Etsy  seller tax deductions: What counts as a business expense

What counts as a business expense for Etsy sellers?  

If you run your Etsy shop as a business rather than a hobby, the IRS counts anything you purchase to run your shop as a business expense. This could include everything from the raw materials and supplies you need to make your products to Etsy fees, shipping costs, advertising costs, and more.

IRS rule: ordinary and necessary expenses

For a business expense to be deductible, the IRS requires it to be both ordinary and necessary.

Ordinary expenses are common and expected for the line of work you’re in. So, if, for example, you make jewelry to sell on Etsy, your common expenses might include beads, clasps, wire, and gemstones.

Necessary expenses help you grow your business. Contrary to the name, this doesn’t mean expenses have to be critical for you to operate your business, just helpful. For example, let’s say you sell candles. You could technically still make candles to sell without a printer for your labels, but it still counts as a deductible business expense because it helps you grow your business.

Common deductible Etsy expenses 

Now that you know how the IRS decides if an expense is deductible, here's a closer look at the specific costs most Etsy sellers can write off.

Supplies and raw materials

Supplies and raw materials are 100% deductible and include anything you need to make the products you sell in your shop. For example:

• Jewelry makers can deduct beads, wire, clasps, chains, and gemstones.
• Candle and soap makers can deduct wax, wicks, fragrance oils, lye, and molds.
• Embroiderers and other fabric artists can deduct fabric, thread, yarn, batting, and trims.
• Woodworkers can deduct lumber, stain, hardware, and finishing supplies.
• Potters and ceramicists can deduct clay, glazes, and kiln supplies.
• Printmakers and paper crafters can deduct cardstock, ink, vinyl, and adhesive.

Whatever you sell, the same rule applies. If it's a material that goes into your finished product, it's deductible.

Keep in mind that if you buy supplies in bulk and use some for personal projects, only deduct the portion used for your business. Detailed bookkeeping will help you stay on top of these more complicated expenses.

Shipping, packaging, and postage

Getting your product from your workspace to your customer's door comes with its own set of deductible costs, including:

• Postage and shipping labels, whether you purchase them through Etsy, USPS, UPS, or FedEx
• Boxes, mailers, and packing tape, as well as bubble wrap, packing peanuts, and other fillers
• Branded packaging, like custom boxes, stickers, or tissue paper
• Shipping insurance and tracking upgrades

Etsy fees and payment processing costs

Every fee Etsy charges you to run your shop is deductible, since it's a direct cost of doing business on the platform, including:

• Listing fees charged when you create or renew a listing
• Transaction fees charged as a percentage of each sale
• Payment processing fees charged for handling customer payments
• Etsy Ads or offsite advertising fees if you use Etsy's advertising tools
• Subscription costs if you're on Etsy Plus
• Currency conversion fees if you sell internationally

Home office or studio deductions

If you run your Etsy shop out of your home, whether in an office or a studio, you can deduct a portion of your housing costs as a business expense, including mortgage interest, utilities, repairs, and more.

To qualify for this deduction, the space must be used exclusively for business. Unfortunately, if you work from your kitchen table, you don’t qualify.

There are two ways to calculate your home office or studio deduction: the simplified method or the actual expenses method.

With the simplified method, you deduct $5 per square foot of your home office, up to 300 square feet. With the actual expenses method, you’ll calculate the percentage of your home used for business, then apply that percentage to actual expenses, like rent or mortgage interest, utilities, insurance, and repairs.

Advertising, software, and business tools

Anything you spend to market your shop or keep it running smoothly is deductible, including:

• Etsy Ads
• Social media ads on platforms, like Instagram or Facebook
• Costs tied to promotions, like giveaways or influencer partnerships
• Design programs, like Canva or Adobe Photoshop
• Bookkeeping or accounting software
• Inventory or shop management tools

If you pay for a subscription that you use for both personal and business purposes, you can only deduct the portion tied to your shop.  

Travel, mileage, and shipping-related transportation

If you drive for your Etsy business, you may be able to deduct those miles or related costs. This could include:

• Trips to buy supplies or materials
• Drives to the post office or a shipping carrier to send out orders
• Mileage to craft fairs, markets, or pop-up events
• Travel to pick up inventory or meet with suppliers

You can deduct business travel in one of two ways.

The standard mileage rate lets you deduct a set amount per mile driven for business. The IRS updates this rate each year, sometimes more than once. For 2026, the rate started at 72.5 cents per mile in January, then increased to 76 cents per mile starting July 1, due to rising fuel prices. Always check the current rate before filing, since it can change.

The actual expenses method tracks your actual costs, like gas, insurance, and maintenance, then deducts the percentage used for business. This method takes more work, since you'll need to keep receipts for every transportation-related expense and calculate what portion of your total driving was for business use.

Whichever method you choose, keep a log of your business miles, including the date, purpose, and distance of each trip. That documentation matters if the IRS ever asks you to back up the deduction.

How much can you sell on Etsy before you get a 1099?

For 2026, Etsy is only required to send you a Form 1099-K, Payment Card and Third Party Network Transactions, if you make more than $20,000 in sales and have more than 200 transactions in a calendar year. Both conditions must be met. If you clear $20,000 but have fewer than 200 transactions, or you have hundreds of transactions but stay under $20,000, Etsy isn't required to send you Form 1099-K.

This threshold has changed in recent years. At one point, the IRS planned to lower it all the way down to $600 with no transaction minimum. That change kept getting delayed, and the One Big Beautiful Bill Act (OBBBA), which was signed into law in July 2025, ultimately reversed that decision and restored the original $20,000 and 200-transaction threshold for good.

Take note that even if you don't hit the threshold and don't receive a 1099-K, you're still required to report your Etsy income on your tax return. The 1099-K is just a reporting form for Etsy and the IRS. It doesn't determine whether your income is taxable.

Is selling personal items considered income?

It depends on the situation, and whether or not you’re making a profit from the sale.

Let’s say you are selling a personal item for less than you originally paid for it. In this case, you don’t owe tax on the sale.

Now, let’s say you are selling something for more than you paid for, like a rare book you bought at a garage sale for 50 cents and are now selling for $200. In this case, your profits are taxable as income.

You may get a 1099-K from Etsy that includes personal sales. This doesn’t necessarily mean you owe tax on those sales, just that the IRS is aware of them.

Running an Etsy shop comes with more tax deductions than most sellers realize. Keeping good records of your supplies, fees, shipping costs, and other business expenses throughout the year makes filing easier and can help lower what you owe.

If you're not sure whether your shop counts as a business or how to handle a specific expense, your local Jackson Hewitt Tax Pro is open year-round and here to help. Book tax services near you today, or walk in anytime.