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Etsy income is it a hobby or a business?

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  • Etsy income is it a hobby or a business?

    Looking at opening a Etsy account and during the research I got more confused on reporting income. I would like to keep it as a hobby but if I understand the tax situation is I have to report the income but starting in 2018 unable to deduct the expenses. Since it is a hobby I am not too concerned with my time but should be able to deduct wood and fees and postage shipping boxes etc. If I make it a business I can deduct expenses but also have to pay self employment taxes.
    My goal is to cut down the number of carvings I have sitting around gathering dust. I do donate a few to different benefits and family and friends but have quite a few sitting around.
    Would appreciate any advise on the hobby/business aspect of the income from an Etsy account.
    Great site and appreciate all the knowledge available here. Thanks Steve

  • #2
    Steve,

    There are probably folks here who can better answer your question. I’m thinking this is an accountant question, and guessing it depends on the amount of revenue you anticipate from your sales. I’d suspect an accountant can tell at what dollar amount it’s a business not a hobby.
    Last edited by Nebraska; 01-18-2020, 03:01 PM.
    Ed
    https://www.etsy.com/shop/HiddenInWood
    Local club
    https://www.facebook.com/CentralNebraskaWoodCarvers

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    • #3
      It's been a while since I took an Income Tax class, but the rule used to be that you had to show a profit in 3 out of 5 years, or it's all a hobby. Hobby: You have to declare all income from sales of your carvings. You cannot deduct cost of tools, wood, shipping, or anything else. Business: You have to declare all income from sales of your carvings. You CAN deduct cost of tools, wood, shipping, etc. You can deduct the cost of training, such as attending the Renegade Rendezvous in Tennessee, including your food and lodging. You can deduct the mileage cost of driving your car to the P-ost Office to ship something. You can deduct the mileage cost of going to hobby store to buy paint/brushes, which are also deductible... It's all done on Schedule C. If you show a net profit after all your expenses are subtracted from your income, then you DO have to pay self-employment taxes on the net earnings. According to the 2019 Schedule SE, you multiple your net earnings from the business by 0.9235. If the amount is under $400, you don't owe any self-employment tax. If it's over $400, you multiply by 0.153 to figure your tax. One-half of the SE tax is deductible from your gross income on Schedule 1040, however... As a simple example, if you make $1,000 net earnings after expenses are deducted, your SE tax is $153, but half is deductible so you'd owe $76.50...
      Note: I am NOT a tax attorney or CPA, so the advice is only my interpretation of the current law and could be incorrect.

      I do operate my ETSY shop as a business, so I declare my net income (or loss) each year.
      Claude
      My FaceBook Page: https://www.facebook.com/ClaudesWoodCarving/

      My Pinterest Page: https://www.pinterest.com/cfreaner/

      My ETSY Shop: https://www.etsy.com/shop/ClaudesWoodcarving

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      • #4
        Appreciate the replies and some good information!

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        • #5
          You should definitely ask a professional or a more knowledgeable person in this domain. Because on the internet people have different opinions on this. For example, I think that it is profitable to sell on it, but it will become more than a hobby. I am still new to this; now, I am taking online marketing classes. My last subject was actually the cash flow importance in a company. That really got my interest, and I even found some good cash flow forecasting software (contact me for a link). I am surprised how many details are valuable for a company to live.
          Last edited by Claude; 04-27-2021, 02:43 PM. Reason: Removed non-wood-carving-related link

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