As an Etsy seller and self-employed businessperson, you must report your net business income on your tax return. To organize your business income and expenses, you can use the Etsy tax preparation checklist below. Some of the items may not apply to you, but the list will give you an overview of the kinds of things you need to report as income and what you might be able to claim as deductions.
Before you start:
- Follow this link and print the checklist.
- Attach the checklist to the outside of a file folder or place it inside.
- Cross out anything on the list that doesn’t apply to your Etsy business.
- Place business-related receipts and other tax documents in the folder and check them off the list.
Write down other information that you will need to complete your taxes, including:
- Your principal business code
- Your employer identification number
- Social Security numbers for your dependents
- Dates of birth for your dependents
- Bank routing number for direct deposit of your refund or payment of any taxes that are due.
Etsy tax preparation checklist
Running your Etsy business can create a lot of paperwork that you might need to complete your taxes. Documents you may need to complete your taxes include:
- sales records
- receipts for the cost of materials and equipment
- business-related fees and expenses
The checklist below can help you organize your paperwork into the appropriate tax categories, ensure you don’t miss out on any money-saving tax deductions and save time when you prepare your tax return using TurboTax.
__1099-NEC (1099-MISC in prior years)
__Etsy annual sales
__Any other income records you may have (e.g. cash records, W2 income, spouse/partner income, investments)
Insurance and Retirement
__Contributions to an IRA
__Contributions to an individual 401(k) plan
Commission and Fees
Legal and Professional Fees
__Bank, Credit Card, and PayPal fees
__Tax professional fees
__Etsy item listing fees
Home Office Expenses
__Carpet, tile, lighting, and other upgrades
Education, Networking, Travel
Cost of Goods Sold
__Inventory at beginning of the year
__Cost of items for personal use
__Cost of labor
__Materials and supplies
__Inventory at end of the year
Car Expenses (excluding personal use)
__Car tool kit
__Electronic toll transponder
__Flashlights and flares
__Portable battery jump pack
__Snacks and refreshments for your passengers
__Tire inflator and pressure gauge
__Business taxes and licenses
__Other miscellaneous expenses
__Roadside assistance plans
Common tax forms for Etsy sellers
You will likely receive a tax form from Etsy stating the amount of income you earned for the tax year. The form you receive will depend on the number of transactions you had and the income your business generated.
- If you earned $600.00 or more in Etsy sales, you should receive a 1099-NEC (1099-MISC in prior years).
- If you had either $20,000 in sales or more than 200 transactions, you may also receive a 1099-K.
Under the American Rescue Plan, changes were made to Form 1099-K reporting requirements for third-party payment networks like Venmo and Cash App that process credit/debit card payments or electronic payment transfers. The change begins with transactions starting January 2022, so it doesn’t impact 2021 taxes. Beginning with tax year 2022 if someone receives payment for goods and services through a third- party payment network, their income will be reported on Form 1099-K if $600 or more was processed as opposed to the current Form 1099-K reporting requirement of 200 transactions and $20,000. This change could impact people working in the gig economy, online sellers, independent contractors, and other self-employed business owners.
If you do not receive a tax form, you can look up your annual sales by signing into Etsy.com and going to: Shop Manager>Finances>Taxpayer ID. This tab will display the number of sales you had and the gross sales volume you received through Etsy Payments for the tax year. Remember, you must report all Etsy sales income on your tax return, whether you receive a tax form or not.
Once you have accounted for all of your sales, you are ready to reduce your taxable income by deducting your business expenses.
Supplies and Equipment
Any supplies you use to make the products you sell on Etsy and any equipment you use to make your items may be deductible business expenses.
For example, if you make jewelry, business-related tax deductions may include:
- The metal and stones you use in the product.
- The cost of pliers, drills, or any other equipment you use to make the jewelry, if you purchased them during the tax year.
- Surveillance cameras or security alarms specifically for your studio, workshop, or office.
Insurance and retirement contributions
As a self-employed Etsy seller, you may be able to deduct retirement contributions to a traditional IRA or other retirement plan. If you and/or your spouse have a retirement plan through another job, the deductions you make to retirement plan based on your Etsy income may be limited.
As a solopreneur, you may be eligible to set up an individual 401(k) plan. This plan works just like a corporate 401(k), but is for self-employed individuals. As with a traditional 401(k) plan, the contributions you make toward your retirement may be deductible from your net income.
One of the best things about selling on Etsy is that you’re able to work at home and eliminate the time and hassle of commuting to your job. However, you may be using your car for business tasks, such as,
- picking up, dropping off, or mailing packages,
- driving to purchase supplies, or
- shopping for vintage or specialty items to sell.
If so, you may be able to deduct some of your vehicle expenses. You have two options for calculating your business mileage deduction:
- The standard mileage rate deduction method
- The actual expenses method
To claim the standard mileage rate deduction, you’ll need good records for the mileage you drove for business use only. The standard mileage method provides a set rate per mile.
- For 2021, the standard mileage rate is 56 cents per business mile.
To use the actual expenses method, you’ll need to keep track of all of your vehicle expenses, including gasoline, maintenance, repairs, and tolls. You then multiply the total amount by the percentage of miles you used your car for business.
For example, if you had $5,000 in vehicle expenses and 10% of your miles for the year were used for business, your deduction would be $500 ($5,000 x .10 = $500).
To decide which method is best for you, read Maximizing Tax Deductions for the Business Use of Your Car.
Cell phone and internet expenses
Managing your Etsy store and providing customer service, both online and with your phone, can be important parts of your Etsy business, and the costs associated with these activities can be deductible. Tax deductible costs can include:
- Buying a phone or computer
- Paying the phone and internet bill
- Paying for phone and computer repairs
- Purchasing accessories
The amount you can deduct depends on the percentage of time you are using your phone, computer, and internet solely for your business. Keeping accurate records of the time you’re using these devices will help you calculate the percentage of their costs that you can deduct.
- For example, if you use your phone 25% of the time working for Etsy, then you may be able to deduct 25% of the costs.
- If your cell phone, computer, and internet costs total $2,000, then you can deduct $500 as a business expense ($2,000 x .25 = $500).
If you use one phone and/or one computer only for business, you can likely deduct 100% of the expenses.
Did you purchase online ads for your Etsy products or pay for a business license? These costs are probably tax deductible.
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.
For more ideas about what you can deduct, read Top Tax Deductions for Etsy Sellers.
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