make it impossible to get help. I'll believe it when I see it.

It basically keeps your place in the phone queue so you don't have to stay on hold. Their system navigates the IRS phone tree and holds your spot, then calls you when an actual human agent is about to pick up. So instead of being stuck listening to that awful hold music for hours, you can go about your day. It absolutely works. I was skeptical too until I tried it. The IRS is understaffed, that's true, but the problem isn't just that - it's the wasted time on hold. This doesn't magically create more IRS agents, but it does mean you don't have to waste your whole day waiting to talk to one.

Is there a good app for tracking inventory specifically for clothing resellers? I'm getting overwhelmed with spreadsheets and I'm worried I'll mess something up for tax purposes.

I personally use a combination of Airtable and Square for my inventory tracking. Airtable lets me store photos of each item alongside purchase cost, listing price, final sale price, and platform used. Square is great for when I do in-person sales at local markets. If you want something simpler, even a Google Sheet can work fine for tax purposes - just make sure you record date purchased, cost, date sold, selling price, and fees for each item. The key is consistency and making sure you have documentation if you ever get audited.

Does that $600 threshold include the full sale amount or just profit after fees? Like if I sell $1000 worth of clothes but the platforms take $200 in fees, what number counts toward the $600?

The $600 threshold applies to the gross amount of payments processed - so that's the full sale amount before the platforms take their cut with fees. In your example, the full $1000 would count toward the threshold, not the $800 you actually receive after fees. That said, when you report your income on Schedule C, you'll be able to deduct those platform fees as a business expense to reduce your taxable income. So you're only paying taxes on your actual earnings, but the reporting threshold is based on the total transaction amount.

That sounds stressful! Did you end up owing more in taxes after the audit? I'm new to this and trying to avoid mistakes.

@Amara Okonkwo It ended up being more of a headache than a financial disaster, but I did have to pay some penalties and interest. The auditor disallowed about 60% of my home office deduction because I couldn t'prove exclusive business use - I had claimed my whole guest bedroom but it was obvious I used it for other things too. The lesson I learned is to be really conservative with deductions unless you have rock-solid documentation. Now I only claim the corner where my inventory shelves are, and I measure and photograph everything. Better to claim less and be safe than deal with an audit again!

This is incredibly helpful, thank you! I'm just starting out and feeling overwhelmed by all the tax implications. Quick question about the separate bank account - do I need to set it up as a business account specifically, or can I just open a second personal checking account and use it exclusively for reselling? I'm worried about the fees that come with business accounts when I'm still pretty small scale. Also, for the quarterly payments - how do you calculate what to pay if this is your first year and you don't have previous tax liability to base it on? I'm probably going to hit that $400 threshold soon but have no idea how to estimate what I'll owe.

@Amara Oluwaseyi Great questions! For the bank account, you can absolutely start with a second personal checking account - that s'actually what I did my first year. Just make sure you use it ONLY for business transactions. Many banks offer free business checking for small businesses anyway, so it might be worth comparing fees. The key is having that clear separation for tax purposes. For quarterly payments in your first year, you can estimate based on your projected annual profit. A rough rule of thumb: take your monthly net profit, multiply by 12, then set aside about 25-30% for taxes this (covers federal income tax, self-employment tax, and some state tax depending where you live .)It s'better to overpay slightly and get a refund than underpay and face penalties. You can also use Form 1040ES to help calculate estimates, or honestly, even a simple online calculator can get you in the ballpark. The IRS is pretty forgiving if you make a good faith effort to estimate correctly. Just don t'wait until April to deal with it - that s'when the sticker shock hits!

This is such great advice! I'm just getting started with reselling (only been at it for about 2 months) and I've been pretty casual about tracking expenses. Your point about treating it like a real business from day one really resonates - I think I've been in denial about how quickly the income is adding up. I had no idea about the photography equipment deductions! I did buy a ring light last month specifically for taking better listing photos, so that's good to know. And the Canva subscription is brilliant - I've been using the free version but considering upgrading for better templates. One question - when you say "cost of goods sold" for inventory purchases, does that include items I buy but haven't sold yet? Like if I bought $500 worth of clothes this month but only sold $300 worth, can I deduct the full $500 or just the cost basis of what I actually sold? Thanks for sharing your experience - it's really helpful to hear from someone who's been doing this successfully for a while!

@Freya Andersen Great question about cost of goods sold! You can only deduct the cost basis of items you ve'actually sold during the tax year. So in your example, if you bought $500 worth of inventory but only sold $300 worth, you d'only deduct the purchase cost of those specific items that sold not (the full $500 .)The unsold inventory becomes ending "inventory on" your Schedule C and carries over to the next tax year. It s'not a current deduction, but you ll'be able to deduct those costs when you eventually sell those items. This is why keeping detailed records of what you paid for each item is so important - you need to match up the cost with the sale. I use a simple spreadsheet where each row is one item: date purchased, cost, date sold, sale price. Items I haven t'sold yet just have blank sale columns until they move. Makes it really easy to calculate cost of goods sold at year-end by just filtering for items that actually sold. Starting your tracking systems now while you re'still small is perfect timing. Trust me, trying to reconstruct months of purchases and sales later is a nightmare!