How to File and Save Money on Your Etsy 1099 Taxes

After that date, Etsy will no longer accept tax information changes for 2022. Nicole is the co-founder of Craftybase, inventory and manufacturing software designed for small manufacturers. She has been working with, and writing articles for, small manufacturing businesses for the last 12 years.

That puts some of your income into the next tax bracket up (because the 12% tax bracket ends at $41,775, while the 22% tax bracket starts at $41,776). For example, If your business’s total tax liability (self-employment tax, income tax, and any other taxes) is $6000 for the previous year, you’ll only need to pay $1,500 every quarter. As an Etsy seller, if you earn $400 or more, you will be responsible to pay self-employment tax as well as income tax. Self-employment tax equals about 15.3% of your net earnings.

Tax Deductions for Etsy Sellers – Small Business Sarah

This is a special category as it’s not considered a “direct expense”. Rather, inventory is recorded in a category we call “Cost of Goods Sold” or “Cost of Sales”. When you first purchase inventory , it’s recorded as a purchased Asset. When you SELL it, then it moves from that ASSET category into an EXPENSE category called “Cost of Goods Sold” . We cover this in depth in our “Accounting 101 for Etsy Sellers” course, as it get can quite complicated if you’re not tracking things correctly.

Etsy fees breakdown.Don’t forget to use all the fees that Etsy charges as a deduction on your taxes. I’ll show you a breakdown of all the possible fees and how to find them. Bonus material on making sure your business is legit ttps://turbo-tax.org/ when it comes to banking, business licenses, state sales tax and more. It is hands down my favorite online platform for handmade sellers. BUT there is one part of the Etsy dashboard that I wish they would improve – reports.

Collecting and Remitting Sales Tax

For larger sellers over this threshold, you cannot opt out, but your fees are 12% instead. Etsy ads are charged on a CPC (cost-per-click) model, so you’ll only pay fees if someone clicks on your ad. But it’s good to know where you stand as you enter the Etsy marketplace, and to be aware of the discussions already happening around you. If you’re a current or soon-to-be Etsy seller, and you want to find out how Etsy fees work and how much they are, you’re in the right place.

“Filing taxes” essentially means reporting your income to the IRS. And if you’re running your shop as a hobby, you’ll still have to report what you earned from Etsy sales. Now you have everything you need to report your Etsy income to the IRS.

How organized expense tracking helps at tax time

You’ll divide the total cost of these expenses by the percentage of your home that’s used for business. Again, note that the 1099-K form is only for sellers who make $600 or more on Etsy in one year. You’ll also receive the updated form if you update the taxpayer information between January and March 14, 2023. You need to have the same taxpayer information on your digital 1099-K form. If that’s not the case, you can update the taxpayer ID to get an updated form before March 14, 2023.

Etsy also handles sales tax on downloadable orders in many states, but not all of them. This applies to both “instant” digital downloads, which your customer can download right away, and “made-to-order” downloadables, which you’ll have to customize before sending to them. For an easy way to automatically track your write-offs, try Bonsai Tax, a 1099 expense tracking software.

This is your home office deduction percentage (also known as HOD%). This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors. You need to fill etsy tax deductions out the Schedule SE form if you’ve made more than $400 in self-employment income in a tax year. The good news about the self-employment tax is that you can deduct 50% of this tax from your total taxable income in the 1040 form. Whether you should file the 1099 form if you made payments to other businesses.

If you have multiple stores, the total sales income will be combined to determine if you need to receive a Federal 1099-K form. Although they are separate shops, all of your Etsy stores are required to have the same taxpayer information. If you meet the $20,000 minimum for online sales and 200 transactions, your income will be reported to the IRS and State tax authorities. If you don’t receive a 1099-K and you know you probably should have, check your account data and verify if it is the address is correct. The form may have been sent to an incorrect or old address.

Schedule C and Schedule C-EZ

Assuming you are in USA, I don’t know how it works elsewhere. Your business expenses will not exceed your revenue if you are doing things the right way. When first meeting a retailer interested in purchasing your products, they may very well ask you if you sell to any other store located near there’s. If you have been making and selling your art for a long time, you are probably quite good at attracting and pleasing your customers. The only things you will want to note here is that we do NOT want to include the transfers OR include the personal expenses on the taxes. Do you see how in the excel above all of the deposits are positive numbers and all of the expenses are negative numbers?

• You ever wonder why what makes it into the bank and what Etsy says you made are completely different?
• The amount that you fund into your SEP-IRA is shown as a direct adjustment on page 1 of your tax return, lowering your taxable income.
• Together with accounting software like FreshBooks, keeping track of your expenses and filling out the 1099-K Form won’t ever be a problem.
• Only by understanding exactly which fees you paid, and when, can you spot mistakes, increases, and opportunities for reductions.