Understanding Etsy Taxes
- Who has to pay tax?
- What you should pay?
- How much you may owe?
If you’re employed and sell on the side, you’re covered by the Trading Allowance. If you use Etsy as a hobby business, the chances of you having to pay tax are lower. But it depends how much money you make.
As a general rule, you pay tax when selling on Etsy if you’re running a business. To determine the sales tax rate for a specific state, you can use the Etsy sales tax tool. Etsy has taken the responsibility of calculating, collecting, and remitting sales tax on your behalf.
If your state has income tax, you’ll need to pay state income taxes on the net income from your Etsy sales. All Etsy sellers who make more than $600 in gross sales per year will receive the 1099-K Form.
Similar to a traditional business, you will need to pay the appropriate Federal taxes, state taxes, and sales tax on items you have sold. Etsy collects and remits the sales tax on your behalf when you’re shipping to US customer addresses within participating states.
How Do Etsy Shop Owners Pay Taxes?
As a seller, you pay sales tax on items sold to buyers in your state. Set your state’s sales tax rate in Shop Settings. Etsy collects and remits sales tax in participating states. You pay income tax on your net earnings. Subtract business expenses from total income to determine net profit. Report this on Schedule C.
Understanding tax requirements is important to meet responsibilities. Self-employment tax for US Etsy sellers is calculated by determining net earnings after subtracting expenses from total income.
Do I Need a LLC to Sell on Etsy?
LLCs provide legal protection and tax benefits. But you don’t need one to sell on Etsy.
An LLC protects your personal assets and separates business finances from personal ones. It also allows more tax options and may reduce self-employment tax. However, forming an LLC comes with costs and additional filings. Consider forming an LLC once your Etsy shop generates significant income.