3 Tips for Preparing Your Taxes as an Etsy Seller
Posted on: 18 August 2020
Selling on Etsy has continued to grow in popularity. Etsy offers the opportunity for individuals to sell handmade goods as well as goods that require you to use your own creativity. If you are interested in setting up a shop, it is important to understand the tax implications of doing so.
Tip #1: Keep Track of the Cost of Producing Your Goods
First, you need to make sure that you keep track of the cost of producing your goods. When you are running a business, you get to take away the cost of producing your goods from the money that you make selling your goods.
If you are making a physical product, you need to keep track of all the items that you purchase to make your goods, from the disposable supplies that go into each item, to the equipment that you need to make whatever you sell. For example, if you make jewelry, you may need to purchase beads and string for each item you sell. However, you may also make one-time equipment purchases such as wire cutters or a special table for creating your jewelry.
Keep in mind that you are running a business, and you get to deduct the money you spend running your business from the money you make selling your products.
Tip #2: Keep Track of Digital Costs
Second, keep track of digital costs. If you pay for accounting software, for example, you want to keep track of that expense. If you pay for third party software accounts to create social media posts, keep track of those expenses as well. Or if you start a personal website to support your business as well, that is an expense you will want to keep track of. Make sure you are keeping track of all the money you spend promoting your business or creating materials for your business.
Tip #3: Save Up for Taxes
Third, you need to make sure you are saving some of the money that you make from your business to pay your taxes. You are going to need to pay self-employment tax as well as income tax on the money that you earn. You should also set aside money for state taxes, as well as local taxes if your city has an income tax that you have to pay. If this is your first year paying taxes, you can wait to pay your taxes until you file. However, you can also make quarterly payments on your taxes as well.
When it comes to selling online, it is important to understand that you are running a business. You should find an accountant to work with, so you can accurately keep track of your business finances, and be prepared for tax season. For more assistance, contact companies like Hough & Co CPA.
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