Feeling daunted by the idea of tracking and reporting your monthly Etsy income? We’ve all been there! This will make it easier!
Learn the art of tracking your monthly Etsy expenses. Understanding your tax form 1099k and form 1040 and how to file them. Let’s make tracking and reporting monthly income a manageable task and dive in. It’s easier than you think.
Arguably, there’s nothing more important than tracking and reporting your Etsy income. But if you’ve never done it before, it might feel rather daunting. So, hopefully, we can help shed some light on the situation and put your mind at ease.
How to Keep Tabs on What You’re Spending
You must keep an eye on and record your spending when you set up your business. Irrespective of the type of business you are establishing, it’s key that you understand how to keep your store in tip-top health in terms of finances. This also ensures that you make sensible decisions, so you don’t end up with a massive tax bill or even avoidable debt.
There are various methods that you can bring in to keep an eye on your finances. You could purchase an accounting program (there are various ones out there), or you could use spreadsheets and record your expenses in a more “old-fashioned” yet equally workable method.
As an Etsy Seller I have tried so many fancy spreadsheets and accounting ledgers but I have recently found for me the best way to see a snapshot month-to-month is to use my planner. I use a Happy Planner for various events throughout the day. I have a section called “Finance”.
I discovered a Monthly Budget Sheet on Amazon that works perfectly for my planner.
This Happy Planner Monthly Budget Sheet is simply broken down into 4 sections:
The income section of this form is simply that, a line-by-line of incoming funds to your account. Whether your paid monthly, weekly or bi-weekly by Etsy all your reportable income is listed right here at the top of the form.
2. Fixed Expenses
In this section of your form you will list all your fixes expertise you may encounter in your business such as paying for Canva software monthly to create your Pinterest pins or monthly payments for Monthly payment to Marmalead to research SEO for your shop.
3. Variable Expenses
In this part of your form you will list variable expenses such as Etsy Tax fees on sales and other items such as office and shipping supplies.
4. Monthly Totals
At the bottom of this form is where you take your income and total expenses and calculate your profit.
Keeping Track Of Your Etsy Business Receipts
Some sellers simply carry a notebook around with them when they are out shopping for materials so they can make an instant note of what they’ve spent. It is also critical that you keep all your receipts for anything you buy for your business.
Physical Paper Trail
A good way to keep your physical receipts is to get an accordion style folder like this one I’ve purchased on Amazon. I use this Receipt Organizer for Business. I know my accountant is thrilled to see not only a written ledger of income and expenses of my business I also have a backup receipt for these transactions.
However, if you tend to buy most of your materials from online stores, it might be more prudent to use a digital means to record your expenses. This makes the process much more automated and takes some effort out of remembering to manually write down your expenses.
There are various apps out there. It pays to shop around and try out some demos before you commit to either a one-time payment for such software or a monthly subscription. Either way, the payment or payments you make for this software should also be recorded as company expenses! This writer uses an app called EveryDollar. It’s a simple app that is connected to my bank account. Each bank entry weather in be income or an expense is listed. Daily I am able to categorize each item, so I can easily add my finances to my monthly budget form. Be aware Everydollar does cost a fee however you can try the system for free to see if will work with your lifestyle.
Another way to be massively on the ball when it comes to expenditure is to digitally scan in your receipts. That way you don’t have to keep lots of bits of paper, as you have a digital image of all your receipts. You then save them and make notes against them about what they are and the reason they were purchased.
Get an Idea of What Money You’re Spending and Making in Etsy
Although it sounds self-explanatory, it’s important that you know precisely how much money you’re spending on materials or supplies that are involved in making your Etsy products.
You have to know this information before you can make an informed decision about how much to charge for your items. You must make sure that you also take into consideration the time and the energy required to make your lovely products too.
Also, when you realize how much you’re spending on some materials or items, it’s easier to work out where you could maybe streamline your business a little more and make some cutbacks.
As you’ll be doing a lot of posting out, it’s really prudent to make sensible decisions regarding your packaging. It makes sense to keep all those boxes you have received and even ask family members and friends to save all their boxes too. You can then repurpose them to send your products out to your customers.
What’s a 1099-K and How Do You Get it From Etsy?
Etsy handles the credit card payments for its sellers through “Etsy Payments”. Etsy is then required to provide its sellers with the 1099-K form as soon as they are trading $20,000 or more through Etsy.
The 1099-K form is also distributed to sellers who make 200 or more transactions through Etsy in any one calendar year. Etsy must inform the IRS of such transactions by filing a similar form.
The other criteria to consider here is also the state in which you are located. Requirements may differ depending on the state. In any case, if you do receive a 1099-K form, Etsy must then also send a duplicate of the very same paperwork to the IRS or the tax office in the state in which your company is based.
The 1099-K form basically provides statistics on the total gross sales that you have received via the Etsy Payments system. It applies to any calendar year. The term “gross sales” basically means your sales including any refunds, postal fees, credit card fees, and sales tax applied and also any orders that have been canceled.
The only types of payment that are not taken into consideration on this form and therefore are not payments processed by Etsy are:
- Bank transfers
- Payments via your own PayPal
- Money orders
- Any other types of payment that do not use Etsy as the basis
Your 1099-K form will usually be sent out to you by the end of January – but then again, you’ll only get one only if you meet the criteria for having one. You can also apply to have this provided to you in an electronic format.
Anyone who thinks they have met the criteria for the 1099-K form but haven’t yet received one can usually sign up for it by contacting the relevant Etsy customer service number.
What Is Form 1040 and How Do I File It as an Etsy Seller?
In the USA, if you are filing income tax on a freelancer or contractor basis you will have to get to grips with form 1040.
This form is how a federal income tax return is filed with the IRS. It is required to report gross income e.g. the money you’ve made for the past year, and also how much of your income will need to be taxed once you have made deductions and after any credits for tax.
Put simply, the form assesses how much of a refund you may receive or how much tax you owe.
The schedule depends on the type of business you have. If you are a sole proprietor, which most Etsy start-ups are, you will need to have schedule C included with your form 1040 so that you can report any losses or income from your business.
It goes without saying that the majority of people in the USA will need to submit a form 1040 whether they work as an employee, are freelancers, contractors, or even have investments that they live off.
Basically, if you have net income of at least $400 from any form of self-employment then you will need to file a tax return to the IRS.
Does It Make Sense to Have a Separate Bank Account for My Etsy Business?
Generally speaking, if your company is viewed as a separate legal entity, you really should have separate bank accounts for your personal and your business money.
The Latest reports have shown that over 70% of small businesses are running bank accounts that contain both personal and business funds. It’s often the case that small businesses will use their own personal capital to start up their business, but you really shouldn’t have your business and private funds in the same pot.
In fact, some businesses MUST legally separate business and personal monies. If your company is a separate entity in legal terms, you must definitely separate the funds accordingly. The same applies if you operate under a “doing business as (DBA) title”. And it goes without saying that a venture that operates as a corporation or a limited liability company (LLC) will need to have its own separate account for business.
Tracking and reporting your Etsy sales and expenses is easy if you stay on top of it all month long. From keeping an eye on your spending, tracking your receipts and logging your expenses is easy if you know how. Make tax time a breeze this year as you show the world how much of a BOSS you are selling on Etsy. You got this!