15 Top Tax Deductions for Etsy Sellers
As an Etsy seller, you can save hundreds (even thousands!) of dollars at tax time by deducting business expenses. That’s because every time you write off an expense, you lower your taxable income – putting the money you spend on your business back in your pocket.
A Few Things to Keep in Mind
When it comes to deducting business expenses, there are certain regulations you need to follow:
You should first determine whether your shop is a hobby or a business:
If your shop is a hobby, you sell on Etsy without expecting a profit. You cannot deduct your seller expenses from your hobby income.
If your shop is a business, you regularly dedicate a meaningful amount of time to your business, and your primary purpose is to generate income (even if you are currently operating at a loss). If you are making a regular profit from your shop, it is considered a business. You can–and should!–deduct business expenses.
Business expenses must be both ordinary (commonly accepted in your trade) and necessary (helpful and appropriate for your business). The expenses we list below fall into this category.
The IRS requires documentation of any business expense you deduct. That’s why it’s so important to track your expenses during the year. If you didn’t track your expenses last year, don’t worry; our guide shows you how to retroactively find deductible expenses.
Because there’s always a chance you may be audited, save your business receipts for at least three years after you file your taxes.
Tax Deductions for Etsy Sellers
If you’re an Etsy seller, here are 15 deductible expenses you should keep track of throughout the year.
1. Mileage: Keep track of all your business-related trips! While there are lots of ways to do this (like taking odometer readings before and after trips), the easiest way is to use an app like Stride Tax that records mileage while you drive:
Between your home office and appointments (this does not apply if you have a permanent place of work to which you must commute)
Between client appointments
On work-related errands, such as picking up supplies or going to the post office to ship merchandise
If you choose to take the standard mileage deduction, keep in mind that you cannot deduct individual vehicle expenses like gas, oil changes, car repairs, and car insurance.
2. Home Office: The IRS keeps a close eye on this deduction, so make sure you only write off your office if it’s a dedicated home workspace used solely and regularly for your Etsy business.
Have a home office? You can write it off with either:
The simplified option: Multiply the square footage of your office (up to 300 square feet) by the standard rate of $5.
The actual expense method: Add up the expenditures related to your home office, including:
Direct expenses, such as supplies for and repairs to your office. You can deduct these in full.
Indirect expenses, like your mortgage, insurance, and utilities. You’ll divide the total cost of these expenses by the percentage of your home that’s used for business.
3. Professional Development: You can write off the costs of any online courses, books, coaching fees, reference materials, workshops, and trainings that you used to grow your business.
4. Tools and Supplies: Don’t forget to deduct the cost of any supplies–from the materials you need to make your products to the packaging you use to ship them–that you rely on for your business. This also includes equipment for your shop, like a printer or kiln.
5. Etsy Fees: You can deduct the fees that Etsy charges to use their marketplace, including costs for publishing a listing and the transaction fee that they charge on each of your sales.
6. Office Supplies: Items that you buy for everyday office use, like pens, paper, postage, and notepads, are all deductible. Good news: you can still write these off even if you take the simplified home office deduction!
7. Cell Phone Bills: Do you use your phone exclusively for business? You can fully deduct related expenses (including the phone purchase and monthly bills). If you also use your phone for personal reasons, you should only deduct the portion used for business. The best way to do this is to calculate what percentage of your calls were work-related and then claim that percentage of your bill.
8. Business Cards: Designing and printing business cards is a deductible marketing expense.
9. Printing and Copying: Keep your receipt anytime you print or copy work-related materials like marketing flyers, brochures, and office records. Print jobs are deductible!
10. Advertising: When you invest in promoting your business, keep track of how much you spend! Online ads, signs, print ads, videos, website hosting fees, and more are all deductible, as well as the cost of hiring someone to make ads for you.
11. Parking: Anytime you have to pay for parking while you’re working, save your receipts; these expenses are deductible. Unfortunately, this doesn’t apply to parking tickets or traffic violations, so drive safely!
12. Tolls: Any toll fees you pay while working are tax deductible as long as they’re not already being reimbursed.
13. Subscriptions: You can write off the cost of any subscriptions that are useful for your business, including publications, journals, magazines, and newsletters.
14. Networking Costs: If you attend a craft show, conference, or trade show, keep track of your expenses… they’re deductible! You can even deduct travel and lodging expenses if you travel to the networking events. Meals are deductible when you’re away for business, but only up to 50 percent.
15. Health Insurance: As long as you don’t get health insurance via a spouse or employer, you can deduct 100 percent of your monthly premiums. Keep in mind that if you receive a government subsidy, you can only write off the amount you pay each month (not the original price of your plan). Note: your health insurance premiums are taken as a personal deduction on Form 1040, NOT deducted as a business expense.
Some Common Expenses You Can’t Deduct
The IRS deems some common expenses as non-deductible. These include:
Personal hygiene expenses, like haircuts, clothing that can be reasonably worn outside of work, and dry cleaning (unless it’s for a uniform)
Legal violation fees, like parking tickets or court fees
Commuting mileage if you work at a permanent office away from home
Life insurance premiums when you are the beneficiary, even if you take the policy out to secure a business loan
An Easy Way to Track Your Expenses
Have you tried our free expense tracker? Stride Tax is an app that makes it simpler than ever to find deductible expenses, take pictures of receipts, and automatically record business mileage.