If you are an Etsy seller, then you may be wondering about how to file your taxes for the year. This can seem like a daunting task at first, but it is actually quite easy. Look, we'll show you. In this article, we will be going over all of the steps that you need in order to get your Etsy 1099 filed and taken care of.
We'll break down everything from the types of taxes you'll owe, quarterly taxes, a list of 1099 deductions, and how to file your Etsy taxes. Your State and local governments have different requirements and you may owe State and Local sales tax on your Etsy sales.
Let's dive in and get started with the IRS tax forms you'll receive for all your Etsy sales.
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1099 Forms For Etsy Payments
You'll receive different types of IRS tax forms depending on how many transactions you had during the year, or what platform you receive your Etsy payments. We'll break down each of the IRS forms below.
Breaking Down The 1099-K Form
The 1099-K Form is used to report the total gross sales income received through Etsy Payments. Your gross sales volume is the total amount of sales processed through direct checkouts on the platform. You can verify and download your Etsy payments from Etsy.com (Sign into your account, navigate to Shop Manager, Settings, Options, and then Click Download Data). If you need help with viewing the forms for how much you got paid and to download, contact Etsy. Although Etsy cannot give you tax advice, they can provide you all of the tax forms for payments and reporting. A simple way to see if you qualify for a 1099-K is to check your Etsy account.
Due to the American Rescue Plan developed by President, Joe Biden, 1099-K thresholds have been altered for some States which will impact Etsy sellers. Etsy is an online marketplace which means they are legally required to send out a tax form 1099-K for reporting.Etsy and other third-party transaction networks like PayPal only typically send you a 1099-K form if sellers have over $20,000 or more in sales and at least 200 transactions. Since Etsy processes credit card payments for Sellers through Direct Checkout, they will send you a 1099-K.
Etsy is required to issue a 1099-K form to you and the IRS both of these requirements are met...
Requirements To Receive A 1099-K
During the calendar year, you had $20,000 USD in gross sales through Etsy Payments
You received 200 or more sales through Etsy payments over that same period.
If you meet both of these requirements to receive a 1099-K form, Etsy will email you towards the end of the calendar year to confirm your taxpayer information and mailing address.
This form is typically sent via mail to freelancers around January 31st each year. International sellers who are not paid in U.S. dollars (USD) will not receive this form.
Specific State Requirements For A 1099-K Form
Certain States have different requirements for when to send out the 1099-K. Here are some State-specific rules for sending out the tax form.
Maryland, Massachusetts, Vermont, or Virginia, District of Columbia
If you sell $600 or more through Etsy Payments in a calendar year, you'll get a 1099-K form.
If you sell $1000 or more through Etsy Payments in a calendar year, you'll get a 1099-K form.
If you meet the $20,000 minimum for online sales and 200 transactions, your income will be reported to the IRS and State tax authorities. If you don't receive a 1099-K and you know you probably should have, check your account data and verify if it is the address is correct. The form may have been sent to an incorrect or old address.
What To Do If You Have Multiple Shops
If you have multiple stores, the total sales income will be combined to determine if you need to receive a Federal 1099-K form. Although they are separate shops, all of your Etsy stores are required to have the same taxpayer information.
If your combined shop totals meet the above qualifications, you will receive a single 1099-K form with the combined gross totals from your shops.
If you don't receive an IRS 1099 tax form, you are still responsible for filing and reporting your taxes. Since the Federal threshold for issuing a 1099-K is $600, Etsy does not have to distribute to sellers a 1099 under $600 of transactions.
Taxes You Will Need To File As A Seller On Etsy
As an Etsy seller, if you earn $400 or more, you will be responsible to pay self-employment tax (Social Security and Medicare) as well as income tax. Self-employment tax equals about 15.3% of your net earnings. To quickly figure out how much you'll owe, use our 1099 tax calculator.
It is your dirty to figure out your total gross income earned, to report taxable income on your income tax return. You only have to pay taxes on your profits (gross sales income minus the business expenses). We'll go over deductions you qualify for later on in the article. First, let's talk about quarterly taxes.
Quarterly Taxes You Need To Pay
Since the U.S operates on a "pay-as-you-go" system, you'll need to pay the IRS every quarter for estimated taxes you'll owe.
Quarterly taxes are meant to help business owners pay their tax liability quarterly throughout the year instead of all at once at the end of the year. Your estimated tax payments are due on April 15th, June 15th, September 15th and January 15 of the following year.
The rules for quarterly payment are different depending on how much you expect to make in a particular period:
For example, If your business's total tax liability (self-employment tax, income tax, and any other taxes) is $6000 for the previous year, you'll only need to pay $1,500 every quarter.
You should be setting income aside from every sale to handle Federal and State taxes.
Etsy Hobby Versus Actual Business
just because you are making sales online, does not actually mean you are a real business in the IRS' eyes.
You need to figure out if you are selling as a hobby or as a business. knowing whether you selling as a hobby or an actual business is important because it will impact your taxes. Here are the IRS' guidelines to determine if what you make is pastime income or a business.
In short, the requirements can be summarized as:
If you are selling your products for no profit, your shop may be considered a hobby.
If selling on Etsy is something you are doing seriously or dedicate time to on a consistent basis (your shop is meant to produce profits) you are a business
Perhaps your income does not exceed your expenses and your shop is labeled as a hobby. Then you cannot deduct them from your income under the "hobby loss" rule.
However, even though you never realize a profit, but you operate like business, you may still have to pay self-employment tax as an Etsy seller.
If you plan on taking your hobby shop to transition into an actual business, keep organized records of your receipts, so at the end of the year, you can file as a business.
Tax Deductions Available For Etsy Sellers
As an independent contractor selling on Etsy, you have the luxury of lowering your tax bill by writing off business expenses. Remember, you only pay taxes on your net profit for your sales.
For an easy way to automatically track your write-offs, try Bonsai Tax, a 1099 expense tracking software. We categorize and organize your receipts for you. Download your expense reports and watch as you save save money at the push of a button.
There you have it. Now you have everything you need to report your Etsy income to the IRS. We talked about all the requirements for receiving a 1099-K, quarterly taxes, self-employment taxes, deductions and much more.
We recommend for you to contact a tax accountant or professional for their services if you have any questions related to your taxes. They can give you proper tax advice.