How do I track my Etsy expenses on Schedule C … anyone done this before

I recently turned my Etsy shop into a registered business. Before, it was just a hobby, so I didn’t worry too much about tracking income and expenses. Now I’m keeping records of what I earn and what I spend on materials, but I’m stuck on how to report it all on Schedule C for next year.

For example, if I buy a chain, some charms, a mold, and a bow—but the bow is for personal use—how do I calculate the amount I report? Do I only include the base price of the business items, or do I add shipping and taxes too? I don’t make much yet, but I want to start doing this the right way. Any advice would really help!

Check out the instructions for Schedule C on the IRS website. They’re a good place to start, and if you still have questions, working with a tax pro might be a good idea.

https://www.irs.gov/pub/irs-pdf/i1040sc.pdf

Open a separate account for your business expenses if you can. It makes tracking purchases easier, and it’s less messy than mixing personal and business spending. Save all your receipts too and organize them in a spreadsheet to match what’s in your account.

You don’t actually document business expenses on Schedule C itself. You just report the totals there. Original receipts are your best proof of expenses, but if you lose any, you can use spreadsheets or handwritten records. Keep in mind, you’ll need to report things like inventory, business use of your car, and any home office expenses if they apply. For free help, you can check out a Volunteer Income Tax Assistance (VITA) program near you.

The chain, charms, and mold count as inventory. You expense them when you sell the items made from those materials. Shipping and taxes related to those materials are also part of inventory. The bow isn’t deductible since it’s for personal use. If this seems confusing, you might want to get help from an accountant.

@Max
Actually, small businesses don’t need to track inventory like that. If your sales are under $29 million (which I’m sure they are), you can expense materials when you buy them. Tracking inventory isn’t required for businesses this small.

Try to keep personal and business purchases separate—it’ll save you time and looks better if you’re ever audited. If you must combine purchases, divide the shipping and taxes between personal and business items. As a very small business, you can report materials as Supplies on your Schedule C, but you might not be able to expense everything if you bought a lot but didn’t sell much. Check out IRS Publication 334 for more details.

Thanks for the advice so far! I can’t afford a new bank account just for business, but I can use a credit card and only charge business expenses to it. Would that work?

Val said:
Thanks for the advice so far! I can’t afford a new bank account just for business, but I can use a credit card and only charge business expenses to it. Would that work?

There are free business bank accounts, so that’s worth looking into. But if you don’t want to open one yet, using a separate personal credit card for business expenses is better than mixing everything together.

Val said:
Thanks for the advice so far! I can’t afford a new bank account just for business, but I can use a credit card and only charge business expenses to it. Would that work?

Using a credit card for business expenses is fine as long as you’re consistent about keeping personal purchases off of it.

@Peyton
Good to know! I’ll start separating everything now before it gets too complicated.

For future purchases, it’s best to separate personal and business items into two transactions. That way, you don’t have to calculate which parts of shipping and taxes apply to business items. For this year, just include the business-related portions in your expenses. A tax preparer might be helpful as your business grows.

The National Association for the Self Employed has a great guide called ‘Schedule C from A to Z.’ It’s free to download and super helpful:

https://www.nase.org/sf-docs/default-source/publications/Schedule_C_from_A_to_Z_2012_edition.pdf

Did you sell more than $5,000 worth of stuff? If not, Etsy probably won’t send you a 1099-K. If that’s the case, you might not even need to report anything this year. Tax software like TurboTax can guide you through it if you do.