Your Etsy shop lets you express your creativity while still making some money. You’ve sold goods online throughout the year, and you’re feeling motivated by your progress as a solopreneur — congratulations!
Don’t let all the hard work you’ve put into your Etsy shop be marred by a tax headache. Use these guidelines to successfully file your taxes using your Etsy 1099.
First Off: What Is a 1099-K Form?
Form 1099-K is an IRS document you’ll receive for certain credit and debit card transactions that were processed on your behalf — in this case, through Etsy. You should’ve received the form from Etsy by January 31st if in the previous tax year you processed more than 200 transactions and exceeded a gross payment amount of $20,000 via Etsy’s Direct Checkout service.
Your form will look something like this:
The most important number — and the only number relevant to you — is in box 1a: Gross amount of payment. Gross sales include everything from shipping and refunds, to sales tax, card processing fees and canceled orders. If you did not meet the requirements for Etsy to send you a form, but you still had sales during the year, you are responsible for reporting that data when you file.
Any payments not processed by Etsy’s merchant services such as checks, PayPal payments through your own account or money orders, will not be included in this statement, but you may still need to report those for your taxes. If you met the Form 1099-K requirements through a different processor, like PayPal, that processor will be the one to send you the form.
How Do I Report My 1099-K Income?
The IRS does not require you to report income reported on a 1099-K separately, but you can use the information on the form to report gross sales or receipts when you file your taxes. Any business expenses related to your Etsy shop can be itemized on your Schedule C form, which is discussed below. A more detailed look at deductible Etsy shop expenses can be found in QuickBooks Resource Center.
How and Where Do I Report My Etsy Income?
Reporting accurate Etsy income is vital to save you money and ensure you are only taxed on your profits. Most sellers can use a Schedule C form to track income, expenses and cost of goods sold to determine their net profit and can file this form with their 1040. The Schedule C form will include space to report your expenses, including everything from vehicle usage, to materials and supplies, to office expenses. Document all expenses; you’ll need this information in case you are audited. In other words, you may need to prove anything you deduct was used for business purposes.
Will I Need to Fill Out Multiple Schedule C Forms or a Schedule SE Form for the 1099-K?
You may have multiple Etsy businesses, or other ventures outside your Etsy shop. The IRS requires you to fill out a separate Schedule C form for each business. The totals from these forms will be used to accurately file your 1040.
If you are the sole proprietor of the Etsy shop, or you are an LLC, you may also need to fill out a Schedule SE form for Self-Employment Tax (this is a combination of Social Security and Medicare). The amount of Self-Employment Tax you pay is determined by the net profit you calculate on your Schedule C form. There are short schedule and long schedule SE variations, which are determined by following the map on the form.
[Screenshot from IRS Schedule C Instructions]
What Other Tax Forms Do Etsy Sellers Need?
If you run your Etsy shop in addition to working for another business, you may also need to use the Form W-2 you received to report that income. Employers that paid for services performed by an employee and withheld Medicare, income or Social Security tax must file a Form W-2 for the employee. Freelancers who produce work for companies may not receive W-2 forms if these taxes are not withheld, in which case this income must be self-reported. Businesses may send a freelancer a 1099-MISC form if certain requirements are met, but if the freelancer receives payment but not the form, that payment must be self-reported.
More Tax Tips for Etsy Sellers
It’s rewarding to be a business owner — producing goods you’re passionate about and learning how to navigate the business world. In fact, it may be one of the most fulfilling endeavors you embark on.
With that joy comes the responsibility of tackling the tax portion of your business. Using your Schedule C form to report your 1099-K income, as well as all possible deductions, helps ensure you’re not overpaying on taxes. Accurately including required taxes on your Schedule SE form — which will include self-reported payments and any payments reported on a W-2 or 1099-MISC form — is vital for correct reporting.
To make it all easier to track, use a management software like QuickBooks Self-Employed. For more tax information, check out the QuickBooks Resource Center.
Disclaimer: The above information is for educational and informational purposes only and should not be relied on for tax, legal, or accounting advice. Please consult your personal tax, legal and accounting advisors with questions about your finances. Etsy and the author disclaim all responsibility for any and all losses, damages, or causes of action related to use of this information.