101 Tax Deductions for Etsy Sellers - Small Business Sarah (2024)

FAQs

What can you write off on Etsy selling? ›

Advertising fees: If you're advertising your Etsy business online, in print, or elsewhere, those costs are deductible. You can also deduct fees to list your items on Etsy. Home office expenses: If there's a room in your home you use exclusively and regularly for business, you can take the home office deduction.

Etsy tracks and reports your sales through Form 1099-K. You'll receive this form if you had over $600 in Etsy Payments in 2023. You may be able to deduct business expenses such as supplies and shipping costs. If you're selling on Etsy, be sure to set aside earnings to cover income tax and self-employment tax.

Accountants often recommend determining 92.35% of your net earnings and then multiplying that by 15.3%. If your Etsy shop generates $100,000 in profit, then $92,350 is subject to self-employment taxes. By following this formula, you can quickly determine that you'll owe $14,129.55 in self-employment taxes.

If you're based in the US, you can either operate your Etsy shop as an unincorporated entity — a sole proprietorship or a general partnership — or you can incorporate and form a corporation or a limited liability company (LLC). Sole proprietorships and general partnerships are the two simplest options.

Your Etsy fees are a part of your business operation costs, so you should be able to deduct them. Remember to consult an ecommerce accountant for your unique circ*mstances.

As a seller on Etsy, you're considered to be a self-employed person by the IRS, so you'll have to pay self-employment taxes as well as income tax. Depending on where you live or where you're selling goods, you might also have to collect sales tax on each sale you make.

Schedule SE, Self-Employment Tax: If your total net income from your Etsy shop is $400 or more, you must file a Schedule SE form for self-employment tax that includes coverage for Medicare and Social Security taxes.

Etsy businesses that expect over $1,000 in gross sales income must pay quarterly taxes. You can either use the taxable income you made in the previous year or determine estimated tax payments by deducting business expenses from the expected annual gross income.

If your total net income from self employment including Etsy sales is $400 or more, you'll also need to pay self-employment tax on this income. Self-employment tax includes Social Security and Medicare taxes.

As an Etsy seller, you are a small business owner. That means you may take advantage of deductions for any qualifying business expenses you incurred, such as bank and PayPal fees and packaging for the items you ship.

Is selling on Etsy considered a business? ›

An Etsy seller needs a business license if their Etsy activity is a business. If it is a hobby, no license is necessary. However, it is hard to follow the IRS guidelines to determine whether you have a business or a hobby. Therefore, you may want to consult a small business attorney to guide you in the right direction.

If you're an Etsy seller in the United States, there's an important change you should be aware of for the 2023 tax year. Etsy is now required to report to the Internal Revenue Service (IRS) the sales amounts of any U.S. seller who made over $600 in gross sales.

In the eyes of the IRS, it DOES NOT MATTER if you register your Etsy Shop as Single Member LLC or not. If we have not set up an LLC, then we are considered a Sole Proprietorship. A Sole Proprietorship is STILL a business and can STILL take ALL business deductions and expenses.

Depending on how you plan to operate your Etsy business, an LLC may be a good choice when establishing your business structure. It offers the most flexibility when it comes to taxation, ownership, and legal action — making the legal structure of an LLC one of the biggest advantages as a business structure.

Set up payment and billing details

Here, you'll need to connect a business bank account so Etsy can pay you, and you'll need to add a credit or debit card to pay the company. If you have a U.S.-based bank account, connect it to your Etsy shop through Plaid, which has several tools to keep your data safe.

Etsy businesses that expect over $1,000 in gross sales income must pay quarterly taxes. You can either use the taxable income you made in the previous year or determine estimated tax payments by deducting business expenses from the expected annual gross income.

While it varies depending on the state, many will require you to report your gross sales made through Etsy (and all other outlets that are collecting on your behalf), in addition to reporting and remitting the tax you've collected on sales you make off Etsy.

To process your tax exempt purchase, we need you to provide a valid form of exemption documentation for the state the order will be delivered to. Many states have their own certificate which you can find online.

QuickBooks. QuickBooks is a popular accounting software that can be highly beneficial for Etsy sellers. It helps in managing and organizing financial records, tracking sales data, and monitoring expenses.