How to File an IRS Form 1040 for Etsy Income
“Do I have to record Etsy income on my taxes if I’ve been developing a side business as an Etsy seller?”
Many artists and artisans sell their products online through Etsy. But you must remember to declare your Etsy income when it comes time to submit your taxes. Others may merely do it as a pastime in their spare time. Some people work full-time as online merchants, creating and distributing their products through online marketplace facilitators like Etsy.
You should be pleased with yourself for the effort you’ve put into being a small business owner, regardless of which of those categories you fit into. In the congested world of online commerce, it can be challenging to attract customers and carve out a niche.
You are managing a tiny business, whether you realize it or not! That is no easy task. And all of the money you generate from selling your products is income you make as a sole proprietor or self-employed business owner.
Beware of the Etsy Form 1099-K for Business Income Reporting
If you reach certain minimum sales thresholds, Etsy is required to report those sales and give you a record of your overall income as the platform processes your sales. This report will be produced by Etsy and sent to you on form 1099-K. The first crucial sign that you must include all of your Etsy income on your tax return is receiving this tax form.
Are Business Expenses Allowable Deductions?
On your income tax return, you must disclose your Etsy earnings. The good news is that you can also deduct company expenses from your taxes. Your Etsy shop qualifies as a small business, so you can deduct business operating expenses from your taxable income.
As an Etsy seller, you may be able to deduct the following business expenses:
- Platform charges
- Marketing expenses
- Supplies and equipment needed to run your business or create your products
If you are eligible for a home office deduction, a portion of your rent, mortgage, and utility bills.
What Taxes Are Paid by Etsy Sellers?
The biggest tax you must pay as an individual taxpayer in the US is the income tax. Which is the subject of all that has been spoken about so far. You need to be aware of a few different but connected taxes and tax difficulties, though.
Tax on Self-Employment
If you receive compensation from an employer, you’re undoubtedly accustomed to having money deducted from your paycheck to cover FICA and income taxes. 7.65% of your salary is withheld by employers to be contributed to Social Security and Medicare on your behalf. And an additional 7.65% of your income is paid out of their funds but in your name.
The second 7.65%, which is often paid by the employer, is referred to as self-employment tax. If you run your firm, you are liable for both payments, which come to a total of 15.3%.
Estimated Taxes for the Quarter
Although quarterly anticipated taxes are a requirement for your taxable income, if you’re used to working for an employer, you might not be accustomed to them.
In the US, you must pay income taxes on the money you make during the year rather than all at once. Typically, employers take care of this on the employees’ behalf. But you’ll have to take care of this yourself if your small business is your main source of income.
By making anticipated tax payments every quarter, you can pay your taxes as you go. You calculate how much money you will owe in taxes overall, and then you pay a quarter of it at once. For these four tax installments, the IRS has four deadlines each year. The following four projected tax payment deadlines apply:
- April 15 is the first-quarter tax deadline.
- Tax deadline for the second quarter: June 15
- Tax deadline for the third quarter: September 15
- The tax deadline for the fourth quarter is January 15 of the following year.
Federal Sales Tax
Etsy merchants must think about state sales tax in addition to income and income-related taxes. Since the regulations governing these are entirely decided at the state level, this tax is imposed on actual consumer transactions.
Etsy store sales tax regulations are complex since they vary depending on each customer’s location and your company’s relationship with that state. Purchases made in states where your company has a sizable presence or “nexus” of business activity require you to pay sales tax.
As a result, you probably won’t have to pay sales tax in a state where a single consumer purchases a product from you and you don’t have a physical presence. However, you might need to send some sales tax money to that state if you start marketing to more clients there. The precise minimum standards and sales tax rates vary by state.
Although Etsy and other websites with similar functionality have the infrastructure to gather and send sales tax, they don’t always do it on their own if you don’t tell them to. Verify that the appropriate taxes are being deducted from your sales.
To Sum Up
Small business taxes and reporting Etsy income have a lot of regulations and difficulties. But you don’t have to figure it out on your own. When tax season arrives, you can be confident that you’ll be ready by working with a professional from Your Part Time Accountant.
Your tax return can be filed quickly and easily with the help of a seasoned e-commerce tax accountant. And you can relax knowing that you’re making the most of your money-saving opportunities!