Selling on Etsy® may be a fast and easy way to get into business for yourself. But make no mistake — getting started in online sales may be quick and easy these days, but that doesn’t mean you’re not a “real” business in the eyes of the Internal Revenue Service (IRS).
Fortunately, complying with IRS rules for your new business isn’t too complicated once you understand the basics. Here’s what you need to know as an Etsy seller.
At a glance:
- 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.
Etsy tracks your Etsy Payments sales for you.
After the end of the year, Etsy sends outForm 1099-K,Payment Card and Third Party Network Transactions, to both you and the IRS. Form 1099-K reports your total sales usingEtsy Payments, plus other information.
Beginning in 2024, Etsy must issue a 1099-K form if you have at least $5,000 in Etsy Payments. Before 2024, the threshold to receive a 1099-K was much higher — you had to have received at least 200 payments totaling $20,000 or more in sales through Etsy Payments during the year. In 2025, the threshold is set to drop to just $600.
Make sure youprovide Etsywith valid taxpayer information such as your Social Security number (SSN), individual taxpayer identification number (ITIN), oremployer identification number (EIN). If Etsy does not have this information on file and you exceed $500 in sales, Etsy will suspend your shop until you provide your taxpayer details.
Etsy provides more information for sellers about their 1099-K form on this page.
You must also report other sales from outside Etsy.
As a craftsperson, you may also sell your work at local fairs and markets or even on your own website. It’s essential to keep good records of all your sales on and off Etsy. You must include revenue from all sales when reporting your total business income, regardless of whether you receive a 1099-K form reporting it.
Owning a small business may qualify you for more tax deductions.
You can deduct direct business expenses as a self-employed person or sole proprietor. That can include supplies, the costs of materials used in the inventory you sell, advertising, and shipping.
You may also be able to deductvehicle expensesfor travel to purchase supplies and promote your business. If you have a second phone line for your business, you can deduct its cost. You may even be able to take ahome office deductionas an Etsy seller.
Operating your business in a business-like manner is important.
If you can show that you operate your business seriously and it’s notjust a hobby, you can generally use any loss from your business to offset other income you have, such as wages.
If you report a profit to the IRS at least three out of five years, the IRS assumes you are a business. However, even if you have never shown a profit, you may still be considered a business if you operate in a business-like manner.
There are several ways to prove you have a business as an Etsy seller and not a hobby. You can demonstrate your expertise, show the time and effort you expend, have a business plan, show a profit at least occasionally, keepseparate bank accountsfor business purposes, and maintain good records.
Save money to pay taxes, including income tax and self-employment tax, as an Etsy seller.
If your total income from self-employment is $400 or more, you must payself-employment taxin addition to income tax come tax time. You only pay self-employment tax on your income after expenses.
Make sure to set aside a portion of your sales regularly for federal and state taxes. Or, if you also have wages as an employee, consider increasing your tax withholding from your pay usingForm W-4. By planning your taxes now, you can avoid a surprise tax bill when you file your return.
Your state and local governments may have other requirements
You may owe state and local sales tax on your Etsy sales, depending on the laws and tax rates where you live. Always research the rules in the states you often sell in and be sure to collect and remit tax as required.
TaxAct is here to help.
Ready to file? TaxAct® can help you report your Etsy income. To learn more, check out How to File a 1099-K on TaxAct.
