Figuring out if you need a business license to start your Etsy shop can be confusing. Let us help you make sure you're in compliance with the law.
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by Lindsay VanSomeren
Lindsay VanSomeren specializes in writing about credit, debt, personal finance, and insurance. Her work has appeared ...
Updated on: August 2, 2024 · 10 min read
No, Etsy does not require a business license to start an Etsy shop.
There’s no two ways about it: Etsy has become one of the premier online craft markets in the world. If you’re launching your own handmade items and crafts business, Etsy is the place to be.
One of the reasons Etsy is so popular is because the platform makes it super simple to get started. You don’t need a business license to sell on Etsy, nor worry about most other business formalities, like collecting sales tax. However, in some cases, you might need to consider those things anyway. Here's what to know about business license requirements when you sell on Etsy.
No, but your government might require you to get a business license for your online business, even if you only sell products on Etsy and nowhere else. Whether or not you need a business license as an Etsy seller depends on a few different things:
Remember, Etsy only sets the rules for who can sell on its platform. It’s the different levels of government that you live under that set the rules for who needs a license to legally operate a business. Figuring out whether you need a business license in general—whether selling on Etsy or anywhere else—is a bit more complicated.
It’s important to know that business licensing is a separate thing from registering your business, collecting sales tax, and paying taxes. Registering your business name doesn’t always mean that you have a business license, for example, and having a business license doesn’t necessarily mean you need to collect sales tax.
Once you realize these are separate processes, it’s a bit easier to understand whether you need a business license or not for your Etsy business. Along these same lines, there’s not any single business license—instead, your business may need one or more separate business licenses, depending on which level of government you’re talking about.
The IRS also distinguishes between a legal business vs. a hobby when it comes to whether—and how—you’re taxed on any income you make from your Etsy store. (Remember, though, the IRS can’t tell you whether you need a business license or not—that’s up to other government agencies to decide.)
Even if your state and local government don’t consider you a business, the IRS may still require you to pay taxes as if you were.
That’s especially important to know, given that Etsy may automatically report your income to the IRS if you meet certain sales thresholds each year. For many Etsy sellers, this happens if you reach $20,000 in sales and over 200 transactions. But in some states, like Massachusetts and Vermont, you only need to make $600 in sales before this reporting is triggered—whether the state requires you to have a business license or not.
When that happens, Etsy will issue both you and the IRS a Form 1099-K, which reports your sales income. If you aren’t running a formal Etsy business and you’re only selling to recoup some of your craft supply costs, chances are you’ll simply include this extra income on your personal tax return at the end of the year. (Note that you may need to pay estimated quarterly taxes in some cases, notably if you expect to owe more than $1,000 in taxes at the end of the year. It’s a good idea to talk to an accountant in this case.)
Businesses that sell certain products regulated by federal agencies will need a federal business license. In some cases, this could include products like crafts made from animal parts or live plants. Most of these regulated goods, like nuclear waste, alcohol, or firearms, aren’t even allowed on Etsy anyway. But it’s worth checking the list of regulated products to be sure.
The biggest thing that determines whether you need a business license or not—whether you’re selling on Etsy, at your local farmer’s market, or craft fairs—is your state and local government. When people refer to “business license,” they’re generally talking about a state-specific license. But you may need a county, city, or tribal business permit as well, depending on the rules for the different governmental umbrellas you fall under.
In addition to a business license, each of these different levels of government might require additional business permits as well. Common examples are cottage food laws that require a permit for selling homemade food, a sales tax permit for a registered business, or a home occupation permit required by many counties or cities.
Sorting out these requirements will require a bit of digging on your part. You’ll need to contact the business or revenue departments of your state and local governments to get the final word for your exact business type, business structure, and location.
If your state or local governments don’t require you to get a business operation license based on your Etsy sales volume, you don’t necessarily need to. But if you do, here’s a quick rundown of how the process will work:
Sorting out the legal requirements to run your Etsy shop on the right side of the law can be confusing, especially given how much things can vary around the country for different Etsy sellers. It doesn’t have to become an additional full-time job, however; there are things you can do to help:
It’s important to know what agencies regulate businesses in your area, such as the Secretary of State and the Department of Revenue in Washington state. You can contact these agencies to see what your Etsy business needs to do to comply with the law. They can help you determine your sales tax policies.
Your business may also need to follow the rules in other states or countries, too, such as the EU’s Value-Added Tax (VAT), which Etsy may be able to help with in certain cases. Staying active with Etsy business owner communities can also help clue you into what laws you need to think about, but it’s not a substitute for legal advice.
“Small business taxes” is a broad topic, and your Etsy business may owe one or more types:
As we’ve seen, Etsy may be able to help small business owners with some types of business activities and taxes when selling online, such as VAT, in addition to state-specific sales taxes. But you’ll need to calculate and pay income tax on your own, ideally with the help of an accountant.
Keeping accurate records of how much you spend and how much you earn through sales transactions is important for several reasons. You can use it to make profitable business decisions about what to make and sell on Etsy, as well as what information to report on your taxes at the end of the year. Speaking of taxes, it’s important to hang onto this information in a safe place in case you’re ever audited later by the IRS.
The actual licensing part is just a small piece of a complex puzzle when it comes to sorting out the requirements to become an Etsy seller. It’s a wise idea to chat with a small business attorney for several reasons, and we can help you find one. An attorney can help you:
Whether your Etsy shop is a business or a hobby depends on the guidelines set out by specific government agencies you’d be interacting with as a legitimate business. For example, the IRS has one set of rules for what counts as a business vs. a hobby for taxation purposes, but your state government may set other criteria.
An employer identification number is like a Social Security number for your business. It lets you identify your business on tax forms, open business bank accounts, apply for business funding, and so on. Etsy does not require you to have one, but it’s a good idea anyway.
Online sellers might receive a fine or even be shut down, depending on what type of government agency you ran afoul with, which federal laws you broke, whether you're selling food without a license, etc.
No, Etsy does not require a business license to get started selling online with an Etsy account. Other government agencies may require that you have a business license to sell on Etsy; however, it depends on where you live.
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