Claiming Etsy Shipping Label Costs on Schedule C: A Maker's Tax Guide

If you sell on Etsy and ship your products, you’re spending real money on postage every time an order goes out the door. The good news: those shipping label costs are deductible. The part that trips up most Etsy sellers is where on Schedule C they actually go.

Shipping costs don’t go into your Cost of Goods Sold. They don’t have their own named line in Part II. And the boxes and tape you buy to pack your orders? Those land somewhere different again.

This guide covers exactly where each type of shipping expense belongs on your Schedule C, with the correct line numbers for the 2025 tax year (filed in 2026).

Why Shipping Costs Aren’t Part of COGS

Shipping costs aren’t included in Cost of Goods Sold (COGS) because they’re not a direct cost of making your product.

COGS captures what it costs you to actually manufacture each item — the raw materials that go into it and the direct labour involved. Shipping is something you pay after the product exists, to get it from you to the customer.

The IRS draws a clear line here: COGS (reported in Part III of Schedule C) covers manufacturing and acquisition costs. Shipping is an indirect expense — it belongs in Part II with your other operating expenses.

This matters practically because COGS and indirect expenses are calculated differently and affect your tax return in slightly different ways. Getting them in the right bucket keeps your books accurate and avoids questions from the IRS.

Two Types of Shipping Costs — Two Different Lines

Most Etsy sellers have two distinct categories of shipping expense:

1. Shipping label costs — the postage you pay to actually ship the package (via Etsy Labels, USPS, UPS, etc.)
2. Shipping supplies — the boxes, mailers, bubble wrap, packing tape, tissue paper, and other materials you use to pack orders

These go on different lines of Schedule C, and it’s worth understanding both.

Where Shipping Label Costs Go: Part V and Line 27a

Postage and shipping label costs belong in Part V: Other Expenses on page 2 of Schedule C (listed as its own line entry), and that total flows through to Line 27a in Part II.

Schedule C doesn’t have a dedicated “Postage” or “Shipping” line in Part II — there’s no Line 18 labelled postage, for example. Instead, the IRS provides Part V specifically to capture legitimate business expenses that don’t fit the named categories. This is where your Etsy shipping label costs live.

How to fill it out:

1. Go to Part V (page 2 of Schedule C, Other Expenses)
2. On one of the blank lines, write “Postage and shipping” in the description column
3. Enter the total amount you spent on shipping labels for the year
4. This total rolls into Line 48, which then carries to Line 27a in Part II

You can combine all postage costs into a single line entry — Etsy Labels, any third-party carrier costs, postage stamps used for business — as long as they’re all legitimate business shipping expenses.

Where Shipping Supplies Go: Line 22

The physical materials you use to pack your orders — boxes, bubble wrap, mailers, packing tape, tissue paper, kraft paper, padded envelopes — go on Line 22: Supplies in Part II of Schedule C.

The IRS description for Line 22 is “supplies not included in Part III,” which means supplies you use in running your business that aren’t materials that became part of a product you sold. Packing materials fit exactly here.

This is an important distinction: if you’re a candle maker, the wax, fragrance oil, and wicks go into COGS (Part III). The box you put the finished candle in to ship it goes on Line 22.

What counts as Line 22 shipping supplies:

• Cardboard boxes and mailers
• Bubble wrap, foam padding, tissue paper
• Packing tape and dispensers
• Kraft paper, crinkle fill, packing peanuts
• Thank-you cards or inserts included in every order (if purchased in bulk for business use)
• Poly mailers and padded envelopes

How to Find Your Etsy Shipping Label Totals

Before you can claim the deduction, you need the number. Etsy makes this reasonably straightforward if you know where to look.

The easiest method is to download your shipping label fee totals from Etsy. Etsy tracks your shipping label purchases in your Payment Account — you can filter by date range and export the totals.

For the 2025 tax year, you’ll want the total for 1 January 2025 through 31 December 2025.

A few things to keep in mind as you pull this number:

Shipping discounts: Etsy sellers get a discount on shipping labels compared to retail rates. The figure in your Etsy account shows what you actually paid (after the discount), which is the correct amount to deduct.

Buyer-paid shipping: If a customer pays for shipping at checkout and that money flows through to your Etsy Payments, you’ve already accounted for it in your revenue. You only deduct what you paid out of pocket. In most standard setups, Etsy collects the shipping fee from the buyer and uses it to pay for the label — so the net cost to you may be lower than the gross label cost. Check your Payment Account statement carefully.

Free shipping: If you offer free shipping, the full label cost is your expense and fully deductible since it’s not offset by any customer payment.

Completing Schedule C Step by Step

Once you have your figures, here’s how to enter them:

For shipping label costs (postage):

1. Complete Part III first if you have COGS (this doesn’t include shipping)
2. Move to Part V (Other Expenses) on page 2
3. Add a line: Description = “Postage and shipping”, Amount = your total label costs
4. Sum all Part V lines into Line 48
5. Line 48 carries forward to Line 27a in Part II

For shipping supplies:

1. In Part II, find Line 22: Supplies
2. Enter your total shipping supply purchases for the year
3. If you also have other supply expenses (studio supplies, non-material tools, etc.), add them to the same line — Line 22 captures all business supplies

A note on record-keeping: Keep your Etsy label export, your supplier receipts for boxes and packaging materials, and any other shipping-related documentation. The IRS generally requires you to substantiate business expense deductions if asked. A folder — digital or paper — with your key reports and receipts is all you need.

Common Mistakes to Avoid

Putting shipping in COGS: This is the most common error. Shipping is not a direct manufacturing cost, so it doesn’t belong in Part III. It goes in Part II (or Part V for the postage line).

Forgetting shipping supplies entirely: Many sellers remember to deduct their label costs but forget to separately track and deduct the boxes, tape, and padding. These are real expenses — they add up, especially for high-volume sellers.

Claiming the gross label amount when the customer paid for shipping: If a buyer paid $8 for shipping and Etsy used that to buy a $7.50 label, your expense is $0 (or close to it, if there’s a small discrepancy). Don’t deduct what the customer covered.

Mixing personal and business postage: If you occasionally use stamps for personal mail, only deduct the stamps used for business purposes. Most makers doing significant Etsy volume have almost entirely business postage, but it’s worth keeping separate.

Not tracking supplies throughout the year: If you wait until tax time to total up your box and packaging purchases, you’ll likely miss some. A simple running tally — in a spreadsheet or an inventory system — makes this much easier at year end.

Using Software to Track Shipping Costs Automatically

Tracking these costs manually across an entire year gets tedious quickly, especially if you’re doing significant volume or ordering supplies from multiple suppliers.

Craftybase connects directly with your Etsy shop and imports your expenses — including shipping-related costs — so you can see your true numbers throughout the year, not just at tax time. When it’s time to file, pulling your totals for Schedule C takes minutes rather than hours of spreadsheet archaeology.

For a full walkthrough of how Schedule C works for handmade sellers, including Part III COGS, the home office deduction, and vehicle expenses, see our Schedule C guide for makers. And if you’re unsure how COGS and shipping costs interact on your return, our guide to COGS on Schedule C for handmade sellers covers the full picture.

Frequently Asked Questions