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Tag: Owe

  • What to Do If You Owe Taxes This Year

    What to Do If You Owe Taxes This Year

    If you owe taxes when you file your return, pause and breathe. Then, make a plan.

    Key takeaways

    • Owing taxes one year doesn’t mean you did anything wrong.
    • If you owe more than expected, there are ways to handle it.
    • Filing on time and setting up a payment plan can help you avoid additional penalties.

    “You owe a couple thousand in taxes.”

    My CPA — who had undoubtedly delivered that same news countless times in the past — sounded nervous on the other end of the call.

    When I found out I owed money, my stomach dropped. This felt like a particularly harsh blow, given that I had always gotten money back in the past. However, after a few deep breaths and a helpful talk with the CPA, I figured out a plan that worked for me.

    If you owe money in taxes, here’s how to get through it. The good news is that owing taxes doesn’t mean you’re out of options.

    First: Figure out why you owe

    If you owe money in taxes this year, that usually means something changed with your income or your tax forms. Figuring out what changes caused you to owe money can help you avoid a similar situation in the future. Here are some possible reasons:

    • You earned money that you didn’t pay taxes on throughout the year.
    • You got a raise but didn’t update your tax withholding.
    • A new worker in the family (like a spouse who previously didn’t work and now does) pushed you into a higher tax rate that you didn’t account for.
    • You claimed fewer deductions.
    • You qualified for fewer credits.
    • You had a change in filing status (for example, Married Filing Jointly vs. Married Filing Separately).

    Next: Figure out a payment plan

    Finding out you owe taxes can feel overwhelming. The good news is you have options.

    1. Pay it off completely. If you have the money to do so (and it won’t completely drain your emergency savings), paying your tax debt in full right away is the best way to put the issue aside and move on.

    2. Set up a payment plan. You’re not the first person to owe taxes, and there are payment plan options. If you can’t pay everything at once, the IRS offers payment plans — sometimes spreading payments out over several months or even years.

    3. Settle your debt for less. In some cases, the IRS may allow you to settle your tax debt for less than the full amount.

    4. Pause collections. If you truly can’t pay your taxes because doing so would keep you from paying other essential bills, the IRS may temporarily pause collections. Keep in mind that this isn’t a get-out-of-jail-free card — your debt will eventually come due.

    Finally: Take action before the deadline

    TurboTax professionals can walk you through the different options to help you figure out which one is best for your individual needs. One thing that’s true for everyone: if you owe more than you expected in taxes this year, don’t procrastinate. 

    File your return with TurboTax and set up an IRS payment plan to avoid additional penalties and fees.

  • I Sold on Poshmark. Do I Owe Taxes on Resale Income?

    I Sold on Poshmark. Do I Owe Taxes on Resale Income?

    Key takeaways

    • Selling personal items at a loss usually isn’t taxable, but profits from resale may need to be reported as income.
    • If you regularly resell items for profit, the IRS may treat it as self-employment income.
    • Resale platforms often collect sales tax for buyers, but you’re still responsible for reporting your earnings.

    I started by cleaning out my closet.

    A blazer I hadn’t worn in years. Boots that looked great but were impossible to walk in. A bag I bought on sale and never actually used. Listing them on Poshmark felt like a win-win. Less clutter and a little extra cash.

    By the end of the year, I’d made a few thousand dollars between Poshmark and other resale apps. It felt good to finally get some money back for things I no longer used.

    Then tax season rolled around, and I started wondering whether that money actually counted as income.

    Here’s how it works.

    Selling personal items at a loss usually isn’t taxable

    If you sell your own clothes, shoes, or accessories for less than what you originally paid, that’s generally not taxable income.

    For example, if you bought a jacket for $200 and sold it for $75, you didn’t make a profit. You sold it at a loss. Losses on personal-use property aren’t deductible, and since there isn’t any income, it is not taxable.

    So if you’re mostly reselling items for less than retail, you may not owe income tax on that money.

    Making a profit makes it taxable

    Things change if you sell items for more than you paid.

    Let’s say you grabbed a designer piece at a thrift store and flipped it. When you buy items specifically to resell them for profit, that’s usually considered self-employment.

    You’ll only be taxed on the profit left over after expenses, which might include:

    • The original cost of the item (cost of goods sold)
    • Platform fees
    • Shipping supplies
    • Packaging materials
    • Mileage to source or ship items

    It’s not about whether you think of it as a business. It’s about whether you made money, and how much.

    The $400 profit rule explained

    If you make $400 or more in profit (income minus expenses) from reselling, you’re required to file a tax return and pay self-employment tax on your earnings.

    Self-employment tax covers Social Security and Medicare contributions when you don’t have an employer withholding and matching them. You’ll compute that on Schedule SE.

    That’s often the part casual resellers don’t see coming. Once you cross that $400 profit line, it’s treated like business income.

    How to report resale app income on your taxes

    If you regularly buy items to resell for profit, the IRS generally considers that self-employment income. You’ll typically report those earnings on a Schedule C, where you can also deduct expenses like platform fees, shipping supplies, and the cost of the items you sold. 

    Keeping records of what you paid for items and what you sold them for can help you accurately report your profit.

    How sales tax works on resale apps

    Income tax and sales tax aren’t the same thing.

    Income tax applies to the profit you earn. Sales tax applies to the transaction itself and usually depends on where your buyer lives.

    Most states now have marketplace facilitator laws. That means resale platforms typically collect and send sales tax to the state for you.

    So in many cases, you don’t have to calculate or collect sales tax yourself; the platform handles it automatically. But since sales tax rules vary by state, it’s still worth checking your state’s department of revenue website to see what applies to you.

    Why this matters

    There’s a real difference between clearing out your closet and running a profitable resale side hustle.

    Knowing where you fall helps you report accurately and avoid surprises later.

    Selling on Poshmark, Depop, or Mercari? Use our Self-Employment Tax Calculator to estimate what you might owe before you file.