Tax Deductions Checklist
Etsy Seller Tax Deductions Checklist (2026)
2026 tax deduction checklist for self-employed Etsy sellers. Claim write-offs on craft supplies, shipping costs, Etsy fees, home office, and marketing expenses.
Key Takeaways
- Download your Etsy annual CSV statement in January. It breaks down all fees (listing, transaction, processing, ads, shipping labels) by category, making tax preparation much easier.
- If you sell both handmade items and vintage goods, track the costs separately. Handmade items have material costs (COGS) while vintage items have purchase price as COGS, and mixing them up creates bookkeeping headaches.
- Consider purchasing supplies in bulk when they go on sale and deducting them in the year purchased. This is both a tax strategy (accelerating deductions) and a cost-saving measure for materials you will use throughout the year.
As a self-employed Etsy seller, your craft supplies, shipping materials, platform fees, and workspace costs are all legitimate business deductions. Whether you sell handmade jewelry, custom artwork, or vintage finds, the IRS lets you write off the expenses that go into running your shop. This checklist covers every deduction available to Etsy sellers in 2026.
Use this interactive checklist to review every deduction you might be eligible for. Check off items as you go to track your progress. Each deduction includes the Schedule C line where it belongs, plus a concrete example specific to your profession.
Your Deductions Checklist
Craft Supplies and Raw Materials
The materials you use to create your products are your largest and most straightforward deduction.
Fabric, yarn, beads, wood, resin, paint, and other materials used to create your products.
Example: Monthly supply orders averaging $300 = $3,600/year.
Cutting tools, molds, stamps, heat guns, pliers, and other hand tools used in production.
Example: Rotary cutter ($40), jewelry pliers set ($60), and heat gun ($35) = $135.
Boxes, mailers, tissue paper, thank-you cards, stickers, and branded packaging.
Example: Mailers ($20/month), tissue paper ($10/month), and stickers ($15/month) = $540/year.
Product labels, hang tags, care instruction cards, and branded tags.
Example: Custom hang tags ($80) and care labels ($40) = $120.
Ink cartridges and paper for printing shipping labels, invoices, and product inserts.
Example: Ink cartridges ($120/year) and label paper ($60/year) = $180.
Etsy Fees and Platform Costs
Etsy charges multiple fees that are all deductible as business expenses.
The $0.20 fee charged for each product listing, including auto-renewed listings.
Example: 200 active listings renewed quarterly = approximately $160/year.
The 6.5% transaction fee charged on each sale (including shipping charges).
Example: $30,000 in annual sales at 6.5% = $1,950 in transaction fees.
The 3% + $0.25 payment processing fee on each transaction through Etsy Payments.
Example: $30,000 in sales with average order of $40 (750 orders) = $1,087 in processing fees.
Costs for Etsy's on-site advertising and offsite ads commission (15% of sale price for shops under $10K).
Example: Etsy Ads budget at $5/day = $1,825/year plus offsite ads fees.
Monthly subscription for advanced shop customization and listing credits.
Example: Etsy Plus at $10/month = $120/year.
Shipping and Delivery Expenses
Postage and shipping costs for getting your products to customers are fully deductible.
USPS, UPS, or FedEx postage costs for shipping orders to customers.
Example: Average shipping cost of $5 per order on 750 orders = $3,750/year.
Bubble wrap, packing peanuts, tape, and shipping envelopes purchased separately from packaging.
Example: Bubble wrap ($60/year), tape ($40/year), and poly mailers ($100/year) = $200.
Pirate Ship, Shippo, or other shipping software that provides discounted postage rates.
Example: Pirate Ship is free, but a scale ($25) and label printer ($100) = $125.
Mileage for driving to the post office, shipping stores, or UPS/FedEx drop-off locations.
Example: 3 trips/week at 4 miles round trip = 624 miles at $0.70/mile = $437/year.
Home Office and Workspace
If you create and ship products from a dedicated home workspace, you can deduct a portion of your housing costs.
Deduct $5 per square foot of dedicated workspace, up to 300 square feet ($1,500 max).
Example: 200 sq ft craft room at $5/sq ft = $1,000.
Proportional share of rent or mortgage interest, utilities, and insurance based on workspace square footage.
Example: 200 sq ft workspace in 1,000 sq ft home (20%) with $15,000 annual rent = $3,000.
Off-site storage unit for inventory, supplies, or finished products.
Example: Storage unit at $75/month = $900/year.
Craft tables, shelving, storage bins, and organizational systems for your workspace.
Example: Craft table ($200), shelving unit ($150), and storage bins ($80) = $430.
Marketing and Photography
Product photography and marketing costs to drive traffic to your Etsy shop.
Camera, lightbox, backdrops, and props used to photograph your products for listings.
Example: Lightbox ($60), backdrop ($30), and props ($40) = $130.
Paid ads on Pinterest, Instagram, or Facebook to drive traffic to your Etsy shop.
Example: Pinterest ads at $100/month = $1,200/year.
Lightroom, Photoshop, or Canva subscriptions for editing product photos.
Example: Adobe Photography plan at $10/month = $120/year.
Etsy SEO tools like eRank or Marmalead for optimizing listings and researching keywords.
Example: eRank Pro at $10/month = $120/year.
Common Mistakes to Avoid
Not tracking Etsy fees as deductible expenses because Etsy already deducts them from payouts.
Even though Etsy subtracts fees before depositing your earnings, you report gross revenue on Schedule C and then deduct all fees separately. Download your Etsy annual CSV statement to get the exact totals.
Forgetting to deduct the cost of packaging materials like tissue paper, stickers, and thank-you cards.
Every packaging item is a deductible supply. Track orders from packaging suppliers and keep receipts for store-bought materials.
Not deducting mileage for trips to the post office, craft supply store, or thrift shops for materials.
Use a mileage tracking app to log every business-related trip. Even short trips add up to hundreds of deductible miles per year.
Confusing revenue and profit by not accounting for cost of goods sold (COGS).
Track the material cost for each product you sell. Subtracting COGS from revenue on Schedule C gives your correct gross profit before other deductions.
Not keeping inventory records when required.
If you keep finished products in stock (rather than making to order), maintain a simple inventory log. This helps accurately calculate COGS and supports your deductions.
Quick Reference: Deductions at a Glance
| Expense | Schedule C Category |
|---|---|
| Raw materials and craft supplies | Craft Supplies and Raw Materials (Line 22 - Supplies) |
| Tools and small equipment | Craft Supplies and Raw Materials (Line 22 - Supplies) |
| Packaging materials | Craft Supplies and Raw Materials (Line 22 - Supplies) |
| Labels and tags | Craft Supplies and Raw Materials (Line 22 - Supplies) |
| Printer ink and paper | Craft Supplies and Raw Materials (Line 22 - Supplies) |
| Etsy listing fees | Etsy Fees and Platform Costs (Line 27a - Other Expenses) |
| Etsy transaction fees | Etsy Fees and Platform Costs (Line 27a - Other Expenses) |
| Etsy payment processing fees | Etsy Fees and Platform Costs (Line 27a - Other Expenses) |
| Etsy Ads and Offsite Ads fees | Etsy Fees and Platform Costs (Line 27a - Other Expenses) |
| Etsy Plus subscription | Etsy Fees and Platform Costs (Line 27a - Other Expenses) |
| Postage and shipping labels | Shipping and Delivery Expenses (Line 24a - Travel) |
| Shipping supplies | Shipping and Delivery Expenses (Line 24a - Travel) |
| Shipping software and label subscriptions | Shipping and Delivery Expenses (Line 24a - Travel) |
| Trips to the post office | Shipping and Delivery Expenses (Line 24a - Travel) |
| Simplified home office deduction | Home Office and Workspace (Line 30 - Business Use of Home) |
| Actual home office expenses* | Home Office and Workspace (Line 30 - Business Use of Home) |
| Storage costs | Home Office and Workspace (Line 30 - Business Use of Home) |
| Workspace furniture and organization | Home Office and Workspace (Line 30 - Business Use of Home) |
| Product photography equipment | Marketing and Photography (Line 8 - Advertising) |
| Social media advertising | Marketing and Photography (Line 8 - Advertising) |
| Photo editing software | Marketing and Photography (Line 8 - Advertising) |
| SEO tools and market research | Marketing and Photography (Line 8 - Advertising) |
* = business-use percentage only (partial deduction)
The Bottom Line
Etsy sellers have deductions across supplies, platform fees, shipping, workspace, and marketing. The most commonly missed deductions are Etsy's various fees (which total thousands of dollars annually) and packaging materials. Download your Etsy statements, track supply purchases, and log mileage to capture every deduction your shop generates.
If you want to get your bank and credit card transactions sorted into the right Schedule C categories without building a spreadsheet, that is what Categorize My Expenses does. Upload your statements, review the AI-suggested categories, and get an organized report for your tax filing.
Disclaimer: This checklist is for educational purposes only and does not constitute tax, legal, or financial advice. Tax rules change, and individual situations vary. Consult a qualified tax professional for advice specific to your situation. Categorize My Expenses is a financial data organization tool. It is not a tax preparer and does not provide tax advice.
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