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A Guide to Your Etsy 1099 Taxes

With access to digital marketplaces, your homemade crafts and specialty items can be sold to customers around the globe. One of those digital marketplaces is Etsy, which lets local crafters effectively sell their handmade products and craft items with minimum marketing.

At the end of 2022, Etsy had as many as 7.3 million active sellers in its online marketplace and annual sales of $10.1 billion. If you are a seller earning money on Etsy, you’re required to report this income and will most likely have to pay taxes on it as a self-employed seller or entrepreneur.

Key takeaways:

Etsy helps individual sellers get their hand-made products to buyers around the US and abroad.
Your federal income taxes depend on whether Etsy is your hobby, or you’re a professional Etsy seller.
Professional Etsy sellers have to pay taxes as self-employed individuals.

Table of contents

Etsy 1099-K: the IRS form for online sellers ...Read more

How to do my Etsy 1099 taxes ...Read more

Selling as a hobby vs. as a business owner ...Read more

Are you an Etsy business seller?...Read more

Etsy 1099-K: the IRS form for online sellers

If you make $600 or more selling goods on Etsy, you’ll receive a 1099-K form from them. Third-party applications like Etsy use this tax form to report payments made to self-employed individuals to the IRS. Etsy should also send a 1099-K form to you, along with the IRS, usually by the end of January. You can use this form to cross-check the payments you’ve received with your bank statements and be more organized when filing your taxes.

How to do my Etsy 1099 taxes

As a seller on Etsy, you're considered to be a self-employed person by the IRS, so you'll have to pay self-employment taxes as well as income tax. Depending on where you live or where you’re selling goods, you might also have to collect sales tax on each sale you make.

Etsy income tax for self-employed sellers

Etsy sellers pay income tax on their total taxable income, which applies to both full-time and part-time sellers. The only difference between full-time and part-time sellers is that part-time sellers can't lower the income tax they owe using business deductions.

What Do The Top Etsy Merchants Sell listing five popular categories for Etsy sellers.

The amount of income tax you pay depends on your tax bracket, and the more you earn, the more you'll have to pay in taxes. You can use this tax bracket calculator to find your rate.

Self-employment taxes for Etsy sellers

Most Etsy sellers are listed as sole proprietorships and have to pay the SECA (Self-Employment Contributions Act) taxes, which are 15.3% of their taxable income. W-2 employees pay half of this (7.3%), because their employer pays the other half. In a self-employed Etsy seller's case, however, both the employer's and the employee's parts come out of the seller's pocket. But there's a plus side. You can deduct one-half of the SECA tax from your taxable income. SECA tax comprises 12.4% for Social Security tax and 2.9% for Medicare tax.

Sales tax for Etsy sellers

Sales tax can get a bit confusing because it is different for every state, with some states charging it and others not. Where there is a sales tax, it's paid on each item sold on Etsy and has to be collected from buyers. In some cases, Etsy will directly collect sales tax and pay it to the relevant states. In other cases, you'll have to factor in sales tax on your products and pay it to your state yourself.

Infographic entitled States That Don’t Collect Sales Taxes listing the five US states where there is no sales tax.

The easiest way to determine whether you need to pay sales tax in a particular state is to clarify the economic nexus, a company's or individual business person's revenue/sales in a particular state. You also need to know what US state your physical presence is in, for example what state you have employees or an office in. In most states, you don’t have to pay sales tax if your annual sales were below $100,000. And if you are physically present in one of the five states that doesn't charge sales tax, you don't have to pay sales tax, no matter what your annual sales are. But, if you're physically present in a state that does charge sales tax, and you have earnings of $100K or more, you'll have to collect sales tax from your customers. If this sounds confusing, you can download the FlyFin app and let A.I. find every possible tax deduction, including business deductions. The app also offers 24/7 expert CPA 1099 tax support, ensuring 100%-accurate tax returns.

Selling as a hobby vs. as a business owner

The IRS will tax you based on how you use Etsy as a seller. Some people only use Etsy for hobby purposes and have regular full-time jobs. Their Etsy income adds to their regular W-2 income and is considered to be their side gig.

Part-time Etsy selling as a hobby

Someone selling for hobby purposes doesn't operate as a business or have regular average sales. Instead, they sell items every once in a while or have a cap on their output because of time constraints or other commitments.

Infographic entitled 3 Signs You Are A Hobby Seller listing three conditions that make Etsy sellers part-time sellers who don’t have to pay 1099 tax.

Income from a hobby sale on Etsy is also taxable, but since it's not considered business income, you have to report it using the "Other Taxable Income" box on Form 1040. Also, you can't deduct business expenses from your taxable income since it's not business income.

Are you an Etsy business seller?

The IRS needs to be sure whether you operate as a business or a hobby, and they also expect you to prove that. A few questions to ask yourself are:

Am I selling for profit, or is it just a hobby?
Do I have a business strategy and dedicate time to working on orders and selling and marketing products on Etsy?
Do I have previous experience as a seller?
Is Etsy my primary source of income?

Using your 1099-K form while filing your taxes will give you a clear understanding of your income and help you file swiftly. But nothing beats automating the boring task of organizing all your expenses and income, which you can easily do with FlyFin.

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