Wednesday, September 28, 2022

How To File Taxes For Etsy Shop

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What Is A Hobby Business

HOW I DO MY ETSY TAXES: Beginners Guide! What is Tax Deductible? Home Business

If the IRS considers your Etsy business to be a hobby business, you are not allowed to deduct business loss expenses from your income. To avoid being classified as a hobby business, treat your Etsy business like a serious business. Keep complete records of your sales and you must make a profit 3 out of 5 years that you are operating. Being considered a hobby business does not mean you do not have to pay federal or state income tax. It only means that you may not deduct your business expenses.

How To Register For Self Assessment

If you earned over £1,000 from self employment in the tax year a tax year runs from 6 April one year to 5 April the following year you need to register with the tax authority by 5 October.

untied can take care of registration for you, or you can register yourself via the HRMC website.

Don’t worry if you’ve missed the 5 October deadline to register, we can still help you. Get in touch with us at

It’s Time To File Your Etsy Tax Return

There you have it. Now you have everything you need to report your Etsy income to the IRS. We talked about all the requirements for receiving a 1099-K, quarterly taxes, self-employment taxes, deductions and much more.

We recommend for you to contact a tax accountant or professional for their services if you have any questions related to your taxes. They can give you proper tax advice.

Read Also: How Do Millionaires Avoid Taxes

Paying Federal And State Income Tax On Etsy Income

If you sell items on Etsy, you must pay income tax on your incomeusually, the total amount you earned by selling your products, less your business expenses. Etsy reports your gross income to the IRS on Form 1099-K, but even if you don’t receive a 1099-K, you must report Etsy sales income on your tax return. If your state has income tax, you must pay state income taxes on the net income from your Etsy sales as well.

Under the American Rescue Plan, changes were made to Form 1099-K reporting requirements for third-party payment networks like Venmo and Cash App that process credit/debit card payments or electronic payment transfers. The change begins with transactions starting January 2022, so it doesnt impact 2021 taxes. Beginning with tax year 2022 if someone receives payment for goods and services through a third- party payment network, their income will be reported on Form 1099-K if $600 or more was processed as opposed to the current Form 1099-K reporting requirement of 200 transactions and $20,000. This change could impact people working in the gig economy, online sellers, independent contractors, and other self-employed business owners.

Does Etsy Add Sales Tax Automatically

The Ultimate Guide to Taxes for Etsy Shop Owners

To comply with the law and assist its users, Etsy has been recently adjusting its sales tax process. Etsy automatically collects and remits state sales taxes for most orders, but not all.

Etsy has so far started collecting sales tax for 42 states and the District of Columbia. Based on the buyer’s shipping address, the platform determines the sales tax required. In these states, Etsy adds sales tax to purchases according to the state’s rate and remits the tax to the state authority.

In some of these states, especially in those where your business has a physical presence, you may have to file a sales tax return. However, if the state is covered by Etsy’s policy, you will not have to pay any additional sales tax.

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Do I Have To Pay Federal And State Taxes On My Etsy Income

Selling items on Etsy and making a profit means that you will need to claim this income on your federal and state income tax forms. Of course you are able to deduct business expenses from this income. A few examples of deductions that you can deduct from your business expenses are: marketing items, supplies for shipping and also office supplies like labels and toner cartridges.

Etsy will report your gross income to the Internal Revenue Service on a 1099-K form. You will receive a copy of this form from Etsy. In the event that you dont receive a copy, you still need to report your earnings on your tax return. If the particular state you live in has a state income tax, youll need to pay state income taxes on your Etsy income as well. Check with your official state website to obtain the correct forms and information regarding state income taxes.

Making Sense Of Your Tax Forms

As a business owner, you’re introduced to lots of new tax forms. Get an overview of the basics including: 1099-K, Schedule C, and Schedule SE.

Whats so easy about the Schedule C-EZ? Whats this 1099-K I received in the mail? As a small-business owner, youre introduced to an entire alphabet of new tax forms. Keep reading to learn more about the Form 1099-K, 1040, Schedule C, Schedule SE and Schedule C-EZ forms.

Recommended Reading: When Will The Irs Open For 2021 Tax Returns

When Do I Need To Talk To A Tax Professional

For questions regarding specific tax requirements, please reach out to your local tax professional, since Etsy is unable to provide tax advice.

A tax professional can help you with these topics

  • State specific thresholds and reporting requirements
  • What to do if youre having trouble updating your taxpayer information with the IRS.
  • How to file taxes with your 1099-K form if it needs to be split between two different taxpayer numbers in a single calendar year
  • Which countries youll have to report earnings to
  • What exactly youll need to report and how to report it on your tax return
  • The tax implications of changing locations and filing status
  • How to report expenses on your tax filing to ensure you only pay taxes on your net profit
  • Details about the $600 IRS reporting threshold for 2022 and how it may impact your tax filings
  • What to do if your 1099-K form is incorrect for a previous tax year

US sellers, be sure your taxpayer details are up to date in your shop, especially if you expect to reach at least $500 in sales in 2022. Learn how to update your taxpayer details.

In 2022, Etsy is required to issue a 1099-K form to you and the IRS if your shop reaches $600 USD in sales during the calendar year. Etsy will email you when you reach $250 and $500 in sales and dont have a taxpayer ID on file.

For 2022, the US government significantly lowered the threshold for who must be issued a 1099-K form, meaning many more Etsy sellers will receive a form for 2022 than in prior years.

How Much Is Etsy Sales Tax

Etsy Taxes Explained 2022 For Beginners (Self Employed Taxes For Dummies) What Is Tax Deductible?

The challenge continues with sales tax rates.

Just like nexus thresholds, sales tax rates vary both between and within states from 0 – 9.5%+.

And one state may have multiple tax jurisdictions within it.

States dont necessarily expect you to pay them their own rate of tax, either. Each state is either origin- or destination-based, which dictates whether you pay the rate of tax in your location or the location of your buyer.

Once you know your nexus states, youll need to check whether they expect you to remit their own rate or that of another state.

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Pick Your Etsy Shop Name

If you’re registering your Etsy shop, you’ve probably already got a shop name in mind. But it’s important to remember that Etsy has naming rules you’ll need to follow:

  • Maximum of 20 characters

  • It may only contain roman letters and numbers

  • No spaces.

If you’ve got your shop name ready, you can check its availability with Etsy’s shop name checker. Unfortunately, if your chosen shop name is already taken, you’ll need to find a new one. You can probably play around with the one you’ve already chosen but make sure it’s different enough from the existing shop.

As a shop owner, you may be considering creating a for sales later on or possibly a brick and mortar store. If that’s the case, you should check to see if the web domain for your chosen name is available. It’s also worth checking if the name is available on Companies House using a business name checker .

How To File Etsy Taxes

Etsy is required to issue a 1099-K form to you and theIRS if you meet both of these requirements:

  • You had $20,000 USD in sales through Etsy Payments during the calendar year.
  • If you received 200 or more payments through Etsy Payments over that same period.

If you are located in Massachusetts or Vermont, you willreceive a 1099-K form if:

  • You have $600 or more in sales through Etsy Payments in a calendar year

A 1099-K form from Etsy reports the total gross sales incomeyou received through Etsy Payments during the last calendar year.

Also Check: How To Find Out What You Owe In Taxes

Research The State Sales Tax Laws And Rate

Once youve identified the states where your business might have nexus, its time to determine the tax rates you should charge to orders shipped to shoppers in those states. A quick online search for the state and sales tax laws should bring you to a .gov site that will be able to tell you:

  • The state sales tax rate
  • Any city sales tax rates
  • Which items youre required to charge sales tax on
  • Additional details like when your sales tax is due to the state and what kind of paperwork youll need to submit

The Federation of Tax Authorities also publishes a list of the tax authorities in each state.

Generally, youll be required to collect state sales tax on most, but not all, physical goods you sell. Goods that are exempt from sales tax may include food and childrens clothing. However, each state has a unique list of taxable goods, so be sure to check your states tax rules to see if your products fall into an tax exempt category.

What Do I Need To Know Before Selling Items On Etsy

New Etsy shop owner? When you began selling on Etsy, you may not have ...

Creating a business and selling items on Etsy means that you will have to report your earnings and pay taxes on that income. There is also a high possibility that you will need to pay self-employment tax as well. Keep in mind that in some locations you will be responsible for collecting sales tax. You may also need a business license depending on your location and the types of items you sell.

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How Do You File Vat

Prior to July 2021, sellers needed to register and file VAT with each individual member state with whom they had economic nexus .

That is no longer the case.

As part of the EU Ecommerce VAT Package for 2021, two new filing systems have been introduced. The One-Stop-Shop and the Import One-Stop-Shop .

These online systems allow a seller that has nexus with multiple EU member states to remit all their EU taxes in one place. The system will handle the rest for them.

These systems are available to most but not all sellers, so youll need to read up on them and figure out whether you are eligible to use them.

If not, youll need to register with each state and file individual returns as before.

If you have nexus with the UK, youll also need to register and file VAT via HMRC.

Etsy Tracks Your Etsy Payments Sales For You

After the end of the year, Etsy sends out Form 1099-K, Payment Card and Third Party Network Transactions, to both you and the IRS. Form 1099-K reports your total sales using Etsy Payments, plus other information. Etsy must issue a 1099-K form if you have $20,000 or more in sales through Etsy Payments and you receive 200 or more payments through Etsy Payments during the year.

Certain payments are not considered to be Etsy-processed payments, for purposes of Form 1099-K. That includes payments through your PayPay account, checks, money orders, and so on.

Etsy requires you to provide your full taxpayer information by the time you reach 100 transactions totaling over $10,000. Your Etsy shop may be disabled if you continue to receive payments and do not provide this information.

The IRS matches your business sales to the total on all 1099 forms you receive for your business. Its important that you report at least as much in sales as on these forms to avoid getting a notice from the IRS.

Read Also: Do Nonprofits Pay Payroll Taxes

Etsy Hobby Versus Actual Business

just because you are making sales online, does not actually mean you are a real business in the IRS’ eyes.

You need to figure out if you are selling as a hobby or as a business. knowing whether you selling as a hobby or an actual business is important because it will impact your taxes. Here are the IRS’ guidelines to determine if what you make is pastime income or a business.

Who Needs To Pay Sales Tax On Etsy

How To File Your Etsy Taxes – Etsy Tutorial

As a result of the 2018 Quill v. Wayfair case, sales tax was opened up to include remote sellers, and thresholds were put in place to define who needed to take part and when.

This meant that sellers needed to surpass a revenue threshold before they became legally obliged to collect and remit sales tax.

This helped to mitigate the filing process for lower value sales or sales volumes.

The challenges begin here: every US state has a different tax threshold.

For example:Floridas sales tax threshold is $100,000.

If you made over this much revenue in the previous year from Florida-based customers, then you are deemed to have economic nexus with the state and must collect and remit sales tax to Florida.

Alabamas threshold is significantly more, at $250,000.

And then there are the N.O.M.A.D. states which dont charge any sales tax at all.

Economic nexus is not just determined by revenue, either. For example, if you fulfill your products via , which you could do even as an Etsy seller, then everywhere you have inventory stored automatically qualifies you for nexus.

Sales tax nexus and eligibility is a big topic, so make sure you understand your obligations thoroughly.

Recommended Reading: What If I Filed My Taxes Wrong

Why Bookkeeping And Taxes For Etsy Sellers Matter

When I started my first online business way back in 2012, there was a lot I didn’t know. However, the one thing I did know was how to do my small business bookkeeping and taxes. Armed with an accounting degree and CPA license, I wasn’t worried a bit about crunching the numbers for my business.

That isn’t true for most people. I’m guessing that when you first started your Etsy shop, bookkeeping and taxes were near the bottom of your priority list! There are too many other more exciting things to do for your shop. Who has time to worry about the numbers?

While you can get away with ignoring your bookkeeping and taxes for a little while, at some point you must deal with your business finances. I don’t want that to be scary or intimidating for you! My goal is to create content that helps you understand exactly how to do bookkeeping for your Etsy shop and file your taxes.

There are so many benefits to be gained by taking control of your bookkeeping in the early stages of your business. Taking control will save you time, money, and end of year tax time stress.

But the most important reason to spend some time on your Etsy bookkeeping is that bookkeeping allows you to produce financial reports like a Balance Sheet and a Profit & Loss Statement. These reports in turn allow you to analyze your business and make educated financial decisions. Too many people blindly run their business, not even knowing if they are making a profit or not. Don’t let that be you.

-Sarah

Design Your Branding And Shop Logo

When choosing your shop name, you should consider your shop’s branding and logo. Although you can complete this step after choosing your name, some names lend themselves to better branding and logo designs .

There are millions of shops on Etsy, so you’ve got a lot of competition even if you sell entirely unique items. Your logo and branding are crucial if you want your shop to stand out from the crowd. You’ve likely got a creative flair as you’re setting up an Etsy shop, so designing your branding shouldn’t be a problem. You’ll need to create the following assets for your shop:

  • Shop logo 500 x 500 px

  • Cover photo 3360 x 840 px

  • Banner image 760 x 100 px

  • Profile photo 400 x 400 px.

Etsy has inbuilt photo editors and designers that you’ll access after set-up. But, if you have your assets ready, you’ll be able to get your shop set up more quickly. If you’re unsure about designing your branding, there are plenty of tutorials online and logo services available to help.

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Requirements To Receive A 1099

  • During the calendar year, you had $20,000 USD in gross sales through Etsy Payments
  • You received 200 or more sales through Etsy payments over that same period.

If you meet both of these requirements to receive a 1099-K form, Etsy will email you towards the end of the calendar year to confirm your taxpayer information and mailing address.

This form is typically sent via mail to freelancers around January 31st each year. International sellers who are not paid in U.S. dollars will not receive this form.

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