Etsy & Online Seller Tax Deductions: Fees, Materials, Shipping
Online sellers see a gross sales figure that bears little resemblance to what reaches the bank. Fees, shipping, and materials are all deductible, and reconciling them is what makes your taxable profit accurate.
Deduction checklist
| Expense | Schedule C line | What to keep in mind |
|---|---|---|
| Platform listing and transaction fees | Line 10 — Commissions and fees | Download monthly fee statements from the platform. |
| Materials and components | Cost of goods sold / Line 22 | Inventory accounting matters here; be consistent. |
| Packaging, boxes, and labels | Line 22 — Supplies | Frequently forgotten and easy to total. |
| Postage and shipping labels | Line 27a — Other expenses | Deduct even when the buyer paid shipping — the shipping income is also reported. |
| Payment processing fees | Line 27a — Other expenses | A percentage of every sale. |
| Product photography and props | Line 8 — Advertising | Listing images and promotion. |
| Ads and promoted listings | Line 8 — Advertising | Platform ad spend. |
| Craft tools and equipment | Line 13 or Line 22 | Larger machines may be depreciated. |
| Mileage to the post office and suppliers | Line 9 — Car and truck expenses | Short trips that add up over hundreds of orders. |
Gross sales versus what you keep
Marketplace reports and any 1099-K you receive typically show gross transaction volume. Your taxable profit is that figure minus fees, shipping, refunds, and cost of goods. Failing to deduct fees means paying tax on money the platform kept.
Inventory and cost of goods sold
Materials that end up in products you sell are usually accounted for through cost of goods sold rather than as a straightforward expense. Count what is left at year end so the figure is right.
What the IRS expects you to keep
For every expense you deduct, you need to be able to show the date, the amount, who you paid, and the business purpose. For travel, meals, and vehicle use the rules are stricter — those are 'listed' expenses where a bank statement alone is not considered adequate proof.
- A dated receipt or invoice showing the vendor and amount.
- A short note on why the expense was for the business.
- For mileage: date, starting point, destination, purpose, and miles driven.
- Records kept for at least three years after you file (six if income was significantly under-reported).
DocuSpending stores the original photo alongside the extracted date, vendor, total, tax, and category — so every number on your return traces back to a document you can show.
Common questions
- Do I owe tax if I made a loss?
- A genuine business loss reduces taxable income, but hobby-loss rules can limit deductions if the activity is not run as a business. Keep evidence of a profit motive.
- Is shipping the buyer paid deductible?
- Yes. Shipping charged to buyers is income and the postage you pay is an expense — report both.
- Do I need to track sales tax I collect?
- Sales tax collected is not your income; it is remitted to the state. Track it separately from revenue.
Let DocuSpending sort these receipts for you
Photograph a receipt and the vendor, total, tax, and Schedule C category are read automatically. Log miles by voice. Export a tax-ready summary whenever you need it.
This guide is general information, not tax advice. Rules change and your situation may differ — confirm specifics with a qualified tax professional or the current IRS instructions for Schedule C.
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