TurboTax / Tax Calculators & Tips / All Tax Guides / Self Employment Taxes / Tax Tips for Selling Your Handmade Items Online

Tax Tips for Selling Your Handmade Items Online

Updated for Tax Year 2016


OVERVIEW

Given the success of the online, handmade marketplace Etsy, sites like HandMade at Amazon are giving more people the opportunity to sell their handmade creations online than ever before. In addition to making money from these sales, it is important to understand the tax requirements when selling your goods online.


You are an independent contractor

Selling handmade items online

Being an independent contractor means you are self-employed. You determine what to make, how to make it, where to make it and how to sell it. Independent contractors are fully responsible for taking care of their own taxes.

Although you may receive payments from the site you sign up with, that site is not your employer and will not withhold taxes out of your earnings.

 

Business income and expenses

Your net income is the money you make selling your handmade items, minus eligible business expenses. When you file your tax return, fill out Schedule C. You only pay tax on the net profit — the total amount after you deduct eligible business expenses, such as:

  • Fees paid to the online site/marketplace
  • Cost of materials and equipment
  • Shipping costs
  • Bank fees
  • Use of dedicated space in your home/studio for a workshop

Self-employment tax

Generally, you must pay self-employment taxes if your net profits are $400 or more. Self-employment taxes are Social Security and Medicare taxes. Use Form 1040SE to help you determine how much tax to pay.

Income tax and estimated taxes

Income taxes are due on income as you earn it. If you estimate you will owe taxes of $1,000 or more by the end of the year, the IRS wants you to make estimated quarterly tax payments.

If you don’t make these payments, you could be charged a penalty and interest for not paying the taxes in a timely manner. To help you estimate your quarterly payments:

  • Look to last year’s taxes for guidance
  • Use an estimator like TaxCaster

In addition to federal taxes, you may also need to pay state taxes. Because this varies from state to state, check with your state’s taxing authority.

Determining sales tax

Each state determines and collects sales tax from sellers doing business in their state. E-commerce has created a grey area as to what it means to do business in a particular state. The rule is that the business must have a significant presence, or "nexus," in the state, such as a:

  • Store
  • Office
  • Factory
  • Distribution center

The exact definition of nexus, however, varies from state to state, and sometimes even amongst cities or counties within a state.

As a seller, it is up to you to determine the sales tax rules that apply to your business by checking with state Departments of Revenue. Sites like Etsy and HandMade at Amazon will collect sales tax for you, but only according to your instructions.

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

For only $54.99*
Start for Free

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


Security is built into everything we do
Here's how
* Important Offer Details and Disclosures
  • TURBOTAX ONLINE/MOBILE

  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Absolute Zero $0 federal (1040EZ/1040A) + $0 state offer only available with TurboTax Federal Free Edition; offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected in March. Special discount offers may not be valid for mobile in-app purchases.
  • QuickBooks Self-Employed Offer with TurboTax Self-Employed: File your 2016 TurboTax Self-Employed return between 4/19/17 and 10/16/17 to receive your complimentary subscription to QuickBooks Self-Employed until 10/31/18. Activation by 12/31/17 required. Sign in to QuickBooks Self-Employed via mobile app or at https://selfemployed.intuit.com/turbotax; e-mail address used for activation and sign-in. Offer valid only for new QuickBooks Self-Employed customers. See QuickBooks.com for price comparison.
    • When you use TurboTax Self-Employed to file your 2017 taxes, you will have the option to renew your QuickBooks Self-Employed subscription. If you do not purchase TurboTax Self-Employed by 10/15/18, you will have the option of renewing your QuickBooks Self-Employed subscription by 10/31/18 for another year at the then-current annual subscription rate. You may cancel your subscription at any time from within the QuickBooks Self-Employed billing section.
  • Pays for itself (TurboTax Self-Employed): Estimates based on deductible business expenses calculated at the self-employment tax income rate (15%) for tax year 2016. Actual results will vary based on your tax situation.
  • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice.
  • TurboTax Expert Help, Tax Advice and SmartLook: Included with Deluxe, Premier and Self-Employed (via phone or on-screen); not included with Federal Free Edition (but available for purchase with the Plus bundle). SmartLook on-screen help is available on a PC, laptop or the TurboTax mobile app. TurboTax experts provide general advice, customer service and product help; tax advice provided only by credentialed CPAs, enrolled agents and tax attorneys. Feature availability varies by device. State tax advice is free. Service, area of expertise, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice.
  • Tax Return Access, My Docs and My Analysis & Advice features: Access to all tax-related documents we have on file for you is available until you file your 2017 tax return or through 10/31/2018, whichever comes first. Terms and conditions may vary and are subject to change without notice.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.
  • CompleteCheck: Covered under the TurboTax accurate calculations and maximum refund guarantees.
  • #1 rated online tax prep provider: Based on independent comparison of the best online tax software by TopTenReviews.com March 13, 2017.
  • TURBOTAX CD/DOWNLOAD SOFTWARE

  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for e-filing state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected in March. Prices subject to change without notice.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except TurboTax Business.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice via phone is included with Premier and Home & Business; fees apply for Basic and Deluxe customers. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Data Import: Imports financial data from participating companies. Quicken and QuickBooks import not available with TurboTax installed on a Mac. Imports from Quicken (2015 and higher) and QuickBooks Desktop (2011 and higher); both Windows only. Quicken import not available for TurboTax Business. Quicken products provided by Quicken Inc., Quicken import subject to change.