Ten Tips for Tax Time – Most crafters who sell their wares need to declare their earnings to the tax man. Make sure you have found out what the rules are for the area in which you live so you can relax knowing you are doing everything legally.
Here are ten little tips to help make the whole business of tax, well, less taxing. With the added benefit of saving you money and possibly helping you understand and improve your business as well!
IMPORTANT – if you are really unsure about tax, worried you are not doing things right, have multiple sources of income or are earning a lot then consulting an accountant or tax professional is advised.
DISCLAIMER – I am not an expert on tax. Tax requirements vary in different countries. These are general ideas which are of potential use to the majority of small craft sellers. They are not any form of legal guidance. They are intended as friendly suggestions and tips only. It is essential that you are aware of the tax laws that affect YOU.
1 – Keep ALL your receipts. If it is a legitimate business expense then you must hang on to that receipt. If you are ever audited by the taxman he will want to see evidence of the expenses you are claiming
2 – Print out online expenses in batches or singly – whilst some people say “oh, all my online purchases are there if I ever need to print them for the taxman” I personally like to print out the receipts for larger purchases (such as renewing my webhosting) just in case. I also print out a list of my Paypal purchases, or eBay purchases every 3 months. The reason I do this is in case I was unable to access them for some reason and was being audited. Knowing I have them already filed away is peace of mind. I don’t have many business purchases, if you have a lot then you may want to print out this sort of list more often.
3 – File so you find them – If you only have a few receipts etc then popping them all in ziploc bag or manilla folder should be fine. If you have quite a lot of regular receipts then separating then into monthly batches will make it easier to find something if you need it. I use a simple system of folder pieces of paper, receipt tucked inside, and a paper clip holding them in place. Sellers with an awful lot of receipts may need box files for each month, or quarter.
I have my paperwork in two box files. One is for “This Year” and one for “Last Year”. At the end of each financial year I move “This Year” to “Last Year” and the old contents of “Last Year” get filed away in my filing cabinet. I keep all paperwork for at least 6 years which is the recommended time span here in the UK.
4 – Know when you need to submit information – make a note in your diary, planner, phone calendar or whatever you use to keep track of your life. Make sure you know the final cut off date and set yourself a goal of getting started on tax returns with plenty of time before that. Here in the UK we get reminders in the post that tax time is coming, but I still make sure I know and have the dates clearly in my planner.
5 – Don’t leave it until the last minute – whilst it can be tempting to put tax returns off, doing so can be decidedly dangerous. A few years ago I made this mistake. I had left it until just a couple of weeks before the cut off date. When I started to fill in the online form I realized I didn’t have an important document from an employer – and I needed this information! I had to ask my personnel department for the info, and they said it had to come from head office.. which would take a few days! Argh! I was a bit stressy, but luckily it turned up in time. Now I start the returns early, just in case! And of course the soon you get it done, the sooner you can stop thinking about it!!
6 – Do your business accounts regularly – leaving everything until a once-a-year tax return means you are not really aware of exactly how your business is doing for the rest of the year. It is very easy to use online 
accounting sites like WaveAccounting or GoDaddy to keep track of your income and outgoings. There are also software packages such as Sage. You can of course keep manual records in ledgers too, which for a very small business can be just as easy to do.
Whatever system you use, do it regularly. I use WaveAccounting.com which is easy to use, flexible, convenient and totally free! It is linked to my Paypal account and all things from that feed in automatically. Every Friday I just add any post office receipts or other non-Paypal purchases I have made. I also add my Etsy Direct Checkouts manually – I add them as a block when they are paid to my bank account, so this is very quick.
Doing it regularly like this means I can see at a glance how the business is doing and know that this picture is up to date. When tax time comes I have all the figures ready to just pop in to the online assessment form. It makes it a very quick task indeed 🙂
7 – Use an accountant if necessary – if you are new to tax, earning quite a lot of money, or in anyway daunted or confused but the process then it is best to seek professional help. Getting it wrong could cost you a LOT more than the cost of the accountant. Try to keep your paperwork organized as this will make the accountants job easier – and quicker.
8 – Find out what you can deduct – it is important to know what are legitimate business expenses, as they are the ones you can declare. Remember that you only pay any taxes on your profit. So declaring all expenses lowers the profit and means less tax to pay! What you can include varies slightly from country to country (or even US state to state). Usually it includes selling fees (such as Etsy listing fees or craft stall fees), postage costs, shipping supplies, materials, tools, stationery, advertizing, accountant’s fees and server costs. Try not to forget the little expenses, and keep receipts for them – it all adds up.
You may also be able to deduct some household costs if you work from home. This can be quite complicated though so make sure your circumstances apply and check with an accountant if necessary.
9 – Save for your tax bill as you go along – Remember that you will only pay tax on profits. Plus in many places there is a threshold that you can earn up to before any tax needs paying. If you have other forms of income (such as another job) then you may be over the threshold already and so will pay tax on all your Etsy or craft fair profits. If you have a very low income then you may not cross that threshold and have no taxes to pay. It is important to be aware of your situation and the rules for your area on this.
If you think you are likely to have tax to pay at the end of the year (or your tax period) then begin squirreling the tax away as you go along. Many sellers try to save a little more than the percentage that is the tax rate, this way they end up with more than they need at tax time, and have a nice little “windfall” left over. This seems like rather a good idea!
If you are unable to pay your tax bill you could face fines or other problems, so putting a little money aside throughout the year makes a lot of sense.
10 – Be honest – I probably shouldn’t have to say this, but I will anyway. Always declare ALL your income. Keep everything 100% accurate and honest. No one likes having to pay tax but paying big fines is even less pleasant. Remember that if you have a large tax bill then it means that you had a lot of sales! Try to see it as positive evidence of your success.
IMPORTANT – if you are really unsure about tax, worried you are not doing things right, have multiple sources of income or are earning a lot then consulting an accountant or tax professional is advised.
DISCLAIMER – I am not an expert on tax. Tax requirements vary in different countries. These are general ideas which are of potential use to the majority of small craft sellers. They are not any form of legal guidance. They are intended as friendly suggestions and tips only. It is essential that you are aware of the tax laws that affect YOU.
You may want to check out my post on 7 Pro Tips when Selling Crafts Online.
For other Tin Teddy blog posts about selling your crafts online – Tin Teddy Online Craft Selling Blog Posts
Please check out the Craft Seller Success Podcast – helping craft sellers sell their crafts. Listen to the podcast or read the full transcript here on the Tin Teddy Blog.