Etsy, a major online retailing platform, has made it easier than ever for countless artists and collectors to connect directly with potential customers.
But as easy as the platform is to use, there are certain considerations that sellers should be aware of before diving in.
In this brief guide, we’ll discuss whether you need a business license to sell on Etsy, and hopefully address some other common questions that may arise when dealing with the platform.
First, let’s discuss whether selling on Etsy is considered a business in the first place.
In the eyes of the IRS, whether something is a business or a hobby depends on the intent.
Are you selling your product with the intent of making a profit? If so, that’s considered a business — whether you’re successful in turning a profit or not — and you’ll likely be expected to pay sales tax.
Remember, many businesses operate with losses in their first few years. But because future profit is expected, and because time is dedicated to them on a regular basis, they are considered businesses.
A full list of factors in determining whether something is a business or a hobby is available on the IRS website.
No, you don’t need to have an LLC to sell on Etsy. Without an LLC you’ll be considered a sole proprietor, which is perfectly acceptable for this type of venture.
Of course, it might be advantageous to form an LLC anyways. We’ve already discussed the difference between sole proprietorships and LLCs in another blog post, but let’s take a look at how these differences look when discussing an Etsy business.
LLCs, short for limited liability companies, are separate legal entities from their owners (LLCs can have more than one owner, which is another possible advantage over sole proprietorships). This type of business structure protects its owners from lawsuits and debt.
This might be advantageous for you. For example, if you sell crafts that contain hazardous or fragile material, like glass, you could potentially be liable if a customer were to injure themselves. Having an LLC would protect your personal assets from the suit.
LLCs also allow for multiple types of tax filing options, providing owners with more flexibility. This could also be beneficial, depending on the size of your Etsy business as well as other factors.
Forming an LLC on your own can be a complicated process, but Firstbase makes it easy.
If you’re choosing to operate as a sole proprietor and operate under your own name, then you don’t need to register your business.
However, maybe you’d like to do business under a different name or business moniker. In this case, you’ll need to register what’s known as a “Doing Business As,” or DBA. This is also sometimes referred to as a “fictitious name,” “trade name,” “trading as” or “assumed name,” depending on the state.
The rules for filing a DBA vary from state to state, so be sure to consult with an expert for the specific rules relevant for your location.
Etsy does not require its sellers to have a business license to sell on their platform. However, that doesn’t mean you’re off the hook.
Your state or county still might require you to have a business license in order to do business. State laws vary, as do county laws, so it’s important to check on the rules for your specific area. It will typically involve filling out an application form with the relevant municipality and paying a licensing fee.
Be aware that if you rent your apartment or home, the terms of your rental agreement may prohibit you from operating a business — even if it’s from home, and doesn’t involve customers coming through the door.
Running a business could have insurance implications for your landlord.
If you live in an area with a homeowner’s association, the association may also prohibit residents of the neighborhood from operating a business. It’s important to check with all relevant authorities before you make your first sale to avoid fines.
As always, consult a lawyer or other business professional for specific guidance on the rules as they relate to you, your business and your area.
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