Etsy & Online Seller Tax Calculator — All 50 States + DC (2026)

Materials and supplies are typically the largest deduction for Etsy sellers. Every dollar spent on raw materials (fabric, wood, paint, resin, yarn) used to create inventory is deductible as Cost of Goods Sold (COGS) on Schedule C. Keep all purchase receipts — digital and physical — and separate personal purchases from business purchases.

Platform fees reduce your taxable income significantly. Etsy charges a 6.5% transaction fee plus $0.20 per listing. Sellers generating $50,000 in revenue may pay $3,250+ in Etsy transaction fees alone, all fully deductible. Shipping costs you pay for business orders are deductible; shipping labels purchased through Etsy's discounted postage are already factored into COGS.

A dedicated home workspace qualifies for the home office deduction. The simplified method allows $5 per square foot (up to 300 sq ft = $1,500 max). The regular method deducts the actual percentage of home expenses (rent, utilities, insurance) that corresponds to the office's share of total square footage. For Etsy sellers who also use space for inventory storage, both the office and storage areas may qualify if used regularly and exclusively for business.

Photography equipment — cameras, lenses, lightboxes, props, backdrops — used exclusively for product photography is fully deductible in the year of purchase under Section 179 (up to the income limitation). Software like Adobe Lightroom, Canva Pro, or social media scheduling tools used for the business are deductible as software subscriptions.