The Etsy Blog

Doing Taxes When You Haven’t Been Keeping Records

Etsy.com handmade and vintage goods

Outright is back with straightforward tips for the small business owner. Outright is an online bookkeeping tool that imports all of your data in one place. (Note: This info may only apply to US sellers, and Outright is providing the post for informational use only. For specific advice, talk to an expert in your area.)

Have you glanced at a calendar lately? Flowers are blooming, spring is here, and March roared in like a lion and out like a lamb. The change of month and weather can only mean one thing – tax time is on the horizon (taxes must be postmarked by midnight on April 17) and we’re here to help you get ready!

For the purposes of this article, we are going to assume that you are a sole-proprietor, as the vast majority of Etsy sellers are.  This means that you’ll be filing what’s called a “Schedule C.” The Schedule C is just an extra page that you attach to your Individual 1040 tax return. That form will want to know your profits from your Etsy business — the income you made minus the expenses and deductions you had. Here is how you can pull that together:

1. Pull Your PayPal and Etsy Data Together. 

Whether you keep tabs of your business details on a spreadsheet, work with an accountant, or use an accounting tool that syncs with your Etsy shop to automatically gather and categorize your PayPal and Etsy sales and expenses, now is the time to pull together your records. If using Outright, import your data, and then categorize transactions that came in as “not sure” — this data will then populate your Schedule C worksheet.

2. Collect Your Expenses.

Not all your expenses come in the form of Etsy and PayPal fees. Ensure that you’re remembering to include all other expenses (like office supplies!) so you can accurately determine how much you owe. Outright allows you to import expenses that came in from credit cards and banks as well. All of your shipping-related fees should be included in your expenses as well. This includes postage and any packaging materials (even down to the tape on your boxes).

3. Find as Many Deductions as You Are Eligible for.

You might be eligible for some additional deductions. A common one for Etsy sellers is the Home Office Deduction. Also, if you drove anywhere for business (to the post office, for example) you can deduct $.55½ per mile or actual vehicle expenses. The IRS is pretty picky on this, so you do need to have some form of record-keeping for this (hint: use an app like Mile Bug to start tracking your mileage for next year). If you haven’t been keeping records, this can be difficult. But if you’ve been keeping a calendar that shows your trips, you can probably figure out some portion of your mileage to take a deduction on. With all of these, be sure to check local tax laws to ensure they apply to you.

4. Apply for a Tax Extension.

A tax extension, which delays your tax filing until October 15, is pretty easy to do. Just fill out this form and send it in. Beware though — you have to pay your taxes on time, even with the extension. So, you still need to try to figure out about how much you owe and send it in. You can wait until October to finalize it.

5. Get Prepared for Next Year’s Taxes.

Nobody likes record-keeping, but once you get into the groove, you’ll be prepared to tackle next year. With any method, make sure you keep receipts readily available. Keep detailed records yourself, or keep an accounting tool, like Outright, to guarantee your records will be kept up-to-date for tax time next year.

Tip: Divide your receipts quarterly or bi-annually to review with your accountant and make things much easier on yourself next year!

  • TheWeirdGirlWorkshop

    Andrea from TheWeirdGirlWorkshop says:

    Great tips! I wish I could mark this post! Question though- Outright is free again? I thought they were going to start charging sometime this year? I stopped using it because of the charges. If anyone knows- chime in please!

    3 years ago

  • outright

    GoDaddy Online Bookkeeping says:

    Glad to hear that the post is helpful! We have a free version and a paid version. The free version is free forever and the paid version, which includes some additional functionality, costs $10/month. I hope you'll consider using the free version again to help you monitor your Etsy business.

    3 years ago

  • auldlangsyne1

    Kirk Kidz from auldlangsyne1 says:

    I am going to check outright... Good tips... ~KK~

    3 years ago

  • LilBittyFish

    Mitza from LilBittyFish says:

    Thanks for the great tips! I know I'm not alone in saying that tax time always gets me a little jittery! I've been using Outright's free service this year, tho, & I feel MUCH more prepared than I have in previous years. Awesome service!

    3 years ago

  • volkerwandering

    Jess from volkerwandering says:

    Great information here! This article answers some questions I had!

    3 years ago

  • samsnatural

    Sam's Natural from SamsNatural says:

    Great post - hopefully it will help some folks!

    3 years ago

  • outoftheblue

    Jerin Scott from outoftheblue says:

    I always dread tax time. Even though I have an accounting degree and keep my books fairly organized, I have been doing everything by hand on spreadsheets and it takes FOREVER. However, for 2012, I've signed up for the free version of Outright as well as Stitch Labs and I am so excited! I am loving both so far and I can already tell they are both going to help tremendously for my taxes next year. I highly recommend both to all of my fellow Etsy sellers!

    3 years ago

  • SuperSweetCreations

    Monica Sweet from SuperSweetCreations says:

    I pay for all my etsy business related items, fabric, labels, shipping labels, bags, etc. With 1 credit card that has been dedicated to my business, this makes things so much easier and I have a record of when and where I spent my $.

    3 years ago

  • BraveTurtleCreations

    Sara Hardman from BraveTurtleCreations says:

    I always dread tax time and doubly so this year since it's my first without just a W-2. I never absolutely know if I'm doing them right (and it's just me because I can't afford to pay anyone else to do it). This makes me feel a little better since it goes along with what I was thinking I needed to do anyway. Thanks!

    3 years ago

  • mazedasastoat

    mazedasastoat from mazedasastoat says:

    PayPal do a debit card in the UK called the PayPal Access Card. I use it to buy supplies & pay for postage straight out of the PayPal account, so it makes keeping track of business expenses much easier. I always feel smug at American tax time because my accounts had to be in by the end of January & my tax is all paid for the year! :-)

    3 years ago

  • thevicagirl

    VaLon Frandsen from thevicagirl says:

    Taxes... I get them done so soon in the year it feels like tax day comes way later than needed.

    3 years ago

  • ChaosSupplies

    Jessie from ChaosSupplies says:

    Hey, heads up -- you can't deduct mileage from your house to the post office, *unless* you take the home office deduction. Unless your home is your official office for tax purposes, the IRS considers your first stop on your business errands to be your place of business (as if the first leg of your trip was your commute). http://www.irs.gov/publications/p334/ch08.html#en_US_2010_publink100025318

    3 years ago

  • HandmadeIsAllAround

    HandmadeIsAllAround from iammieOWLshop says:

    Thanks for sharing!

    3 years ago

  • messinabella

    messinabella from BandBEstate says:

    Great advice!

    3 years ago

  • IronCurtainSteamPunk

    Izabela Murawska from IronCurtainSteamPunk says:

    At last someone wrote an article about bookkeeping! I was waiting so long...

    3 years ago

  • CopperheadCreations

    Sarah from CopperheadCreations says:

    Thanks for the tips! Crunching numbers is not necessarily a creative person's favorite thing to think about.

    3 years ago

  • ikabags

    IKA PARIS from ikabags says:

    Thanks for sharing!

    3 years ago

  • KIMMSMITH

    Kim Smith Jewelry Designs Ltd from KIMMSMITH says:

    Great read, Thank You!

    3 years ago

  • joevleather

    Joe V. from joevleather says:

    Great article, and yes keep track of all your expenses you just never know, they always help when its tax time.

    3 years ago

  • WinchesterLambourne

    WinchesterLambourne from WinchesterLambourne says:

    Thank you, this is very helpful!

    3 years ago

  • QuietMischief

    Michele Howarth from QuietMischief says:

    Thanks for the tips! Doing taxes is always the worst part of the business for me. And I love Outright!

    3 years ago

  • SoulRole

    Nancy Campbell from SoulRole says:

    themost dreaded part of my business.ugh.I am excited to look into the Outright program though!

    3 years ago

  • knottybracelets

    Allyson Michelle from KnottyNY says:

    Great article! I'm on my way to Outright right now! I'm also going to take Jarin's advice and check out Stitch Labs as well as Monicas and use one credit card just for the business. Thanks everyone xoxo

    3 years ago

  • bloombyarissia

    Yazbeth from bloombyarissia says:

    Very helpful! Thank you!

    3 years ago

  • Cornbreadbottomstore

    Maren from Cornbreadbottomstore says:

    Outright seems wonderful but I just can't grasp that there is no way to track inventory there. How do you get good numbers without an inventory? Even those of us who make our own products have an inventory right? I read somewhere here on Etsy that someone felt like Outright did not have the numbers crunched right. I started to use it and this comment is making me think whether I should or not.

    3 years ago

  • GraysCrafts

    Anna and Kenneth Gray from GraysCrafts says:

    Thanks for the good info. "taxes must be postmarked by midnight on April 17" - you got this one wrong. They have to be postmarked by April 16. We suggest you correct it, or some people might get screwed. We keep cal mileage log. It's just a big notepad :). Keep it on a car seat. Every time you get into the car, write down starting ODO reading, date, destination and trip's purpose - to ship an order, to buy supplies, etc. We always include in destination reading and final reading. Then just transfer data into an Excel spreadsheet. Sent all our into to our accountant on March 31 and now enjoying well-deserved rest :). BTW, we have monthly "bookkeeping day". This allows to avoid nightmare before the tax period.

    3 years ago

  • GraysCrafts

    Anna and Kenneth Gray from GraysCrafts says:

    Just looked on the IRS website - it is April 17-th. Sorry about the wrong info. So, it is our accountant who was wrong then. He told us it was 16-th. Maybe to save himself some time :).

    3 years ago

  • patsytroxell

    Patsy Troxell from patsytroxell says:

    TAXS - UGG.

    3 years ago

  • Ljmesser

    Laura Messer from Ljmesser says:

    Anna - Yes, taxes are due April 17th this year... postmark must be before midnight on that day. The reason is that the 15th is a Sunday and the 16th is a holiday in Washington, DC. Everyone else - Thanks for the nice comments! We are glad you like the article. - Laura from Outright

    3 years ago

  • Mestee

    April from LittleLeafBotanics says:

    BEST tool ever, I 'heart' Outright.

    3 years ago

  • WendysJoy

    Wendy Garrigues Jenkins from WendysJoy says:

    ooh! that sounds like a winner. I used a nice set of file folders divided into tax categories, but my husband and I have still been days and days sorting it all out. (fail).

    3 years ago

  • brownleeartstudio

    Lee Brownlee from brownleeartstudio says:

    Wish I had known about Outright in January. Going to check it out.

    3 years ago

  • mnjohn

    Megan Nicole John from mnjohn says:

    Please, please be careful with the home office deduction! It could have tax consequences when you sell your home. Some people even say that it increases your chances of getting audited. AND the mileage deduction is very hard to prove, and certain applications don't count. Taxes are complicated, and I know this article just wants to help, but don't do any of this without talking to a professional. Sure it might save you a couple bucks now, but you don't want to get audited and have things be wrong. For someone who has trouble keeping good books on their own, I certainly don't recommend any tax gymnastics!

    3 years ago

  • mnjohn

    Megan Nicole John from mnjohn says:

    Oh, and I almost forgot! For those freaking out about taxes, the IRS has a program called VITA where you can get your income taxes done for free if you make under a certain amount of money. I got trained to do it this year (I am also an accounting student, planning to specialize in tax) and we were all trained in schedule C (self employment), so they can help you with that. Make sure you bring in a statement of anything you think could be deductible.

    3 years ago

  • outright

    GoDaddy Online Bookkeeping says:

    Megan - Congrats on the training - that's awesome. Good point about the home office deduction - It can be tricky for people who own a home (versus rent) and I'd encourage people considering it to click over to the page we linked to for the details... and then talk to a tax professional as needed. Note though - the home office deduction used to be a red flag for an audit back in the '90s, but the IRS has clarified that it's no longer a red flag because so many people are taking it.

    3 years ago

  • moonlightdesigns2

    Alona from MoonlightDesigns2 says:

    I joined Outright last year and so glad I did! It made tax time a bit easier this year although not all of my expenses show there but I keep all receipts in a file. Working from home and getting to write of my studio space helps but there are so many other write offs....don't forget packaging materials, tape, shipping labels, etc....

    3 years ago

  • StoryTellersVintage

    Ms. Vintage from StoryTellersVintage says:

    I'm an accountant and CPA and I know this task can be daunting for most. My best advice, if you can't afford to hire a tax preparer: check out the IRS website for free filing services. There are a few available if you income is under a certain level and it will help guide you through the process :)

    3 years ago

  • BoldandPosh

    Lauren-Ashley from BoldandPosh says:

    I'm soooo glad I read this post. Awesome tips, I wish I found out about Outright sooner, I definetly will be using this for next Year's taxes.

    3 years ago

  • JACsupplies

    Rita Kwong from JACsupplies says:

    This is great info. I just printed a PDF copy for myself. I wonder if anyone know about state sales tax and whether we need to file sales tax every quarter or just do it annually like Schedule C?

    3 years ago

  • AJWforever

    Amy Jo Williams from AJWforever says:

    Rita, that's probably a state-specific matter. In NC, I file electronically every quarter.

    3 years ago

  • PrettyCharmed

    Cheryl from PrettyCharmed says:

    I have also heard that claiming a home office can be a red flag to the IRS. I certainly don't want that! I think I will be consulting with a tax professional. Great information on keeping records. Thanks!

    3 years ago

  • BowMoBBB

    Diane (Mo) Collins from BowMoBBB says:

    Great info! Super Ideas! Thx

    3 years ago

  • browneyeddaisy

    browneyeddaisy from browneyeddaisy says:

    Thanks for sharing.

    3 years ago

  • petitbones

    Drucilla Pettibone from petitbones says:

    i'd love to use it, but i just started and i don't see how to import data from etsy and paypal for 2011. it just keeps telling me that info's not available even though i did business throughout 2011. anyone have a link for how to do it?

    3 years ago

  • sofisticata

    Hirjalda Mobley from sofisticata says:

    Thank you for the info!! I really needed it! I will try the outright!! ;)

    3 years ago

  • sandcanyonjewelry

    Jane Brown from SandCanyonJewelryLLC says:

    Thanks for the information--and the reminders!

    3 years ago

  • ReuseCreations

    Carol from ReuseCreations says:

    Rita, most states that have income tax will require you to make quarterly estimated payments, just check with your state. As a Big FYI to everyone, the IRS may require you to make estimated quarterly payments too. If your tax is going to be less than $1000 you don't need to, but otherwise search IRS form 1040-es for all the rules and a worksheet to estimate those payments you need to make. If you're supposed to make them and pay late and/or haven't paid 90%, you can get hit with extra penalties. That's because our taxes are set up as pay-as-you-earn (thus employee withholding) and when you do your taxes now, it's just to check if you were exactly right or not.

    3 years ago

  • ErikaPrice

    Erika from ErikaPrice says:

    Oh Outright - this is so interesting! I just wish you could do something like this for all us non-US sellers - I'm in the UK and need all the help I can get!

    3 years ago

  • Julkoski

    Julie Koski from JulieKoskiArtist says:

    Great! Thanks so much. Also learned much reading the other posts!

    3 years ago

  • BeadedTail

    BeadedTail from BeadedTail says:

    I'm a CPA and just wanted to say the mileage rate from 1/1 to 6/30/11 is .51 per mile and after July 1 it's 55.5 cents per mile.

    3 years ago

  • topc

    Linda from TopChoiceGifts says:

    Thanks for this information and thanks to the CPA ^^

    3 years ago

  • thewildraspberry

    Deborah Marie Heck from thewildraspberry says:

    What a wonderfully informative post! I have read several articles mentioning outright, but just signed up today. Already turned in 2011 taxes, but what a nifty organizational tool for 2012! Thanks also for the milebug tip! I love, love, love the helpfulness of the etsy community. What a blessing to encourage one another to do well! Have a super day! warmly~ marie

    3 years ago

  • cathydarling

    Catherine Darling Hostetter from CathyDarling says:

    Thanks so much for the great post. I signed up for outright this past year, and then forgot I did! I have been working on getting all my info together, so this will be really helpful. Thanks to everyone who commented there is some good info there too.

    3 years ago

  • HankOrange

    Amy from HankOrange says:

    Thanks for the post! I think I should look into Outright!

    3 years ago

  • FlutterbyCreationz

    Denise from FlutterbyCreationz says:

    I just opened an Etsy shop last year so all this is new to me and appreciate all the help I can get. I am so excited to have a tool like Outright, but I have the same problem as Drucilla, I cannot seem to pull up last year's information. When I change the year to 2011 under the Overview tab, it tells me that I have no Transactions for 2011 even though I do. Anyone know how I can pull up last year's info?

    3 years ago

  • BusyBQuilts

    Cathy Brecht from BusyBQuilts says:

    Thanks for all the info, I am going to check Outright now!

    3 years ago

  • toofancyjewelry

    Cheryl from toofancyjewelry says:

    If I have another shop at another venue besides my Etsy shop, will Outright keep track of both shops?

    3 years ago

  • Ljmesser

    Laura Messer from Ljmesser says:

    Cheryl - Yes, Outright can take care of multiple shops... Once you finish adding your first shop, you can click on the "Add account" button (lower left of the Overview tab) to add the 2nd shop. Denise - I can help you. I'll send a DM. Thanks!

    3 years ago

  • toofancyjewelry

    Cheryl from toofancyjewelry says:

    Thank you, Laura...I'll look for that.

    3 years ago

  • kandcsupplies

    Irina from kandcsupplies says:

    That's great! I look forward to trying out Outright!

    3 years ago

  • donnakazo

    Donna McVicar Kazo from donnakazo says:

    Outright was a HUGE help to me this year! I especially like how it tracks and separates all of the Etsy and PayPal fees. I added Outright's app to my iPhone, so I can log in an expense on the go, don't have to wait until I can get back to the computer! Thanks to Etsy and Outright for making it easier for artists to get back to creating our work, with the knowledge and security that we are also being good businesspersons!

    3 years ago

  • SnuggleOfLove

    Emily Georgiou from TwiiceLoved says:

    So Helpful! I'll check out Outright :)

    3 years ago

  • wwcsilverjewelry

    Lynda from wwcsilverjewelry says:

    I use it but can't make much sense of it. Since I have no idea what shop my purchases come from or what vendors the purchases were from without getting all my stuff out any way. I might as well just write it down and save the time.

    3 years ago

  • kimrib23

    Kimberley Nicolson from OutOfAStrobeVintage says:

    does anyone know if there is something like this for UK Etsy sellers?

    2 years ago

  • IrisJewelsonEtsy

    Iris Jewels from IrisJewelsonEtsy says:

    Thanks for this article. I look forward to checking out Outright. Does anyone know how you can combine the data from non-online sales for streamlined records?

    2 years ago

  • krazybeautifullove

    Amanda Hendrickson from ItsKrazyBeautiful says:

    I have no idea how any of this works. I am VERY VERY new to Etsy. Is there an income minimum allowance before you have to start paying anything on your taxes. Or no matter what you sale, weither it be $10 or $1000 youhave to claim it on your taxes

    2 years ago

  • norjewelry

    Nor from NorJewelrybyDesign says:

    .In April of this year,i began to organize all my hand made jewelry.May of this year,i was officially retired and very happy to star with Etsy. I have been making lots of jewelry,and learning about Etsy. Taking pictures of the jewelry has been a great experience for me.But starting a business on the internet as small as it is ,is kind of scary. Even though i have learned rules and regulations,i am afraid of making a mistake.I really hope that from now to the end of the year i will be able to upload all the jewelry i have made,and i really hope that my fear of the unknown will be gone by then.Thanks for giving the opportunity to be able to comment on it.

    2 years ago

  • rhcpets

    Tammy from RHCpets says:

    I know this post is old, but I just discovered it. And I'm sitting here WISHING there was something like Outright for sellers in Canada. I'm so new, and although I'm an excellent spreadsheet programmer, I'm still very frenzied and feel sort of swamped with info.

    2 years ago

  • Zeedubya

    Zalina from MYPEACEofJEWELRY says:

    Thanks for posting because I have NO CLUE what I am doing. :)

    1 year ago

  • EnsleyFaron

    Ensley Rivers from FancifulFaron says:

    Is there still a free version available?

    314 days ago