Expense Tracker for Etsy Sellers: Schedule C + 1099-K Guide (2026)

Published: April 11, 2026 · Reading time: 10 min

TL;DR: Etsy sellers who treat their shops as a business report income and expenses on Schedule C. In 2026, Etsy issues a 1099-K for any seller with $600+ in sales. CentSense tracks Etsy fees, supplies, COGS, and advertising — with client projects to keep multiple shops separate. $5/month Solo, free for 10 scans/month.

Running multiple Etsy shops? See the full occupation guide with COGS tracking and 1099-K tips: Expense Tracker for Etsy Sellers →

Running an Etsy shop is running a business. That means income taxes on your profits — but also deductions that can significantly reduce what you owe.

This guide covers exactly how to categorize Etsy expenses on Schedule C, what the 2026 1099-K rules mean for your taxes, and how to set up an expense tracker that works for Etsy sellers specifically.

Is Your Etsy Shop a Business or a Hobby?

The IRS cares about this distinction because hobby expenses are not deductible on Schedule C.

Your Etsy shop is likely a business if:

• You run it with a profit motive (you're trying to make money, not just sell crafts casually)
• You've made a profit in 3 of the last 5 years
• You keep records and act in a businesslike manner

Your Etsy shop may be a hobby if:

• You sell purely for personal enjoyment
• You consistently have losses year after year with no profit intent

For most Etsy sellers who rely on their shop for meaningful income, the business classification applies. When in doubt, consult a CPA.

The 2026 1099-K: What Etsy Sellers Need to Know

Starting in 2026, the federal 1099-K threshold is $600 in gross sales. Etsy will send you a 1099-K if your total gross sales exceed $600 for the year.

Important: The 1099-K shows your gross sales — before Etsy fees, refunds, or expenses. It's not your profit. You report the full 1099-K amount as income, then deduct all your business expenses on Schedule C.

Example:

• Gross Etsy sales: $12,000 (this is on your 1099-K)
• Etsy fees and expenses: $3,500
• Net profit (taxable): $8,500

The $8,500 is what you pay self-employment tax on, not the $12,000. Every deductible expense you track reduces your tax bill.

Etsy Expense Categories on Schedule C

Line 8: Advertising

• Etsy Offsite Ads fees (the fee Etsy charges when you make a sale via their offsite advertising)
• Facebook ads, Google ads, Pinterest ads you run yourself to promote your shop
• Sponsored listings on Etsy
• Photography for product listings (if hired out)

Line 10: Commissions and Fees

• Etsy listing fees ($0.20 per active listing)
• Etsy transaction fees (6.5% of sale price including shipping)
• Etsy payment processing fees
• Etsy Pattern subscription (monthly storefront fee)

Line 22: Supplies

• Raw materials and craft supplies
• Packaging materials (boxes, tissue paper, bubble wrap, tape)
• Labels and stickers
• Small tools under $2,500

Lines 36–42: Cost of Goods Sold (Part III)

For product-based sellers, COGS is reported separately in Schedule C Part III:

Tracking COGS: Keep receipts for all material purchases throughout the year. CentSense lets you tag receipts as COGS purchases so they're easy to separate from operating expenses at year-end.

Line 15: Insurance

• Business liability insurance for your Etsy shop
• Product liability coverage (if you sell consumables, jewelry, items that could cause harm)

Line 17: Legal and Professional Services

• Accountant or CPA fees
• Trademark registration for your shop name or brand (attorney fees)

Line 18: Office Expense

• Printer and ink for shipping labels
• Postage scale
• Small office furniture in your workspace

Line 20: Rent

• Dedicated studio or workshop rent (if separate from home)
• Storage unit for inventory

Line 24a: Travel

• Travel to craft fairs, markets, or vendor events (airfare, hotel, rental car)
• Driving to pick up supplies (log mileage at $0.725/mile)

Line 25: Utilities

• Internet and phone — business-use percentage
• Electricity for a dedicated workspace (prorated if home)

Line 30: Home Office / Studio

If you use a dedicated space in your home exclusively for your Etsy work:

• Simplified method: $5/sq ft, up to 300 sq ft
• Actual expenses: percentage of home costs

Handling Shipping Costs and Refunds

Shipping charged to buyers: Etsy includes this in your gross sales. It's income — not separately deductible.

Shipping you pay (when you don't charge enough): If you pay more for shipping than you charged the buyer, the overage is a deductible expense on Line 22 or a direct COGS cost.

Refunds: Refunds reduce your gross sales. If you issue a full refund, Etsy typically reverses the transaction fees. Net the refunds from your gross sales figure.

Tracking Multiple Etsy Shops

If you run two or more Etsy shops, you have two options:

Option 1: One Schedule C per shop You can file a separate Schedule C for each separate business. This gives you clean P&L per shop but more paperwork.

Option 2: Combined Schedule C with separate tracking File one Schedule C for all Etsy income and expenses combined. Use client projects in CentSense to tag expenses by shop — so you always know which shop is profitable.

CentSense's client projects feature is designed for exactly this: you create one project per shop, tag every expense accordingly, and can generate per-shop expense reports at year-end.

Comparison: Expense Trackers for Etsy Sellers

Setting Up Your Etsy Expense Tracker

Step 1: Create a project per shop (if you have multiple)

In CentSense, create a client project for each Etsy shop. Name them clearly (e.g., "Shop A — Ceramics," "Shop B — Prints").

Step 2: Scan supply and fee receipts as you go

Don't wait until April. Scan material purchases, packaging receipts, and tool purchases immediately. CentSense AI assigns them to the right Schedule C line.

Step 3: Download your Etsy Finances CSV monthly

Etsy's Payment Account CSV shows all fees, refunds, and deposits. Export it monthly and use it to reconcile your income and fee deductions.

Step 4: Track COGS separately

Tag supply receipts as COGS in CentSense. At year-end, run a COGS report: opening inventory + purchases − closing inventory = Line 43.

Step 5: Export at tax time

Download your CentSense CSV with expenses sorted by Schedule C line. Combined with your Etsy Finances CSV for income, you have everything for Schedule C Part I (income) and Part II/III (expenses and COGS).

Start Tracking for Free

CentSense gives you 10 free AI receipt scans per month — no credit card required. The Solo plan ($5/month) adds unlimited scans, mileage tracking, batch upload, and client projects for managing multiple shops.

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