Etsy Tax Deductions Checklist (2026)
A checklist of common expense categories Etsy sellers track for tax purposes — materials, platform fees, shipping, home office, software, and more.
By Marginory team · Online sellers with hands-on experience across Etsy, Shopify & PODUpdated Fee data verified against official platform documentation
Not tax advice. This checklist is general information to help you organize records, not personalized tax guidance. Marginory is not an accounting or tax preparation firm. Whether a specific item is deductible for your situation depends on facts a licensed CPA or tax professional needs to review — consult one before filing.
Etsy sellers running a for-profit shop can generally deduct ordinary and necessary business expenses against their shop income. The categories below cover the expense types Etsy sellers most commonly track — use it as a starting checklist for gathering receipts and records, not as a determination of what you personally can claim.
Materials & inventory
- Raw materials used to make products (fabric, yarn, beads, clay, wood, etc.)
- Wholesale or bulk inventory purchased for resale
- Packaging supplies (boxes, mailers, tissue paper, tape, labels)
- Tools and equipment used directly in production (worth checking whether it's a one-time deduction or depreciated)
Etsy & marketplace fees
- Etsy listing fees ($0.20 per listing/renewal)
- Etsy transaction fees (6.5% of sale price + shipping)
- Etsy Payments processing fees
- Offsite Ads fees, when charged
- Etsy Plus subscription, if you use it
- Pattern by Etsy subscription, if applicable
Shipping & fulfillment
- Postage and shipping labels
- Shipping software subscriptions (e.g. Pirate Ship)
- Insurance on shipments
- Fulfillment or print-on-demand provider fees (Printify, Printful, etc.)
Home office & workspace
- A percentage of rent or mortgage interest, utilities, and homeowners/renters insurance for a dedicated business-use space
- The IRS has specific rules for what qualifies as a home office (regular and exclusive business use) — this is a common area sellers overclaim, so keep documentation
Software & tools
- Etsy SEO or keyword research tools (e.g. eRank)
- Accounting/bookkeeping software (e.g. QuickBooks)
- Design software subscriptions
- Photo editing tools
- Cross-listing or inventory management tools
Vehicle & mileage
- Mileage for business-related driving — post office runs, craft supply store trips, craft fairs
- See the dedicated mileage deduction guide for how to calculate this correctly
Advertising & marketing
- Etsy Ads (onsite) spend
- Social media advertising
- Business cards, promotional materials
- Website or domain costs, if you run one alongside your shop
Professional services
- Accountant or bookkeeper fees
- Tax preparation software or professional tax prep fees
- Business insurance premiums
- Legal fees related to the business (e.g. LLC formation)
A simple habit that makes tax time easier
The single most useful habit is separating business and personal spending — a dedicated bank account or card for shop purchases makes every category above much faster to total up, and bookkeeping software can auto-categorize much of it throughout the year instead of leaving you to reconstruct twelve months of receipts in April.
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Frequently Asked Questions
Is this list tax advice?
No. This is a general checklist of expense categories that Etsy sellers commonly track for tax purposes, meant to help you organize your records — it is not tax, legal, or accounting advice, and Marginory is not a tax preparation or accounting firm. Whether a specific expense is actually deductible for you, and how much of it, depends on your business structure, filing status, and other facts a licensed tax professional needs to evaluate. Consult a CPA or enrolled agent before filing.
Do I need to be an LLC to deduct business expenses?
No. Sole proprietors (including hobby-turned-business Etsy sellers filing a Schedule C) can generally deduct legitimate business expenses regardless of whether they've formed an LLC. Business structure affects liability protection and some tax mechanics, not whether ordinary business expenses are deductible in principle. A tax professional can advise whether forming an LLC or S-corp makes sense for your specific volume and situation.
What's the difference between a hobby and a business for tax purposes?
The IRS treats hobby income and business income differently, and the distinction affects what you can deduct. Generally, factors like whether you run the shop with the intent to make a profit, keep good records, and have made a profit in some recent years all matter. This is a nuanced area — if you're unsure whether your Etsy shop counts as a hobby or a business for tax purposes, that's a good question to bring to a CPA directly.
What records should I keep to support these deductions?
Receipts or statements for every expense, a mileage log if claiming vehicle deductions, your Etsy shop's monthly/annual statements (Etsy provides downloadable reports of fees and sales), and bank or card statements that back up business purchases. Bookkeeping software like QuickBooks can help keep this organized throughout the year rather than reconstructing it at tax time.
Do I need to report Etsy income even if I don't get a 1099-K?
Yes. Whether or not Etsy issues you a Form 1099-K depends on the reporting threshold that applies to you (see the 1099-K Threshold by State guide), but your obligation to report taxable income exists regardless of whether a form was issued.