As a shop owner on Etsy, you’re a master of nailing the details, whether you’re designing the newest fashion, calculating ingredients for handmade bath soaps or meticulously measuring every last inch of leather for that bound journal. When it comes to your taxes, if you’re not as diligent as you are with your business, you could be losing out on thousands of dollars from legitimate deductions. Taxpayers often overpay on their taxes every year just by overlooking one potential tax break they’re entitled to, the IRS states.
From advertising your shop, to purchasing supplies, to mailing your products, every business-related expense is a possible deduction. Tax experts advise taking a common-sense approach when navigating the often-confusing world of taxes, reports Bloomberg. If you’re spending money on something for your Etsy shop, it is probably deductible. Business expenses must meet IRS rules of being “ordinary and necessary” to be considered deductions.
As a self-employed individual, you should be paying quarterly estimated taxes. While the IRS does not allow you to submit deduction paperwork with these quarterly taxes, it is vital to track all deductions throughout the year in case of an audit. You can factor in deductions with each quarterly tax payment, and use what you paid last year as a guide. The Estimated Tax Worksheet provided by the IRS includes instructions for determining how your estimated deductions will impact your quarterly taxes. Here are 10 deductions common for Etsy sellers to include:
If you’re using your car to pick up or drop off packages, you can deduct your vehicle expenses. There are two different ways to take a deduction, so choose the way you’ll get the most money back. The first method — the standard deduction — is a flat 54 cents per mile driven for business purposes. The second — the actual expense method — means you’ll need to keep track of all your vehicle expenses from gas and maintenance to tolls and repairs and then multiply the total by the percentage of time you use the car for business. Either way you decide, you’ll need to track your mileage.
Cell Phone and Internet Usage
What you deduct in terms of cell phone and Internet usage will depend on the percentage of time you’re using those devices and services solely for your business. Keep accurate records. Setting and adhering to self-imposed work hours is beneficial. Basic local telephone service on the first telephone line in a home is not deductible.
Any type of equipment you use is deductible — from the supplies you use to make your products to the packaging you put them in. If you’re a jewelry-maker, you can deduct everything from stones and wires, to a new pair of pliers. Anything you’ve spent money on may be deducted from your profit. Other deductible work-related equipment may include a new laptop or manufacturing item.
Shipping and postage costs you incur that relate directly to the products you’re selling are deductible. You can estimate your deductions based on what you paid last year, or file for shipping deductions at the end of the year. Operating as an online business means your shipping costs can really add up, so tracking these expenses and then deducting them saves a lot.
If you’re advertising your Etsy business online, in print or via another avenue, those costs are deductible. Also, the fees you pay to list your items on Etsy can be deducted as advertising costs.