As an Etsy seller and self-employed businessperson, you have to 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.
Key Takeaways
- If more than $20,000 is processed with more than 200 transactions, and paid to you through Etsy as a third-party payment processor, the amount should be reported to you on Form 1099-K.
- If you do not receive a tax form, you can look up your annual sales by signing into your Etsy.com account and downloading it.
- You are required to 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 can deduct your eligible business expense to determine your net income from your Etsy sales.
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 (or this PDF version) 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.
Your Income
__1099-NEC (1099-MISC in prior years)
__1099-K
__Etsy annual sales
__Any other income records you may have (e.g. cash records, W2 income, spouse/partner income, investments)
Insurance and Retirement
__Heath care
__Long-term care
__Contributions to an IRA
__Contributions to an individual 401(k) plan
Equipment
__Phone purchase
__Phone service
__Phone repairs
__Phone accessories
__Computer/laptop purchase
__Computer accessories
__Internet service
Commission and Fees
__Etsy fees
Legal and Professional Fees
__Attorney fees
__Bank, Credit Card, and PayPal fees
__Bookkeeping costs
__Tax professional fees
Shipping Expenses
__Postage
__Parcel Delivery
Advertising Costs
__Social media
__Print
__Etsy item listing fees
Home Office Expenses
__Furniture
__Carpet, tile, lighting, and other upgrades
Education, Networking, Travel
__Meals
__Entertainment
__Tuition
__Transportation
Charitable Donations
__Cash
__In-kind
Cost of Goods Sold
__Inventory at beginning of the year
__Purchases.
__Cost of items for personal use
__Cost of labor
__Materials and supplies
__Other costs
__Inventory at end of the year
Car Expenses (excluding personal use)
__Mileage (using the Standard Method) OR all other expense below (using the Actual Expenses Method)
__Car tool kit
__Car wash
__Electronic toll transponder
__Flashlights and flares
__Floor mats
__Fuel
__Insurance
__Maintenance
__Oil change
__Parking fees
__Portable battery jump pack
__Registration fees
__Repairs
__Snacks and refreshments for your passengers
__Tire inflator and pressure gauge
__Tires
__Tolls
__Towing
__Vehicle accessories
__Vehicle purchases
Various Expenses
__Business memberships
__Business taxes and licenses
__Other miscellaneous expenses
__Roadside assistance plans
TurboTax Tip:
Prepare for tax season by printing this checklist and attaching it to a file folder. Place business-related receipts and other tax documents in the folder and check them off the list. Also include tax-related details, including your principal business code, employer identification number, etc.
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.
- You will likely receive a Form 1099-K if you had more than $20,000 and more than 200 third-party payment transactions.
- There is no threshold for payment card transactions such as credit card swipes.
The IRS planned to implement changes to the 1099-K reporting requirement for the 2023 tax year. However, the IRS recently delayed the implementation of the new $600 reporting threshold for goods and service transactions from third party processors like Venmo and Paypal, reverting tax year 2023 back to the previously higher 1099-K reporting threshold (over $20,000 in payments and more than 200 transactions). If you don’t receive a 1099-K, the IRS still expects you will report all your income, regardless of the amount.
If you do not receive a tax form, you can look up your annual sales by signing into your account at Etsy.com and downloading it. 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 have to 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 can deduct your eligible business expense to determine your net income from your Etsy sales.
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.
Retirement contributions
As a self-employed Etsy seller, you may be able to reduce your taxable income by the eligible retirement contributions your make to a traditional IRA or other retirement plan. Contributions that you and your spouse make to other retirement plans such as through another job, can affect the contributions that you can make based on your Etsy income.
You may also be eligible to set up an individual retirement plan such as a SEP or SIMPLE IRA or individual 401(k) plan. These plans typically allow you to contribute money to the plans each year that you have earned income and lower your taxable income for that year. Individual 401k plans work similar to corporate 401(k) plans. As with a employer-based 401(k) plan, the contributions you make toward your retirement may be deductible from your taxable income, however, your distributions of both your contributions and any earnings from these accounts are typically includable in your taxable income.
Other options for retirement accounts when you have earned income include Roth Solo 401ks and Roth IRAs. Unlike the retirement plans above, the Roth versions don't allow you to take a deduction for your contributions in the year that you make them. However, the earnings and the contributions to these accounts are typically tax free when you take them out during retirement.
Car expenses
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 automobile deduction:
- The standard mileage rate deduction method
- The actual expenses method
To use either method you will need to keep a records of the business and total miles that you drove during the year. The standard mileage method provides a set rate per business mile. For 2023, the standard mileage rate is 65.5 cents per mile.
To use the actual expenses method, you’ll also need to keep track of all of your vehicle expenses, including gasoline, maintenance, repairs, and tolls. You then multiply the total amount of expenses by the percentage of business miles relative to total miles.
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 business, and the costs associated with these activities can be deductible. Tax deductible costs can include amounts spent on:
- Phone or computer equipment
- Phone and internet usage bills
- Phone and computer repairs
- Necessary 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 phone 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 a phone and/or computer only for business, you can typically deduct 100% of the expenses associated with that device.
Various 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 Selling on Etsy and Your Taxes and Top Tax Deductions for Etsy Sellers.
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