Running an Etsy business is more than crafting and creative listings – it’s running a real business, which means understanding your financial responsibilities and tax obligations. Whether you’re just getting started or already seeing sales roll in, here’s what you need to know to set yourself up for long-term success.
Tracking Expenses and Income from Day One
One of the biggest mistakes Etsy sellers make is not treating their shop like a business from the start. But even if you’re only making a few sales a month, you should be tracking every dollar that comes in and every dollar that goes out.
Set up a dedicated bank account for your Etsy shop, and consider using accounting software like Xero to track:
- Revenue from sales
- Etsy fees (listing, transaction, and payment processing)
- Cost of goods sold (materials, packaging, shipping)
- Marketing and advertising costs
- Business supplies and subscriptions
Having clear financial records makes tax time much easier and gives you the data you need to make smart decisions as your shop grows.
Understanding Self-Employment Taxes
If you’re earning money from your Etsy shop, you’re likely considered self-employed in the eyes of the IRS. That means you’re responsible for:
- Income tax on your net earnings
- Self-employment tax (covering Social Security and Medicare)
Unlike a traditional job where taxes are automatically withheld, you’ll need to set aside money for taxes yourself. A good rule of thumb is to save 20–30% of your net income for taxes, depending on your tax bracket.
You may also need to make quarterly estimated tax payments if you expect to owe more than $1,000 in taxes for the year.
Should You Form an LLC for an Etsy Business?
Many Etsy sellers start out as sole proprietors, which is the default for small businesses. But as your business grows, you might consider forming an LLC (Limited Liability Company). An LLC can provide legal protection and potentially offer tax advantages, especially if you plan to scale or sell products outside of Etsy.
It’s not required, but it’s worth discussing with a financial advisor to decide what structure works best for your goals.
Sales Tax As An Etsy Seller
Depending on where you live, you may need to collect and remit sales tax on your Etsy sales. Etsy automatically collects sales tax for buyers in some states, but not all. You’re still responsible for understanding the rules in your state and filing any required returns.
Get Help from Experts Who Understand Creative Businesses
At JBS Corp, we work with small business owners, side hustlers, and creative entrepreneurs who need help navigating the financial side of their business. From bookkeeping and tax prep to business structure and growth planning, we’re here to help!
Ready to get your Etsy business finances in order?
Contact JBS Corp today for a free consultation and make sure your business is built on a strong financial foundation.
