Etsy sellers can save a lot of money by taking advantage of tax deductions. If you’re not familiar with tax write offs, you might be surprised when you learn how much you can save. Every business owner and 1099 contractor should take advantage of these tax savings. Most independent contractors can reap significant benefits by claiming these commonly overlooked tax deductions.
Best Deductions for Etsy Sellers:
If you don’t think you have any business expenses, think again. Even simple businesses can benefit from tax deductions. For Etsy sellers, it might be hard to identify deductible expenses initially. However, there are numerous tax write offs that could benefit your business. To start, think about your workspace. Depending on where you work, your expenses could be partially or entirely deductible. If you want to claim the home office deduction, you can either itemize or claim the standard deduction. There’s no set answer for which is better, so you’ll have to review your options to determine which is best for your business.
The home office deduction is a topic within itself, but you can learn more about the home office deduction here.
Work Space Expenses:
Where do you make your Etsy products? If you make rent a studio or workspace, you could deduct the full cost of rent so long as it’s used strictly for business purposes. However, most Etsy sellers work from home, but even home sellers can deduct a portion of their workspace expenses. Home sellers could be eligible for the home office deduction. The deductible
Subscriptions:
Professional Etsy sellers need various subscriptions to operate effectively ranging from Dropbox to Adobe to create designs for listings. If you subscribe to any kind of educational program that helps your business, those expenses can be deducted as subscriptions as well. As a business owner, it is important to carefully track recurring expenses, so be sure to know how much your subscriptions are on a monthly basis.
Charitable Contributions:
Contributing to a qualified charity is a great way to get a deduction where you can control the timing and amount. You can do this by donating stock or property (e.g. furniture, clothing) rather than cash. You can deduct the property’s fair market value on the date of the gift which allows you to avoid paying capital gains tax on the built-up appreciation (with specific regards to donating stock).
Retirement contributions:
As a 1099 Etsy seller, you can take advantage of the generous funding rules (or simply put, how much you can contribute) for self-employed IRAs. The amount that you fund into your SEP-IRA is shown as a direct adjustment on page 1 of your tax return, lowering your taxable income. To be eligible, you must be self-employed. Retirement accounts are easy to set up and maintain. Plus, there are no annual maintenance fees. You have until April 15 of the following tax year to fund your account, even if you have already filed your tax return. You can fund up to 25% of your self-employed compensation, to a maximum of $56,000 for 2019. Contributing to your retirement is an excellent way to save for your later years while reducing what you pay to the IRS right now.
More Tax Tips for Etsy Sellers
If your Etsy business is bringing in substantial income, you might need professional tax help. The Shared Economy Tax pros specialize in independent contractor taxes, so they can help answer all of your toughest tax questions. Consulting with a pro is the best way to maximize your tax deductions, so click here to schedule a free one-on-one strategy session with a Shared Economy Tax expert now, or get free tax tips with the Shared Economy Tax newsletter. It’s the best way to stay informed on all of the latest tax tips for Etsy sellers, so join today.