Etsy bookkeeping: what to
track from day one.
Most Etsy sellers track their sales but miss the expenses that reduce their tax bill by hundreds of dollars. Here's exactly what to record, organized by the questions your tax preparer will ask.
Etsy bookkeeping is different from general small business bookkeeping in one important way: Etsy bundles multiple types of income and fees together in your deposits, which makes it easy to both overreport and underreport your income at the same time.
The good news is that once you understand what Etsy is actually depositing to your bank and why, the tracking becomes straightforward. This guide walks through it step by step.
The three types of income Etsy creates.
When a customer buys from your shop, Etsy collects:
- The product price (your income)
- Sales tax (collected by Etsy and remitted on your behalf — not your income)
- Shipping charges paid by the buyer (income to you, unless you're just passing through a cost)
Etsy handles the collection and remittance of sales tax in most US states through Marketplace Facilitator laws. You generally do not need to track this separately or report it as your income. Confirm with your state's requirements, especially if you have nexus in multiple states.
The fees Etsy charges — and how to record them.
Every Etsy fee is a deductible business expense. The challenge is that Etsy deducts most fees from your deposits rather than billing them separately, so you have to look at your payment account statements to find them.
| Fee type | Amount | Deductible? |
|---|---|---|
| Listing fee | $0.20 per listing | Yes — Schedule C |
| Transaction fee | 6.5% of sale price + shipping | Yes — Schedule C |
| Payment processing fee | 3% + $0.25 per transaction (US) | Yes — Schedule C |
| Offsite Ads fee | 12% or 15% of qualifying sale | Yes — Schedule C |
| Etsy Ads spend | Your daily budget | Yes — advertising expense |
| Shipping label cost | Varies | Yes, if you eat the cost |
The Offsite Ads fee is the one most sellers miss. Etsy automatically enrolls all shops in Offsite Ads. Here's how the two tiers work: if your shop made under $10,000 in the past 365 days, you can opt out of the program in your shop settings — if you stay enrolled, you pay 15% on qualifying sales. If your shop made over $10,000 in the past 365 days, you cannot opt out and are charged 12%. In both cases, the fee only applies to sales Etsy can attribute to an Offsite Ad click (Google, Facebook, Pinterest, etc.). Track these separately — they add up fast.
Cost of goods sold — the number most sellers ignore.
If you make physical products, your materials cost — fabric, yarn, wood, beads, packaging, everything that goes into the item — is your cost of goods sold (COGS). This is deducted from revenue to calculate your gross profit before other expenses.
Tracking COGS accurately is important for two reasons: it reduces your taxable income, and it tells you whether your products are actually profitable. Many Etsy sellers with strong sales are running at thin or negative margins because they're not tracking what the materials actually cost.
Other deductible expenses Etsy sellers miss.
Beyond fees and materials, the following are legitimately deductible for most Etsy sellers:
- Equipment and tools — sewing machines, printers, cutting machines (Cricut, Silhouette), cameras for product photos
- Home office — if you have a dedicated workspace, a portion of rent/mortgage and utilities
- Packaging materials — boxes, tissue paper, branded stickers, thank-you cards
- Software subscriptions — Canva, design tools, photo editing software
- Business portion of your phone and internet
- Mileage — trips to the post office, supply runs, craft fairs
- Photography equipment and props
Etsy sellers and quarterly taxes.
If your Etsy shop generates a profit, you are self-employed and required to make quarterly estimated tax payments to the IRS. Most first-year sellers don't realize this and get hit with a penalty at year-end when they owe more than $1,000.
The rule of thumb: set aside 25–30% of every Etsy deposit for taxes. If you're consistently profitable, make quarterly payments in April, June, September, and January. The Bookkeeping for Etsy Sellers guide covers quarterly tax calculations in detail, with specific examples for US sellers.
The simplest bookkeeping system that works.
You don't need QuickBooks to keep good Etsy books. Here's a system that works for most sellers doing under $100K/year:
- A separate business bank account — all Etsy deposits go here, all business expenses come from here. This single step eliminates 80% of tax-time confusion.
- A monthly spreadsheet — one row per transaction, columns for date, description, amount, and category. Review your bank statement once a month and categorize everything.
- Save all receipts — photos are fine. An IRS audit requires documentation for any deduction over $75.
- Download your Etsy statements monthly — Etsy provides payment account statements that show all fees deducted. Save these as PDFs organized by month and year.
If you want a spreadsheet already built for this, the Etsy seller templates on Etsy and the Bookkeeping for Etsy Sellers book both include ready-to-use tracking systems.
The complete guide to Etsy finances, written by a bookkeeper who works with Etsy sellers. Covers fees, COGS, quarterly taxes, spreadsheet systems, and everything that comes up at tax time. $9.99 on Kindle and paperback.