Setting up shop on Etsy is a super exciting time. Sharing your art + talent with the world (and getting money in exchange!) is one of the most satisfying feelings ever. But as you begin this journey, you may quickly realize that operating an Etsy shop is not all sunshine and rainbows. There’s real work involved, and even before the sales start pouring in, you’ll want to make sure you’ve gotten the financial and legal side of things squared away correctly.
Today I’m going to offer you a brief overview of the steps required to get the financial side of your business set up properly. One of the biggest challenges we as makers face is that we often don’t even know all the rules that apply to us, so luckily I’ve got this handy printable checklist here for you to help you follow along.
Bookkeeping
- Set up a separate bank account especially for your biz. Having your business funds separate from your personal funds is essential for easier bookkeeping, and it protects your business in case of a tax audit. Learn more about this here and here.
- Research, choose, and set up bookkeeping software for your shop. There are several great options for makers. Keep it simple since overwhelm leads to procrastination (and keeping your books updated is already hard enough!). You can use anything from cloud-based software to a spreadsheet to a paper log, as long as you’re consistently recording those transactions! I show you a few options here.
- Set up a system for storing, sorting, and organizing your receipts. Creating a folder system for organizing both physical and digital documents makes bookkeeping tons easier. It’s also great for tax purposes.
State Requirements
- Apply for a sales tax permit with your state. Most states require you to register for sales tax when you first begin selling. Very few states have a minimum sales threshold you must meet first, so it’s really essential that you get legit and register for sales tax. Remember, this is done on the state level. You may have various rates you need to charge depending on your state, county, and city.
- After registering, get your Etsy shop up to correctly charge your in-state customers sales tax. I have info about that here.
- Apply for any other state or local business permits required in your location. These may include things like your DBA license, an assumed name license, a business permit, etc.
Federal Requirements
- Apply for your EIN. This is usually not required for sole proprietors without employees (which is likely what you are operating as). However, it’s free, easy to apply for, and protects your social security number, so there’s really no reason to not apply for one.
- So this one is technically not a “requirement”, but just a super smart idea – get educated on what tax form(s) you will need to file for your biz at year end. Knowing what to expect is the key to staying on top of your finances throughout the year and preventing stress at year end when you’re hit with unexpected work or an unplanned for tax bill. (Hint – the tax form you’re most likely going to be dealing with is the Schedule C!).
If you’re looking for even more detailed help, I’ve got a breakdown of all these steps in this free printable checklist.
Getting your shop legit requires lots of steps and juggling a lot of moving parts. You have to know the right questions to ask and who to ask them to, since you’re dealing with local, state, and federal requirements. Take it step by step and remember to breathe!
I know it can be a challenge, but operating your shop with all your financial ducks in a row allows you to breathe easy and be a savvy seller. You’ll feel confident when those sales start rolling in because you’re already knowledgeable about the tax and accounting side of things.
ABOUT THE AUTHOR: Janet is the founder of Paper + Spark, where she offers educational content, tools & spreadsheet templates to help makers and creative entrepreneurs become more confident about the financial side of running their business. She’s a maker, mama, numbers nerd, Etsy shop owner, and an accountant. Her passion is to help other creative women bring their entrepreneurial dreams to life by going from confused to capable when it comes to their money. Visit her at paperandspark.com.