Every reseller who does their own bookkeeping eventually hits the same wall: you've got a spreadsheet full of numbers — eBay fees, USPS postage, poly sleeves, a PalmFlow subscription, a stack of receipts from a thrift run — and Schedule C wants them sorted into specific numbered boxes, not one pile labeled "expenses." Get the sorting wrong and nothing about your tax bill actually changes, since it all nets out the same at the bottom. But get it wrong consistently and it's the first thing that makes a CPA's cleanup take longer, and the first thing that makes your own numbers hard to trust from one year to the next. Here's where reseller-specific costs actually go, and one line that moved for the 2025 tax year — the return you're filing in early 2026 — that a lot of still-circulating advice hasn't caught up to.
Income comes first, and cost of goods isn't an expense
Before any of the numbered expense lines, Part I of Schedule C separates what you took in from what it cost you to have something to sell:
- Line 1 — Gross receipts or sales. Your total sale prices across every
- channel, before fees come out.
- Line 2 — Returns and allowances. Refunds you gave buyers. This is
- where a returned sale lands, not a negative expense line — subtract it
- and you get Line 3.
- Line 4 — Cost of goods sold, pulled from Part III of the form. This
- is the actual cost basis of whatever you sold that year, and it's not an
- "expense" in the Part II sense at all — it's subtracted before you even
- get to gross profit on Line 5. Getting cost basis right here is its own
- problem, especially [when you bought items in mixed lots instead of one
- at a time](/blog/cost-basis-per-item-vs-per-lot).
Everything below is Part II, and it's where fees, supplies, and postage actually live.
Line 10: selling fees, not "office expense"
eBay's final value fee and per-order fee, Shopify's transaction and payment processing fees, and Discogs' 9% selling fee all belong on Line 10, Commissions and fees — not Line 18 (office expense) or buried in "other expenses," where a lot of first-year sellers put them by default because that's where the number feels like it belongs. Line 10 exists specifically for amounts paid to a third party to help generate a sale, and a marketplace's cut of your sale price is exactly that. If a return comes back through and eBay credits part of a fee, that credit reduces what you report on Line 10 for the year — it isn't its own separate line item, and the fee-versus-credit mechanics themselves are their own math worth knowing before you assume a full refund means a fee wash.
Line 22 vs. Line 27b: supplies and postage aren't the same box
This is the split that trips up the most resellers, vinyl sellers especially, because both costs show up on the same USPS or packaging receipt and feel like one expense.
- Line 22 — Supplies. The physical materials: boxes, poly mailers,
- bubble mailers, record mailers and stiffeners, tape, packing paper. You
- bought these once and they don't scale with any single sale.
- Line 27b — Other expenses, itemized first in Part V of the form and
- carried forward as a total. This is where postage and shipping-label cost
- actually belongs — what you paid USPS, UPS, or another carrier to move a
- specific package.
The line number on that second one is the part worth double-checking if you're working from an old guide, a template someone shared, or even an AI-generated answer: for tax years before 2025, "other expenses" totaled on Line 27a, and that's still what most existing explainers say, because most of them haven't been updated. Starting with the 2025 Schedule C revision — the version you file for the 2025 tax year in early 2026 — the IRS gave the Section 179D energy-efficient commercial buildings deduction its own new Line 27a, which pushed the "other expenses" total down one line to 27b. It's the same Part V itemization either way; the total just lands on a different numbered line than it did a year ago. Software that pre-fills this for you (TurboTax, H&R Block, a CPA's own return software) already reflects the new line — the risk is only in advice you're reading rather than software you're filing with.
Where a PalmFlow-style subscription and other software land
Recurring software — a bookkeeping or inventory tool, a listing tool, a photo editor you pay for monthly — most commonly goes on Line 18, Office expense. Some preparers instead itemize it as its own labeled line inside Line 27b's "other expenses," and either is defensible; what actually matters is picking one and using it the same way every year, not which of the two you pick. What doesn't belong on either is the cost of the items themselves or your marketplace fees — those have their own lines above.
A worked example
A reseller running eBay, Shopify, and Discogs for the year:
- Gross sales across all three: $62,400 → Line 1
- Refunds given to buyers: $2,150 → Line 2
- Cost basis of everything sold: $28,600 → Line 4 (from Part III)
- eBay/Shopify/Discogs selling fees, net of any credits: $7,850 → Line 10
- Software subscriptions (PalmFlow, a listing tool): $480 → Line 18
- Boxes, mailers, poly sleeves, tape: $610 → Line 22
- USPS and carrier postage: $3,900 → Line 27b (via Part V)
That's Line 3 (gross receipts less returns) of $60,250, Line 5 (gross profit) of $31,650, total Part II expenses of $12,840, and a tentative profit of $18,810 before anything else — home office, mileage on sourcing runs, or a retirement contribution — comes off it. None of those $18,810 numbers change if you'd filed the fees under Line 27b instead of Line 10, or the postage under Line 22 instead of 27b. What changes is whether the return is internally consistent and whether you, or whoever preps it next year, can trust that "Line 10" means the same thing in both years.
What to actually do
- Selling fees go on Line 10, every platform, every time — not office
- expense, not buried in "other."
- Split supplies from postage. Packaging materials are Line 22; what
- you actually paid a carrier to ship is Line 27b.
- Check which line "other expenses" lands on this year. It's 27b for
- the 2025 tax year forward, not the 27a a lot of existing guides still
- cite — confirm against your actual filing software rather than an old
- article.
- Pick one line for software and keep it there. Line 18 is the more
- common default; consistency matters more than the specific choice.
- Don't confuse cost of goods sold with a Part II expense. It comes off
- in Part III, before gross profit, and mixing it into Line 22 or 27b
- double-counts or miscounts it depending on which direction you got it
- wrong.
PalmFlow's Reports page exports a CSV that already separates COGS, selling fees, and other expenses into their own columns for the period you pick — that's the split this whole post is about, done automatically instead of sorted receipt by receipt. It doesn't assign IRS line numbers for you, and it isn't a substitute for tax software or a CPA doing the actual filing. Free plan, 50 items, no card required.
Disclaimer: this is general information, not tax advice. Schedule C line numbers and categorization conventions can change year to year, and how a specific cost should be categorized depends on your full return — confirm your own numbers with a CPA or your tax filing software, and check the current-year Schedule C instructions at IRS.gov, before filing.