The Lowdown on Taxes for Etsy Sellers

Agenda

• Quick Overview of Annual Taxes

• Important Form: Your 1099-K

• Minimizing your Taxes

• Expenses & Costs of Goods Sold

• Deductions: Common deductions taken by Etsy sellers

• Automating your work with Outright

• Dealing with sales tax (time allowing)

For the purposes of this presentation, we are assuming you are a sole proprietor or LLC

Disclaimer (Our lawyers made us do it)

• This publication is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your own attorney, CPA, and/or other advisor regarding your specific situation.

• The information and all accompanying material are for your use and convenience only. We have taken reasonable precautions in the preparation of this material and believe that the information presented in this material is accurate as of the date it was written. However, we will assume no responsibility for any errors or omissions. We specifically disclaim any liability resulting from the use or application of the information contained in this material.

• To ensure compliance with requirements imposed by the IRS, we inform you that any US federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and it cannot be used for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. Always seek advice based on your particular circumstances from an independent advisor.

Filing your annual income tax return

Income Tax Filing is due April 15, 2013

(If you file for a tax extension, your tax filing is due 10/15/13)

Paying your income taxes

Estimated Taxes = 1/4th of your annual income tax

Due Dates:• Jan 15, 2013• Apr 15, 2013• June 17, 2013• Sept 16, 2013

“Quarterly estimated taxes” are just your annual income taxes paid

quarterly.

Profit

Profit = Revenue - ExpensesYou pay tax on this

Profit

Profit = Revenue - Expenses

Revenue includes ALL sales and other income!

Revenue: Form 1099-K

The 1099-K is a form that PayPal and Etsy send to you and to the IRS to report your revenue

Who will receive a 1099-K

• PayPal and Etsy will send 1099-K’s between 1/25/13 and 1/31/13

• You will get one if your 2012 PayPal or Etsy Direct Checkout sales met or exceeded:

$20,000 or more in sales AND 200 or more items sold

Notes:• Etsy and PayPal calculate this independently

• The limits are based on the total of all of your accounts through one provider

All of these are included in the 1099-K total!

• Shipping revenue

• Sales tax collected

• Fraudulent payments received

• Sales that were returned

How to handle the 1099-K

• Reconcile… make sure it’s right

• Expenses… lower your taxes

• Deductions… lower your taxes

• Double Check… your gross receipts

REDD It!

ReconcileREDD

Carol Brady

Reminder…. Profit

Profit = Revenue - ExpensesNow, we’ll talk about this

ExpensesREDD

Cost of Goods Sold

Things that go into making the items you sell

REDD

Deductions

• Make sure that you are taking all of the non-cash deductions you can

•Let’s talk about common deductions for Etsy sellers

REDD

Write off a percentage of your mortgage payment or rent and utilities

Home Office Deduction

• Follow the IRS rules, like “exclusively and regularly”

• Take a picture of your home office

REDD

Contribute to Retirement

• Retirement plans aren’t just for “big company” employees

– Individual 401(K)– SEP IRA

• Both allow you to defer your profits (and taxes) until retirement

REDD

Mileage

• Tracking Mileage:– Download Mile Bug or Outright for

your smart phone– Track your odometer at the start

and end of business trips… and start and end of the year

REDD

• Choose one deduction:– $0.55+1/2 cents per mile driven for business

OR (not and)– Actual vehicle expenses (gas, maintenance, repairs),

based on percentage of annual mileage used for business

Double Check

Double check that amount on Schedule C Line 1 matches or exceeds your 1099-K reported sales (Box 1)

REDD

Automating your work with Outright

Sign Up at Outright.com

Outright is Etsy’s preferred bookkeeping tool. It helps you see how you are doing and get ready for taxes.

Link Your Etsy Account

• Secure, Read-only connection• Outright imports and organizes your transactions• Repeat this process for all your business accounts

(PayPal, credit card, bank, etc.)

$51,453.42 XYZ Sellers

Steven Aldrich

Mike Henderson

Mike Henderson

Steven Aldrich

01/01/2012

01/01/2012

01/01/2012

01/03/2012

Import Your Business Income

Steven Aldrich

Mike Henderson

Mike Henderson

Steven Aldrich

Steven Aldrich

Mike Henderson

Mike Henderson

Steven Aldrich

$51,453.42 XYZ Sellers

01/01/2012

01/01/2012

01/01/2012

01/03/2012

View Income Detail

$51,453.42

XYZ Sellers

Etsy

Etsy

PayPal

Etsy

USPS Shipping

Etsy Fees

Etsy Fees

PayPal Fees

Etsy Fees

$5.65

PayPal PayPal Fees

PayPal PayPal Fees

Import Your Business Expenses

$51,453.42 XYZ Sellers

$51,453.42

XYZ Sellers

Etsy Fees

Etsy

PayPal

USPS

Etsy Etsy Fees

PayPal Fees

$5.65

Slot into IRS-Approved Expense Categories

$51,453.42$59,418.25

$51,453.42XYZ Sellers

$8,434.21

Etsy Account

$51,453.42 XYZ Sellers

Get an Overview of Biz Performance

$51,453.42 XYZ Sellers

Review your Profit and Loss

$51,453.42XYZ Sellers $51,453.42 XYZ Sellers

Etsy Fees $1,522.49Cost of Goods Sold $3,512.47

Analyze Spending Categories

$51,453.42

XYZ Sellers

$508.38

Review Schedule C Worksheet

$51,453.42XYZ Sellers

$4,423.27

4,423.27

2,433.56

9,873.97

1,911.65

$51,453.42 XYZ Sellers

Pay Your (Quarterly) Taxes

Outright Mobile….Available for iPhone!

Get Outright on the iPhone

Managing your sales tax obligation

Sales Tax

Nexus: Where do you have a physical location?• Your house or office• Selling at out-of-state craft shows• Employee Locations (or helpers)• Suppliers, in some unique circumstances

Investigate and Register: For your state(s), find out:• Requirements• Rates• Exempt Items• How to Register

http://outright.com/blog/sales-tax-resources-for-online-sellers-in-every-state/

Collect and Remit

Collection is the easy part: http://www.etsy.com/help

Track and Remit Payment: