your etsy gross is not your profit.
etsy's fees stack: listing, transaction, payment processing, offsite ads, shipping labels. by the time you net out, your 'gross sales' is 25–40% smaller. then the irs takes 15.3% se tax of what's left.
free 2026 etsy tax calculator: self-employment tax, mileage deduction at 72.5¢/mile, federal & state brackets, and quarterly estimated payments for etsy marketplace 1099 contractors.
your etsy math
the form arrives. or it doesn't. you still owe.
etsy's fees: $0.20 listing fee (per item, every 4 months), 6.5% transaction fee on sale price + shipping + sales tax, payment processing 3% + $0.25, offsite ads fee (12% on referred sales, mandatory after $10k sales/year). plus shipping label costs, packaging supplies, and product materials.
etsy's 1099-K reports gross — including the shipping you charged the buyer (which you then paid usps with) and any sales tax etsy collected (which you don't owe income tax on). that's not 'your income' but it shows up there. you have to back it all out on schedule c. missing this is one of the biggest sources of etsy seller tax mistakes.
5 deductions specific to etsy
every fee etsy charged you is a deductible commission/fee expense. download your etsy fee summary annually.
the postage you bought through etsy ships or usps — what you spent, not what you charged the buyer. the difference is your shipping income/loss.
yarn, fabric, beads, wood, ink, paint — anything that goes into your product. plus packaging: boxes, tape, bubble wrap, polymailers, thank-you cards.
if you have a dedicated craft space, percentage of home expenses deduct. measure the square footage.
photoshop, illustrator, canva pro, lightroom. camera, ring light, backdrop, tripod. all deduct.
part-time etsy seller in portland, jewelry, $32k gross sales, $14k etsy fees + supplies + shipping
$32k 'gross' on etsy's report. real profit after fees, supplies, shipping: ~$18k. or has high income tax (~9%). take-home: ~$13k. etsy looks like more money than it is — track everything.
etsy, specifically
etsy charged sales tax to my customers. do i owe income tax on that?+
no — etsy collects and remits sales tax on your behalf in most states. but it shows up in your 1099-K gross. back it out as a deduction (or it gets reported as cost of goods sold, depending on your accounting setup).
i sell on etsy AND my own shopify — combine?+
yes. one schedule c for 'handmade crafts seller' (or whatever your business is). all sales channels feed into it.
cost of goods sold — what counts?+
anything that directly becomes part of your product (materials) or directly enables you to make/sell it (supplies, packaging). cogs reduces gross income at the top of schedule c, before other deductions.
do i need a sales tax permit?+
depends on your state and where you have nexus. etsy handles most state sales tax, but if you ship from multiple states or have a physical retail presence, talk to a sales tax pro.
also drive, sell, host, or stream elsewhere? combine on one schedule c.
your etsy 1099 income gets added to every other gig you do for the year. one self-employment return covers all of it — and miles, fees, and home-office allocations may apply across platforms.