Etsy store - income and expenses management | Vicky Nedelcheva | Skillshare

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Etsy store - income and expenses management

teacher avatar Vicky Nedelcheva, Accountant

Watch this class and thousands more

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

9 Lessons (24m)
    • 1. Introduction

      1:26
    • 2. Legal forms

      1:15
    • 3. Account set up

      1:13
    • 4. Payment methods

      3:06
    • 5. Fees

      4:00
    • 6. Payment account

      3:29
    • 7. Sales tax and value-added tax

      4:33
    • 8. Income tax

      3:08
    • 9. Example

      1:47
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About This Class

In this course, you will learn how to track, read, and manage all the financial information of your Etsy shop.

I'll show you what are the most common expenses you should pay as an Etsy seller and why your income is lower than you expect.

I will clarify to you when you must accept payment through Etsy Payments and when through your own PayPal. 

After that, I will go through the Etsy payment account and will explain to you how to read your finances that appear on this account.

Last, but not at least, we will take a look at Sales tax, Value-added tax, and Income tax.

I created this series of videos as an educational and informational guide. The content should not be construed as legal advice. I disclaim all responsibility for any and all losses, damages, or causes of action that may arise or be connected with the use of these materials. Please consult a licensed attorney in your area with specific legal questions or concerns.

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Vicky Nedelcheva

Accountant

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Transcripts

1. Introduction: If you create products such as handmade goods, vintage items, or craft supplies, and want to reach potential buyers all over the world at sees the right place. Etsy is a global e-commerce website that connects creators with their potential clients. Etsy helps creative people open their online shops and turn their creative ideas and hobbies into successful businesses. It helps people to find unique goods made with love. Doing that, Etsy helps spread ideas of sustainability and responsibility. In this course, we will talk about Etsy from a seller perspective. We will clarify the most appropriate legal form for your Etsy business. And we will go through the process of opening an Etsy shop. We will talk about all the main fees we should pay as a seller and we will take a look at the payment account. After that, we will take a look at sales tax, value-added tax, and income tax. I created this series of videos as an educational and informational guide. The contents should not be construed as legal advice. I disclaim all responsibility for any losses, damages, or causes of action that may arise or be connected with the use of these materials. Please consult a licensed attorney in your area with specific legal questions or concerns. 2. Legal forms: Before you open an Etsy store, you have to choose the right legal structure for your business. There are two main legal forms you choose from. A sole proprietorship or a limited liability company. If you want a business that is easy to maintain, you should choose a sole proprietorship. This business form is not only simple but inexpensive to establish. When you are a sole proprietorship, there is no distinction between the business and you. The debts of the business are also your debts. This means that you will be held personally liable for the debts and obligations of your business. However, the profits of the business are also your profits. If you operate your business as a limited liability company, you will be not held personally liable for the debts and obligations of your business. This means that if you have unpaid debts, creditors can only go after the assets of your business and not your personal assets. Most Etsy sellers are registered as a sole proprietorship. And when their business expands, they switched to a limited liability company. 3. Account set up: After you have chosen the legal form of your business, you should read what your rights and obligations as an Etsy seller are. All cellular policies you can find on the platform. And after you have become familiar with all your rights and obligations, you can click on the button, open your online shop and register your profile. You need to enter your email name and password. After that, you upload a profile picture at a bio and some more additional details. The next step is to navigate to your store and choose your language, country, shop name and currency. Of course, you can add some description of your store policies for shipping, returns and payments. You're Etsy shop is already set up and you are able to add all items that you want to sell. For each item, you should add a title, description, photo, price, tags, and keywords. Now you can sell your products. Pay attention to the shipping of your products. Customers will be more satisfied with fast shipping for which they shouldn't pay a bomb. 4. Payment methods: Maybe you wonder if you need a bank account to sell on Etsy. It depends on where you live. If you live in a country that is eligible for Etsy payments, for example, the USA, you need a bank account. The reason is that in these countries you must use Etsy payments as a payment method. And Etsy payments can only deposit money into your bank account. It can't deposit money into your PayPal account. I am sure that you have already a personal bank account. But using your personal bank account for your Etsy cells is not a good idea. The best practices to keep your personal and business finances separate. If you live in a country where Etsy payment is not available, you do not need a bank account. In this case, you receive your customers payments directly into your own PayPal account. Etsy payments ease payments for both you and your buyers. When you use Etsy payments, your customers can choose one of the following ways to pay. Credit cards. Debit slash bank cards, Etsy gift cards and Etsy credits. Paypal, Apple Pay, Google Pay. You get all your payments in one place and you do not need to have an account on any of these services to receive money from your customers. Your sales funds will be available in your Etsy payment account. Using this way of payment, you have to pay a transaction fee to fc. We will take a close look at the main Etsy fees in the next video. Now it is enough to understand that you receive into your bank account your net sales income. This is the sales income after subtracting all Etsy fees. I can give you a simpler explanation. When you receive your payments through Etsy payments, Etsy receives all your sales income. It is called gross income. After that, Etsy takes automatically part of this gross income for itself in a form of fees. And in the end, Etsy deposits the rest of the sales income into your bank account. If you are in a country that is not eligible for Etsy payments, you need to use your own PayPal account to receive clients funds. In this way, you do not pay Etsy transaction fees, but you have to pay some PayPal transaction fees and you must pay manually the rest of the ETC. Fees, such as listing fees and shipping fees. 5. Fees: Knowing all main fees that you can be charged by Etsy is more than important. All Etsy fees are expenses for you as an Etsy seller and they will decrease your income. The higher the fees, the lower the income. The main types of fees you need to know our listing fees, transaction fees, advertising fees, and payment processing fees. You will be charged a listing fee for each item that you list on your Etsy shop, no matter if you make or don't make sales, the listing fee per item is $0.20 and you will owe this fee every time you create or renew a listing. Listing fees are active for four months and Etsy will automatically renew your listings at the end of this period. But if you want, you can choose to renew your listings manually. Let's assume that you sell leather bags. On the fourth of January, you list ten different models of bags. For creating each listing you'll be charged $0.20 and for all ten listings, you will be charged a total of $2. This listing fee of $2 will be reflected in your payment account and deducted in January. On the fourth of May at C will automatically renew your listings and charge you $2. Again, It's a bit confusing if you create a listing with a total quantity of more than one. In this case, you'll be charged with a listing fee every time an item from the listing has been sold. Let's assume that you sell one type of bag, and your listing of BAG includes ten bags. Every time you sell a bag, you will be charged $0.20. If you sell three bags, you will be charged $0.60. If you sell six bags, you will be charged $1.20. Whenever you make a sale, you will be charged a transaction fee, which is 5% of the listing price plus the amount of shipping and gift wrapping. Let's assume that you are selling a bag for $41. The shipping is $4. The transaction fee, which you should pay to Etsy is 5% of the total cost of the bag. 5% of $45 equals $2.25. This means that you will be charged $2.25 by Etsy. Etsy advertise fees are charged on a cost-per-click basis. This means that you will be charged only when you're advertise is clicked, not simply when it is displayed. You can set a daily maximum budget and you will not be charged more than it. The ETC. Advertising fees appear typically within 24 hours of when they have been incurred and they are reflected in your payment account and deducted from your current balance along with all other fees. As an Etsy seller, you can accept payments through Etsy payments or PayPal. If you choose to accept payments through Etsy payments, you can accept payment by credit card and debit card, Etsy gift card and Etsy credit. Apple Pay and Google Pay. For using this convenient Etsy service, you need to be charged with a payment processing fee. Payment processing fees equal the percentage of the total sale price plus a flat fee per order. The percentage of the total sale price and the flat fee varies according to the location of your bank account. If you live in the USA, the payment processing fee is 3% of the total transaction plus a twenty-five cents flat fee. Let's assume you're selling two bags for a total price of $82.3 percent of that is $2.46 plus a $0.25 flat fee. So your payment processing fee will be $2.71. 6. Payment account: Etsy payment account brings together all the information about your sales and fees into one place. It gives you a picture of your expenses and income. You can find your payment account in the finance section of your shop manager. We will talk about four main numbers that appear on the payment account, amount due, what's available for deposit, recent activities and monthly statements. Let's start with the amount due section. If you are not enrolled in ETC. Payments, your fees will appear in your amount due. But if you are enrolled in ETC. Payments, the fees you O will be automatically deducted from your sales. This means if your sales income is greater than your expenses, the amount due will be 0. But what happens when the fees you are greater than your sales income? In this case, your amount due will decrease by the net amount of the sale. If you have an amount due from the previous period that wasn't covered by your sales, you should pay it between the first 15th of the current period. If you $84 of fees in September and made forty-five dollars in sales, you would see in the amount due section thirty-nine dollars on the first of October, you should pay this amount before the 15th of October. You can do it manually or you can enroll in auto billing. Let's see the available for deposit section. When your sales income is greater than your expenses, you'll have a positive balance. This positive balance appears is available for deposit. You should pay attention to that funds from new orders become available the next day. That's why you're available for deposit can sometimes be lower from your current balance shown in the Recent Activities section. Under the available for deposit total, Etsy shows how often you will receive automatic deposits by Etsy and the bank account where Etsy will send your money. Let's assume you make sales totaling for $5 thousand and you are charged with $45.84 fees. You're available for deposit total would be $4,954.16. You have set up a daily deposit, so the money would be sent on the next available deposit date. The third section is called Recent Activities. It consists of rows that show all the latest transactions related to your Etsy shop. In other words, this section shows all debits and credits. In this section, you can see all cells you've made, all refunds you've received, and all fees you've been charged. All these transactions calculate your current balance. It is changing depending on what's happening in your Etsy shop. Fees and refunds will reduce the current balance and the sales made will increase the current balance. The fourth section called monthly statement, includes two charts, sales and credits and fees and taxes. Sales and credits chart shows your net Etsy payments sales for a particular time. These are your Etsy payments, sales minus payment processing fees and taxes collected by Etsy. Fees and taxes chart shows you all your fees and taxes for a particular time. 7. Sales tax and value-added tax: No matter if you do your bookkeeping alone or you've hired an accountant, you have to learn the basics about the types of taxes that are most likely to apply to your Etsy shop. We will talk about sales tax, value-added tax, and income tax. Many people afraid of taxes. In this video, I would like to show you that there is no reason to feel confused when you hear the term tax. Let's begin with sales tax. Sales tax is a consumption tax and it is a part of the price that buyers pay. If you deliver to a location within the state where your business has a significant presence, generally, you are responsible for collecting and paying state sales tax to the state. If you have an office, warehouse, contractor, salesperson, or affiliate in the state where you sell, you are required to collect and remit sales tax. The situation is the same in states which apply economic nexus law. Economic nexus means that if you make over a certain dollar amount of sales in this state or a certain number of sales transactions, you are required to collect sales tax no matter that you don't have a physical presence in the state. After you have identified the state where you are required to collect and remit sales tax, you should determine the sales tax rates. The government side of the state will tell you what the sales tax rate is, which items you're required to charge sales tax on when your sales tax is due to the state and what kind of paperwork you'll need to submit. For detailed information, go to the state's Department of Revenue website. You'll usually need your taxpayer identification number. This can be your social security number or federal employer identification number. After you have found where you are required to charge sales tax and what the sales tax rates are. You can set up sales tax in your shop, go to shop manager, finances, payment settings, and select sales tax. You can set up taxes for all locations where you're required to collect sales tax. The sales tax rate can be for entire states or individual zip codes. Once you have saved your sales tax rates, your clients will be charged state sales tax. State sales tax is included in the total amount transferred to your payment account. You should remit the sales tax you've collected either quarterly or annually, depending on the state. Want to see how much sales tax you've collected on Etsy, and of course you owe to the state or the city. You can download the CSV file of your sales. It's up to you to research the local laws about collecting and reporting taxes for your Etsy sales. If you're unsure, you need to consult an accountant or other experts in your area. But what happens when you run an online business within a state where you do not have a significant presence. Some states apply marketplace sales tax laws. These states require marketplaces such as ETC, to collect and remit sales tax on sales made into these states. No matter if you have or do not have any presence in these states, if you make a cell into some of them, Etsy is required to collect and remit a sales tax on your behalf. For orders placed through Etsy payments. Etsy calculates the state sales tax rate, charges the buyer and sends the tax owed to the state for orders placed through PayPal. The sales tax collected is sent to you as a part of the payment. Then Etsy will add the sales tax amount to your amount due so that it can remit the tax to the state. And if you are an Etsy seller who sells digital items to buyers in the EU and some more countries, your buyers will be required to pay value-added tax on the digital item they buy. Value-added tax is a tax based on the consumption of goods and services in the EU and some other countries, you do not have to add the value-added tax to your digital listing prices. Etsy will collect the value-added tax paid by the buyer and remit to the relevant tax authorities. As an Etsy seller based in the USA, you are not required to collect VAT for physical goods. 8. Income tax: If you are an Etsy seller based in the USA, you must pay income tax on your income. This is the net total amount you earned by selling your products, less your business expenses. Because more Etsy sellers operate as a sole proprietorship. We will take a look at the tax forum called Schedule C. You can find the information you need to complete your Schedule C tax form on the profit and law statement from your bookkeeping software or your spreadsheet. Let's see at part one gross income section, first, we should fill out the line gross receipts or sales. This is the total amount of all products and services sold to your customers before taking into account any product returns or other related costs to generate those sales. After that, we need to fill out all returns and allowances. This is the total amount of refunds that you gave to customers for returned or damaged products. And of course, we should subtract the cost of goods sold. This is the cost of producing all of the products or services sold. In part two expenses section, we should fill out all tax deductible expenses. As an Etsy seller, there are a number of deductions that you can claim. If you're spending money on something related to your Etsy shop, it is probably deductible. Every time you write off an expense, you lower your taxable income and you save hundreds of dollars. We will take a look at some most common deductions. First, we will talk about the mileage deduction. If you are using your personal car for business purposes, you can deduct part of your vehicle expenses. For example, you can drop off packages. The easiest way to calculate vehicle expenses is to multiple all miles driven for business purposes by flat ¢54.5 per mile. It is very important to track daily mile driven for business purposes. If you have enrolled in online courses, workshops, coaching, or training that you use to improve or maintain the skills that are required in your business. You can write off their costs. The cost of all equipment you use to create your products and manage your Etsy shop can be written off. If you have bought a new sewing machine to make your bags, you can deduct the cost of this asset. All manufacturing items are deductible. It's the same if you buy a computer, printer or some other asset used in your business. All expenses related to promoting your online shop or deductible. For example, Google or Facebook ads, print ads, videos, as well as the cost of hiring someone to make ads for you. All fees you pay to attorneys, accountants, banks, ETC, and PayPal can be qualified as business expenses and written off. Depending on the time you're using your cell phone and internet for your business, you can write off part of these expenses. You need to keep accurate records. 9. Example: In this video, we will see how much money you would be making when all the main fees on Etsy would be taken from you? Let's say you are selling a leather bag. To add the item to your store, you have to pay $0.20, which is a listing fee. The selling price of the bag that displays on your Etsy store is $41. The shipping fee is $4. So the total amount that the customer has to pay as forty-five dollars, Etsy will charge you 5% of the amount of $45. We'll have to pay a $2.25 transaction fee. You accept payments through Etsy payments and you are based in the USA. In this case, you'll be charged 3% of $45 plus a $0.25 flat fee. The total payment processing fee you will have to pay is $1.60. The total selling cost of the bag is $45. But you will not see this amount on your payment account because it will be reduced by a $0.20 listing fee, a $4 shipping fee, a $2.25 transaction fee, and a $1.60 payment processing fee. The real income from the transaction will be $36.95. This is the amount that will appear on your payment account as an income. The listing fee, transaction fee, and payment processing fee which you will pay to Etsy is an expense for you and an income for Etsy. Etsy will receive from you and income of $4.05.