Expenses for promoting your products, such as Etsy Ads, social media campaigns, or sponsored posts, are deductible. Without knowing your COGS, you might unknowingly underprice your products, eating into your earnings. If Etsy promotes your product through offsite ads and it leads to a sale, you’ll be charged 12% to 15% of the sale price. If your shop is growing or you work with bulk suppliers, Accrual-Based Accounting might give you a clearer view of your Retail Accounting finances.
Sales Tax Collection by Etsy
- Yet, many Etsy sellers still rely on disconnected Etsy accounting methods or systems, making it more complicated than needed.
- Start your free 14-day trial today and take control of your Etsy accounting.
- While running multiple stores on Etsy can be rewarding, it’s important to weigh these challenges against the benefits.
- Whether you use a software program or create your own Excel spreadsheet, make sure that you have a consistent way of recording and tracking your transactions.
However, if the customer chooses cash on delivery, you will receive the payment only after the product reaches the buyer. In this case, instead of recording income summary the revenue at the time of sales, it is recorded at the time of delivery. If your Etsy shop’s transactions fall under Marketplace Facilitator (MFV) rules, Etsy handles collecting and remitting sales tax or VAT for you.
Keep track of your inventory
Remember to account for Etsy costs and other expenses related to your online business when you price merchandise, prepare your taxes, and calculate your return on investment. Otherwise, you could end up underpricing your products, overvaluing your success, or missing tax deductions and overpaying on your taxes. Since most Etsy businesses gross less than $10,000 annually, the majority of sellers only need to pay sales tax for their state of residence. State thresholds for nexus are typically at least $100,000 in gross revenue. Be sure to check the laws in your state to determine whether or not you’re required to collect sales tax. For example, in some places, sales tax is required for goods, but not services.
Regularly Review Your Financial Data
Bookkeeping is tracking and organizing financial transactions and ensuring accurate records of income, expenses, and taxes. For Etsy sellers, this means recording every sale, accounting for Etsy fees, tracking inventory costs, and preparing financial reports. Keeping track of your Etsy finances is essential for managing cash flow, filing taxes, and growing your shop. Tools like QuickBooks or Webgility automate transaction tracking, expense categorization, and tax calculations. Open a dedicated business checking account and credit card to keep transactions clear. Record every sale, fee, and expense to monitor profits and avoid surprises at tax time.
It would be best if you kept a detailed record of all your transactions, invoices, tax documents, and any other records that may affect your business. Good record-keeping bookkeeping for etsy sellers practices can make tax time much less stressful and help you track your business’s financial health. This information is reported on Schedule C (Form 1040), which details income and expenses.