There is only one way to run a business – pay your taxes and enjoy your profit. Basically, either you know and adhere to the laws the IRS enforces or you’ll have to live with the fear that one day auditors could knock on your door. According to recent statistics, since 2016, if your yearly income is over $1 million you face a 5.8% chance of being audited. Of course, if you try to hide your revenue, there is no need to wait until your income reaches millions. You can be audited while running your own small business. That is why it is important to understand if and how Etsy report sales to the IRS. As a consequence, it will be easier for you to understand which tax duties you have to deal with.

When do you have to pay your taxes?

Basically, when you decide to sell your children’s boots, there shouldn’t be any tax consequences. However, when you decide to sell vintage or handmade items on Etsy, paying your taxes is a must. Etsy requires you to pay your taxes and report your net income. However, there is one scenario where you don’t have to pay taxes, which is when your income is less than your expenses. In a situation like this, your store might be qualified as a hobby. That is the only way to run a business on Etsy without paying taxes.

Does Etsy report sales to the IRS?

As mentioned before, it is necessary to pay taxes if you own an Etsy shop and treat it as a business. In this case, Etsy report sales to the IRS on Form 1099-K, so basically, you do not have to worry about making additional reports on your own. However, keep in mind that you should deduct any business expenses that come from your Etsy shop. That could be expenses for shipping and advertising, the cost of materials, etc. This way, you can reduce your taxable income, and pay less for your taxes.