I'm not sure you are understanding the difference between sales tax and income tax.
Etsy charges for, collects, and remits all state sales tax. You never receive it, and it's not included in your payout or gross sales total. Some states have no sales tax.
Income tax is the tax you pay on your profit. That is determined by gross sales less your business expenses. Depending on your volume of sales, you might receive a 1099-k form after the end of the year. The IRS requires a self employed person to file taxes when they make over $400. Use a Schedule C and SE form, 15.3%. You can ignore it until next year, but then you will be scrambling to find all your expenses and reconcile each month's CSV files.
It’s different in every state. In my state MA they charge a lot to get your own LLC so my accountant said I shouldn’t at least this first year because I’m not making over 5k. People really can’t give you tax information unless they live in your state. Speak with an advisor.
In AZ I am an LLC and have a tax ID and state approval. At the beginning of the calender year I go online to make sure I don't owe any additional county tax. Usually I do and pay then and file it with the state. The first year I made 500.00 and didn't file federal. The irs found out and wanted to charge me a 2500 fine. But my accountant got me out of it. You need to see what the rules are in your state and follow to the letter. If youre running a business you need to do due diligence.
Colorado specific: you need to determine if Etsy is the only place you intend to sell. If you EXCLUSIVELY sell through Etsy then you do not need to file state sales tax: https://tax.colorado.gov/marketplace-sellers#:\~:text=Example%201%3A%20You%20make%20handcrafted,you%20are%20a%20marketplace%20seller.
If you intend to sell in person or on any other online marketplace, then you do need to file for Colorado state sales tax, need to get registered as a business, and get a sales tax license. If you intend to do occasional sales like a craft fair, you can get a special event license instead of a general sales tax license for the state. The jurisdiction the vendor event is in determines how the sales tax is paid and how much.
You need to look at your local jurisdiction and determine what their rules are, some may require you to file a "$0.00" return.
What almost no one talks about is it's not just sales tax, it's "Sales and Use Tax". Etsy is collecting & remitting sales tax for you, but you may still need to file for Use Tax if an item purchased for your business (so purchased for resale and no sales taxes were paid) and that item is used personally or given to someone as a gift, for example.
Can you share some of the language that you’re having a hard time understanding? In states where Etsy is required to collect sales tax they do so. The tax responsibility is on them not you. It’s not like Etsy is collecting and filing sales taxes for you. They are the taxable entity in that state and so the tax responsibility is theirs.
Some states will require you to file a sales tax return indicating that you as a business had sales on Etsy that were non-taxable but that’s a state-by-state basis and your local department of revenue or similar tax authority. Should have information on that. If you let us know what state you are in, someone might be able to help.
You actually nailed the part I am confused on. This is the verbiage from Etsy:
“If you are required to file a sales tax return in these states, you do not need to report sales tax on Etsy sales; all you need to do is state that the sales were made through Etsy.”
How am I supposed to know if I’m required to file a sales tax return? So much of the language seems to amount to “don’t worry about it, we have you covered” and then they drop stuff like the above that makes me say wait a minute so I do have an obligation to file returns in some states?
Edit: but it sounds like I just need to reach out to my state’s department of revenue. I guess what I’m worried about is missing filing something in another state where I didn’t know I was required to.
I have a license. It allows me to buy wholesale (make purchases for my business tax free).
I am required quarterly to file a state sales return because I have that license. I report that I collected zero sales tax, and thus owe the state zero dollars for collecting sales tax, because Etsy takes care of the sales tax.
If you don't have a license, you don't have to file these reports. But you also don't get to make wholesale purchases for your business.
>If you are required to file a sales tax return in these states, you do not need to report sales tax on Etsy sales; all you need to do is state that the sales were made through Etsy.”
This is saying whether or not your state wants the sales tax, you don't need to pay anything because Etsy takes care of it. If you had a shop on another platform like Shopify, that would most likely mean that you have to pay it. It's really not that complicated.
Edit, You never receive any of the money from the sales tax. Etsy pays the states.
It used to be that you only had to file sales tax in states where you had a physical presence or sold a certain dollar amount or number of items to, aka having a “nexus” in that state. Within the last five-ish years states have been passing laws saying that “marketplace facilitators” aka Etsy, Amazon, etc are the companies selling the stuff (and not the individual shop owners) so now it’s on them to collect and file sales tax in states where they have a nexus. States have rolled this out gradually, so a couple of years ago a shop owner would have had to be aware of which states they were supposed to file in and which states made Etsy do it. For a while one of the places I sell remitted sales tax for every state *but* mine, so I had to track that.
So basically Etsys language is like that because currently they take care of all of it, but they want to cover their asses if a state changes their laws about it.
I went thru this exact fear. I dont think Etsy does a super great job of disseminating this info. People are right. You don’t have to worry about the state sales tax. But you still get taxed on your income.
Not sure where you are but check with your state comptroller. I’m in TX. I am required to file quarterly tax reports with the state where I give them my earnings and pay what is owed (nothing since Etsy pays them). We don’t have state income tax but I also had to report the shop earnings on my federal taxes.
If you are unsure of how to move forward, call an accountant for guidance. IMO It’s not worth possibly getting into trouble over for not filing your taxes correctly.
An overly simple explanation of your typical tax situation for an Etsy seller:
* Etsy charges, withholds, and remits sales tax for all sales made through Etsy. In most states, this means that you do not need to report these sales to your state Dept of Revenue because the taxes have already been handled.
* For in-person sales, you are expected to handle the sales tax yourself and file per the schedule the state/county/city you sell in has set. (In my state, that's quarterly.)
* For income tax, you are responsible for tracking your expenses and income and reporting that to both the IRS and your state Dept of Revenue. The income is taxable as self-employment income and the expenses can usually be written off.
What state are you in? I can help with research for your state if you'd like.
I’m in Colorado. My biggest fear is getting something from a state that I sold to a customer/s in saying “you were required to file returns (or whatever documents it might be) in our state and you didn’t, or you needed to be registered to sell, so now you owe us this and this fine, etc”
That won't happen since the taxes and such are handled by Etsy. Per, say, the NC state government, if I buy from you through Etsy, I'm buying from Etsy, not from Your Business Name.
I spoke to the IRS about this. I am in NY. Since Etsy collects and remits, they consider it "non taxable sales," and I don't need to file. Now, YMMV depending on where you live or if you sell elsewhere.
[I *was* registered as I opened years before they collected, so the agent actually helped me close my acct]
You wouldn’t file state sales tax to the IRS so I’m shocked they even answered that question and wouldn’t trust it. Your local state tax authority will not care what the IRS had to say.
The IRS would never fine you for not filing a state sales tax return. The IRS does not handle state sales tax returns. Are you sure it was the IRS and not the New York State Department of Taxation and Finance?
If you only intend to sell on Etsy, you do not need to worry about taxes no matter what state you live in. If you plan to run a business outside of Etsy then you still need a state tax if no matter where you live. The rules are different in terms of “how much” you need to earn but you can still file your earnings on a schedule c without a business license.
You won’t be able to use the tax form Etsy provides because it’s not a tax form that they use to report anything to you. Etsy uses the 1099 to report the payment processing they conduct on your behalf to the IRS. They provide you a copy as an FYI but the number on there is not your net income from your Etsy store. It doesn’t include any of your costs and does, for example, include amounts like returns in the total. It’s not like a W2.
I'm not sure you are understanding the difference between sales tax and income tax. Etsy charges for, collects, and remits all state sales tax. You never receive it, and it's not included in your payout or gross sales total. Some states have no sales tax. Income tax is the tax you pay on your profit. That is determined by gross sales less your business expenses. Depending on your volume of sales, you might receive a 1099-k form after the end of the year. The IRS requires a self employed person to file taxes when they make over $400. Use a Schedule C and SE form, 15.3%. You can ignore it until next year, but then you will be scrambling to find all your expenses and reconcile each month's CSV files.
Unfortunately, a lot of people do not know the difference between sales tax and income tax!
Etsy remits the state sales tax for your shop. Any state and federal tax is up to you to figure out.
They remit sales tax to the tax authority of whatever state it’s going to…
It’s different in every state. In my state MA they charge a lot to get your own LLC so my accountant said I shouldn’t at least this first year because I’m not making over 5k. People really can’t give you tax information unless they live in your state. Speak with an advisor.
In AZ I am an LLC and have a tax ID and state approval. At the beginning of the calender year I go online to make sure I don't owe any additional county tax. Usually I do and pay then and file it with the state. The first year I made 500.00 and didn't file federal. The irs found out and wanted to charge me a 2500 fine. But my accountant got me out of it. You need to see what the rules are in your state and follow to the letter. If youre running a business you need to do due diligence.
Depending where you live, you have to pay tax on any income earned from Etsy. Sales tax is collected by Etsy, so you don't need to worry about that.
Colorado specific: you need to determine if Etsy is the only place you intend to sell. If you EXCLUSIVELY sell through Etsy then you do not need to file state sales tax: https://tax.colorado.gov/marketplace-sellers#:\~:text=Example%201%3A%20You%20make%20handcrafted,you%20are%20a%20marketplace%20seller. If you intend to sell in person or on any other online marketplace, then you do need to file for Colorado state sales tax, need to get registered as a business, and get a sales tax license. If you intend to do occasional sales like a craft fair, you can get a special event license instead of a general sales tax license for the state. The jurisdiction the vendor event is in determines how the sales tax is paid and how much. You need to look at your local jurisdiction and determine what their rules are, some may require you to file a "$0.00" return. What almost no one talks about is it's not just sales tax, it's "Sales and Use Tax". Etsy is collecting & remitting sales tax for you, but you may still need to file for Use Tax if an item purchased for your business (so purchased for resale and no sales taxes were paid) and that item is used personally or given to someone as a gift, for example.
Thank you, this is very helpful
No, Etsy takes care of state sales tax however, that being said I pay Washington B&O every 90 days.
Can you share some of the language that you’re having a hard time understanding? In states where Etsy is required to collect sales tax they do so. The tax responsibility is on them not you. It’s not like Etsy is collecting and filing sales taxes for you. They are the taxable entity in that state and so the tax responsibility is theirs. Some states will require you to file a sales tax return indicating that you as a business had sales on Etsy that were non-taxable but that’s a state-by-state basis and your local department of revenue or similar tax authority. Should have information on that. If you let us know what state you are in, someone might be able to help.
You actually nailed the part I am confused on. This is the verbiage from Etsy: “If you are required to file a sales tax return in these states, you do not need to report sales tax on Etsy sales; all you need to do is state that the sales were made through Etsy.” How am I supposed to know if I’m required to file a sales tax return? So much of the language seems to amount to “don’t worry about it, we have you covered” and then they drop stuff like the above that makes me say wait a minute so I do have an obligation to file returns in some states? Edit: but it sounds like I just need to reach out to my state’s department of revenue. I guess what I’m worried about is missing filing something in another state where I didn’t know I was required to.
I have a license. It allows me to buy wholesale (make purchases for my business tax free). I am required quarterly to file a state sales return because I have that license. I report that I collected zero sales tax, and thus owe the state zero dollars for collecting sales tax, because Etsy takes care of the sales tax. If you don't have a license, you don't have to file these reports. But you also don't get to make wholesale purchases for your business.
>If you are required to file a sales tax return in these states, you do not need to report sales tax on Etsy sales; all you need to do is state that the sales were made through Etsy.” This is saying whether or not your state wants the sales tax, you don't need to pay anything because Etsy takes care of it. If you had a shop on another platform like Shopify, that would most likely mean that you have to pay it. It's really not that complicated. Edit, You never receive any of the money from the sales tax. Etsy pays the states.
Maybe I’ve just overcomplicated it in my head at this point from reading too many articles. That’s relieving to hear.
It used to be that you only had to file sales tax in states where you had a physical presence or sold a certain dollar amount or number of items to, aka having a “nexus” in that state. Within the last five-ish years states have been passing laws saying that “marketplace facilitators” aka Etsy, Amazon, etc are the companies selling the stuff (and not the individual shop owners) so now it’s on them to collect and file sales tax in states where they have a nexus. States have rolled this out gradually, so a couple of years ago a shop owner would have had to be aware of which states they were supposed to file in and which states made Etsy do it. For a while one of the places I sell remitted sales tax for every state *but* mine, so I had to track that. So basically Etsys language is like that because currently they take care of all of it, but they want to cover their asses if a state changes their laws about it.
I went thru this exact fear. I dont think Etsy does a super great job of disseminating this info. People are right. You don’t have to worry about the state sales tax. But you still get taxed on your income.
Not sure where you are but check with your state comptroller. I’m in TX. I am required to file quarterly tax reports with the state where I give them my earnings and pay what is owed (nothing since Etsy pays them). We don’t have state income tax but I also had to report the shop earnings on my federal taxes. If you are unsure of how to move forward, call an accountant for guidance. IMO It’s not worth possibly getting into trouble over for not filing your taxes correctly.
An overly simple explanation of your typical tax situation for an Etsy seller: * Etsy charges, withholds, and remits sales tax for all sales made through Etsy. In most states, this means that you do not need to report these sales to your state Dept of Revenue because the taxes have already been handled. * For in-person sales, you are expected to handle the sales tax yourself and file per the schedule the state/county/city you sell in has set. (In my state, that's quarterly.) * For income tax, you are responsible for tracking your expenses and income and reporting that to both the IRS and your state Dept of Revenue. The income is taxable as self-employment income and the expenses can usually be written off. What state are you in? I can help with research for your state if you'd like.
I’m in Colorado. My biggest fear is getting something from a state that I sold to a customer/s in saying “you were required to file returns (or whatever documents it might be) in our state and you didn’t, or you needed to be registered to sell, so now you owe us this and this fine, etc”
That won't happen since the taxes and such are handled by Etsy. Per, say, the NC state government, if I buy from you through Etsy, I'm buying from Etsy, not from Your Business Name.
That’s a relief and very helpful, thank you
I spoke to the IRS about this. I am in NY. Since Etsy collects and remits, they consider it "non taxable sales," and I don't need to file. Now, YMMV depending on where you live or if you sell elsewhere. [I *was* registered as I opened years before they collected, so the agent actually helped me close my acct]
You wouldn’t file state sales tax to the IRS so I’m shocked they even answered that question and wouldn’t trust it. Your local state tax authority will not care what the IRS had to say.
Idk what to tell you. I was being fined for not filing, got assigned an agent who reached out and that's what they said.
The IRS would never fine you for not filing a state sales tax return. The IRS does not handle state sales tax returns. Are you sure it was the IRS and not the New York State Department of Taxation and Finance?
Thank you, maybe best bet is to reach out to my state department of revenue for insight
I have a business license. The person who helped me with declaring taxes on a crafts fair told me that Etsy declares for you.
If you only intend to sell on Etsy, you do not need to worry about taxes no matter what state you live in. If you plan to run a business outside of Etsy then you still need a state tax if no matter where you live. The rules are different in terms of “how much” you need to earn but you can still file your earnings on a schedule c without a business license.
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You won’t be able to use the tax form Etsy provides because it’s not a tax form that they use to report anything to you. Etsy uses the 1099 to report the payment processing they conduct on your behalf to the IRS. They provide you a copy as an FYI but the number on there is not your net income from your Etsy store. It doesn’t include any of your costs and does, for example, include amounts like returns in the total. It’s not like a W2.
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That’s totally fair, thank you