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

FAQs

What is tax deductible on Etsy business? ›

Shipping expenses: Shipping and postage costs you incur that relate directly to the products you're selling are deductible. 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.

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.

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.

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 selling on Etsy without expecting a profit, your shop may qualify as a hobby. If your Etsy shop is something you dedicate time to on a regular basis (and the time you spent is not inconsequential), and your primary purpose for the shop is for income or profit, your shop qualifies as a business.

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.

At the end of 2022, Etsy had as many as 7.3 million active sellers in its online marketplace and annual sales of $10.1 billion. If you are a seller earning money on Etsy, you're required to report this income and will most likely have to pay taxes on it as a self-employed seller or entrepreneur.

Transaction fee basics: Etsy charges 6.5% of the total order amount in your designated listing currency. This fee applies to the total cost of the item, along with shipping and gift wrap (if you charge your customers for those).

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.

How does Etsy calculate taxes? ›

Etsy calculates the state sales tax rate (they can vary from location to location, and item to item) for the shipping address, charges the buyer, and sends the tax owed to the state. For orders placed through standalone PayPal, the sales tax collected is sent to you as a part of the payment.

As a sole proprietor, you might not need an Etsy EIN number. However, if you're running a partnership or an LLC, it's like setting sail without a map. You might end up lost at sea, with the IRS hot on your trail. So don't be caught adrift without an Etsy EIN.

Personal items sold at a gain

If you made a profit or gain on the sale of a personal item, your profit is taxable. The profit is the difference between the amount you received for selling the item and the amount you originally paid for the item.

January 2024

When marking a purchased item as a gift, buyers now have the option to input the gift recipient's email address. This will automatically send a personalised gift link to the recipient showing them the status of their order.

Determine Where to Charge Etsy Sales Tax. As a seller, you must charge sales tax in states that impose a sales tax, where you also have a sales tax nexus. Forty-five states and the District of Columbia levy a sales tax—only Alaska, Delaware, Montana, New Hampshire, and Oregon don't.

Etsy typically reports your gross income to the IRS on Form 1099-K, but even if you don't receive a 1099-K, you still have to report your Etsy sales income on your tax return. If your state has income tax, you'll need to pay state income taxes on the net income from your Etsy sales as well.

A. Listing your items on Etsy. To comply with applicable US tax laws, Etsy will calculate, collect and remit sales tax on your behalf for orders shipped to customers residing in US locations. Click here to learn more about where Etsy collects sales tax on your behalf from US buyers.

If you're making a purchase that qualifies as tax-exempt, such as a purchase for a certified non-profit organization, select Contact support at the bottom of this page. When you contact Etsy Support: Include the order number(s) for the order(s) that should be tax exempt. Attach your tax exemption form.

If you sell goods on Etsy to buyers who reside in the US, you have the option of either including applicable taxes in your listing prices, or excluding applicable taxes from your listing prices and then using Etsy's sales tax tool to calculate the tax owed on each sale.