Essential Guide to Filing Income Taxes as an Etsy Seller

Hello everyone and welcome back to my channel! Today, we're diving into a crucial topic for all Etsy sellers: filing your income taxes. Since 2020, I have filed my taxes using both professional tax services and platforms like QuickBooks Self-Employed and TurboTax. Filing taxes as an Etsy seller, especially if you’re involved in print-on-demand, can seem intimidating, but it’s simpler than you might think.

Understanding Business Structures

In my first year, I was unsure about how to prepare for taxes, whether I needed to form an LLC or could operate as a sole proprietor. In this video, I’ll address whether you need an LLC and walk you through preparing to file your income taxes. Plus, I’ve created a free tax preparation PDF checklist for you to follow along, linked in the description below.

Disclaimer

I’m not a tax expert. This video is for informational purposes only. I recommend consulting with a tax professional, CPA, or accountant, especially in your first year, to ensure you’re filing correctly and have the most accurate information. Tax laws vary by state and can change over time. This guide focuses on federal income taxes in the United States.

Do You Need an LLC?

A frequent question is whether you need an LLC to sell on Etsy and file taxes. The answer is no. You don’t need an LLC to sell on Etsy or file taxes. I started as a sole proprietor, using my Social Security number instead of an EIN or tax ID. However, I eventually formed an LLC for added protection of my personal assets in case of legal issues. The cost of forming an LLC varies by state, but it generally adds a layer of security for your personal assets.

Managing Expenses and Income

As an Etsy seller, you’re responsible for reporting your income. Whether you made $100 or $5,000, understanding your tax obligations is crucial. Etsy collects and remits sales tax on your behalf, but you must handle your income taxes. 

1099-K Form

If you made over $20,000 in revenue and more than 200 sales, Etsy will send you a 1099-K form. However, this threshold is changing to $600 in revenue. The 1099-K reports your gross sales to the IRS, which includes all sales, shipping, refunds, and fees. You’ll need to reconcile this with your actual revenue by deducting cancellations, refunds, and fees.

Tracking Expenses

Tracking expenses throughout the year is essential for accurate tax filing. Keep records of all sales, expenses, and receipts, including materials, shipping, and home office expenses. I use both an income and expense tracker tool and QuickBooks Self-Employed to ensure nothing is missed. These tools provide detailed records for my accountant.

Tax Deductions

While I’m not a tax expert, here are some items to discuss with your tax professional for possible write-offs:

- Printing services like Printify

- Mockups for listings

- Subscription fees for services and software

- Advertising fees

- Home office expenses

Ensure you meet the criteria for home office deductions: regular and exclusive use for business, and it must be a significant part of your business activities. Keep meticulous records and consult a tax professional to maximize deductions.

Mileage and Equipment Deductions

Track vehicle mileage for business-related trips and keep records of business equipment purchases. If your anticipated tax liability exceeds $1,000, start making quarterly tax payments to avoid penalties. Consult your tax professional to create an estimated tax schedule based on your previous year’s taxes.

Preparing Your Taxes

To simplify tax preparation, use a service like QuickBooks or a detailed spreadsheet. I’ve developed a Google spreadsheet tailored to my business needs, available in the description below, along with my small business planner.

Conclusion

Filing taxes for your Etsy business can be straightforward with proper preparation and record-keeping. I hope this video helps alleviate some of your concerns. Always consult with a CPA for the most accurate and personalized advice. Thank you for watching! Please like, subscribe, and leave any questions or comments below. Check out my next video for more tips. See you there!

Links:

- Tax Preparation PDF Checklist

- Income and Expense Tracker

- QuickBooks Self-Employed

- Small Business Planner

- Referral links for Printify and other tools