Seller Handbook

Whether selling on Etsy is your full-time job or a side hustle, come tax time you’ll want a full understanding of how to file your taxes. This guide for sellers in Canada will help simplify your tax season, leaving you with more time to focus on growing your business.

While paying taxes on your income earned on Etsy is similar to filing other small-business taxes in Canada, one difference is having to export your business info from Etsy and categorize it manually, which can be time consuming. Fortunately TurboTax offers a direct integration with Etsy, seamlessly connecting to your Etsy account and securely migrating your business info, income, expenses. Plus, Etsy sellers save 20% on all TurboTax Self-Employed products for a limited time (available until June 17, 2024)!

To help you file your taxes and better understand your tax obligations, we created this tax guide for Etsy sellers in Canada that explains the key considerations when filing Etsy small-business taxes and how TurboTax works with Etsy.

Etsy Tax Reporting: Sole Proprietors vs. Corporations

The first step to Etsy tax reporting in Canada is to understand whether you're operating as a sole proprietor or a corporation.

Sole proprietors

If you're selling on Etsy as an individual, you're considered a sole proprietor, and your Etsy income needs to be reported on your personal tax return. You'll use Form T2125 (Statement of Business or Professional Activities) to report your business income and expenses. Just list your Etsy sales as business income and deduct eligible expenses—such as materials, shipping costs, and Etsy fees—to calculate your net income.

Corporations

If you're running your Etsy shop as a registered business entity, such as a corporation or partnership, you'll need to file separate business taxes. This involves completing Form T2, Corporation Income Tax Return.

Reporting Etsy Sales Income on Your Taxes

For the purposes of this article, we'll focus on how to file Etsy small-business taxes for a sole proprietorship, in which you report Etsy sales income on your personal tax return. (Here's an article on filing taxes as a corporation if you need information on this aspect.)

When reporting Etsy sales income on your personal taxes, you'll need the following information from your Etsy shop.

• Total sales: this includes the gross amount of all sales made through your Etsy shop during the tax year
• Expenses: deductible expenses such as materials, shipping costs, Etsy fees, and any other relevant business expenses
• GST/HST and/or QST: if you are responsible for including GST/HST and/or QST in your listing prices, you can easily input any GST/HST or QST charged and collected by you.

You can find this information directly within your Etsy seller account. Tax preparation services, like TurboTax, offer features that allow you to import information directly from your Etsy account to help streamline the process and save you time.

Tracking and Reporting Business Expenses

Tracking and reporting your business expenses in your Etsy tax reporting is critical to the accuracy of your tax filings and maximizing your deductions. Charges incurred as a result of using Etsy, as well as costs associated with running a business in general, can both be deducted. Ensuring you take all your deductions reduces your taxable income and ultimately lowers your tax bill.

Here are some expenses to include:

• Etsy fees: Fees charged by Etsy for listings and transactions—as well as any other service fees—are deductible. These fees are typically detailed in your Etsy Payment Account records.
• Supplies: Expenses related to purchasing materials and supplies for creating your products are deductible. This includes the cost of raw materials, packaging materials, and any tools or equipment necessary for production.
• Shipping costs: The expenses associated with shipping orders to customers can be deducted as business expenses. This includes postage, packaging, and insurance fees.
• Marketing: Costs from promoting your Etsy shop are also deductible. This includes advertising expenses, social media marketing, and fees for sponsored listings on Etsy.
• Professional fees: Fees paid to professionals for services related to your Etsy business are deductible—including accounting fees and legal fees.
• Home office expenses: If you operate your Etsy business from a home office, you may be able to deduct a portion of your home-related expenses. That could include utilities, rent, mortgage interest, and property taxes.
• Utilities: The portion of your utility, phone, and internet expenses used for your Etsy business activities can be deducted.
• Software and other tools: Expenses for purchasing software, tools, or subscriptions necessary for managing and operating your Etsy shop—such as design software or inventory management tools—are deductible.

Remember to keep detailed records of all your business expenses throughout the year, as this is crucial for filing small-business taxes in Canada. This documentation will support your deductions and serve as evidence in case of an audit.

Doing Your Etsy Small-business taxes with TurboTax

TurboTax is the expert at filing small-business taxes in Canada and can help make your Etsy tax reporting simple. TurboTax is even offering Etsy sellers an exclusive 20% discount on TurboTax's Self-Employed service until June 17, 2024. Under 25? You can file for as little as $15!

TurboTax makes filing Etsy taxes easy with just 4 steps:

1. Answer questions about your year: With just a few questions, TurboTax can determine which forms you’ll need to fill out and add them to your return.
2. Connect your Etsy account: With just a few clicks, you can connect your Etsy account and TurboTax will import all necessary information from your Etsy shop, including your income and expenses. That saves you from having to categorize everything manually. The TurboTax import feature makes reporting Etsy sales income a breeze.
3. Deduct every expense: We’ll categorize the Etsy expenses we import for you—and walk you through counting other expenses, like those for your home office, marketing, shipping, and more. We'll make sure you don’t miss any deductions when filing your Etsy small-business taxes!
4. Use an expert to get the best outcome possible: Worried you’ll miss deductions if you file yourself? Get unlimited tax expert help and a final review with our Assist & Review plan, or hand over your Etsy tax reporting completely with our Full Service plan and get back to running your business.

Key Takeaways:

• Filing your Etsy small-business taxes starts with filling in your Etsy financial information. TurboTax makes this simple with an import feature.
• Make sure to count all your business expenses—both those directly from Etsy and those you incur generally in running your business.
• Take advantage of TurboTax's exclusive 20% discount for Etsy sellers, available until June 17, 2024! To get started, visit: turbotax.ca/etsy. Intuit terms apply.

Legal disclaimer: Please note that tax laws change frequently, and this information does not constitute tax or legal advice. You're responsible for any use of this information. Please consult an attorney or tax expert if you have any questions.