HOW TAXES WORK for Etsy sellers (Etsy finances explained)

About this video

Hayes interviews Janet LeBlanc, a CPA who runs Paper and Spark, on how taxes work for Etsy and other online sellers. LeBlanc explains there are two main tax types: sales tax, governed by each state, and income tax, overseen federally by the IRS. Income tax applies to net profit (sales minus expenses); most online sellers file it on Schedule C with their personal return, due April 15, lumped together with any W-2 income. LeBlanc says if Schedule C profit is more than $400 you also owe self-employment tax, which Hayes states is currently 15.3%, covering the Social Security/FICA amounts an employer would otherwise withhold. Estimated quarterly taxes are prepayments of that bill; LeBlanc gives a rule of thumb to consider them if you expect to owe more than $1,000, suggests Form 1040-ES to estimate, and notes some sellers instead increase W-2 withholding. On sales tax, the customer pays it and the seller remits it. Sellers generally still need a sales tax permit in their home state and must file returns there even though, as a marketplace facilitator, Etsy now collects and remits sales tax on Etsy sales, so those sales are reported as non-taxable/exempt to avoid double-paying. For your own website, you generally only set up sales tax where you have nexus — usually just your physical-presence state; LeBlanc says economic nexus typically applies only above a high threshold, usually over $100,000 in sales into a state. She recommends tracking sales and expenses from the start (a spreadsheet, Paper and Spark spreadsheets or QuickBooks are mentioned), saving digital receipts for three to seven years, and logging business mileage.

Key takeaways

• Income tax is on net profit (sales minus expenses) and most sole proprietors and LLCs taxed as sole proprietors report it on Schedule C with their personal April 15 return
• LeBlanc says Schedule C profit over $400 triggers self-employment tax — stated in the video as currently 15.3% — which replaces the Social Security/FICA withholding a day-job employer would do
• Estimated quarterly taxes are prepayments: LeBlanc’s rule of thumb is to consider them if you expect to owe more than $1,000, using Form 1040-ES to estimate, or increase W-2 withholding instead
• Etsy, as a marketplace facilitator, now collects and remits sales tax on Etsy sales, but sellers generally still need a home-state sales tax permit and must file there, reporting Etsy sales as non-taxable/exempt to avoid double-paying
• On your own site you generally only charge sales tax where you have nexus — usually your home state; LeBlanc says economic nexus typically kicks in only above about $100,000 in sales into another state

Episode details: published November 29, 2022 · 46:59 long. Summary written by Self Growth Videos from the episode itself. Business results and any income figures mentioned are Kate Hayes’s own claims, shared for education — they are not typical or guaranteed.

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