Etsy, like other marketplaces, is required by US law to send both you and the IRS a 1099-K tax form. This form is designed to report all sales made via the marketplace to the tax authority. The IRS uses this form to match your reporting of sales to the records they have on file for your business.
Previously, Etsy only issued a 1099K if you received more than 200 payments via Etsy Payments; or alternatively, made over $20,000 a year on the platform.
The American Rescue Plan, recently put into law by the Biden administration, has changed this threshold substantially. From Jan 1, 2022, US Etsy sellers that sell over $600 will now receive a 1099-K tax form.
If you are already reporting your earnings to the IRS, this will not have much of an impact on your business as the form merely verifies your reportable revenue for comparison with your filings.
For anyone running what they have previously considered to be an Etsy “hobby business” (we discuss the difference between a hobby and a business here) this will have a significant impact. For many sellers in this category, this will mean that they need to get serious about their handmade business this year…or stop selling entirely to avoid backdated and future taxes and penalties.
While it may seem daunting to take the step of running your handmade business legitimately, it’s quite simple in the US - you don’t even need to register a company, you can simply start by providing your SSN to Etsy, keeping track of your expenses and revenue and lodging your Schedule C alongside your personal tax return.
There are many benefits to consider in starting your own handmade business - you can claim the costs of your inventory and the cost of producing your products, and even claim mileage on your car and the use of your home office. All of these deductions can make a huge impact on your tax bill, and in some cases even result in a refund.
To ensure that you are covering the costs of running your handmade business, the first step to take is to start being aware of your expenses and adjust your pricing to ensure you are still making a profit. Our blog post here has some great tips and tricks to use: How to set the right price for your handmade products