How to Claim Etsy Income on Taxes

If you'd rather not owe as many taxes in April, file quarterly or ask your spouse's employer to withhold extra taxes.

Starting a digital storefront on Etsy.com can be a rewarding way to sell your handmade and vintage items. Of course, you may feel overwhelmed at tax time if you're new to Internet selling --- sites like Etsy don't take any taxes out of your sales, so you'll need to make sure Uncle Sam gets his cut every year. If you earned more money than you spent on your Etsy business, then you must claim your Etsy income on a Schedule C form. Additionally, if you made at least $400 from your Etsy business, you're considered self-employed and you must fill out a Schedule SE form as well.

Things You'll Need

• Records of profit and loss

Instructions

1. Keep records of your income, including all sales through Etsy and other venues. Keep detailed records of your possible deductions (office supplies, craft supplies, for example). Write down where and when you use certain items or spaces for your business (computers, a home office, cell phones, an art studio).

2. Download a Schedule SE form from the IRS website (see Resources). Answer each of the questions truthfully on your Schedule SE: it will ask basic information about the nature of your business.

3. Download a Schedule C form from the IRS website (see Resources): this is the form on which you will report your profit and losses. Fill out your income and deduction information. Note that you must have written proof of your deductions, or the IRS may audit you.

4. File a form 1040, which is an individual tax return form. You will need to submit both this and your self-employment tax form to the IRS.

Tips & Warnings

• If you'd rather pay your taxes in smaller increments, you can pay taxes quarterly on a 1040-ES payment voucher and send a check to the government on the fifteenth of April, June, September and January. Or, if the thought of filing taxes in general makes you cringe, consider hiring someone to do it for you. Tax-filing services and personal accountants vary in price, but the assurance of knowing your taxes were filed correctly may be well worth the cost.

References

• Etsy; Tax Time Considerations for the Independent; January 2008
• Kiplinger; Tax Rules for the Self-Employed; Kimberly Lankford
• IRS.gov; Filing Requirements for the Self-Employed; October 2010

Resources

• Schedule C Form
• Schedule SE Form