October 23, 2023

Do you need a business license to sell on Etsy?

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Looking to start a small business or side hustle? Etsy makes it easier than ever to get your arts, crafts, or other products in front of consumers.

One of the most common questions we hear from owners is "do you need a business license to sell on Etsy?." In this article, we'll explain when a business license is required and explain how to compliantly operate an Etsy business.

Does selling on Etsy count as a business?

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

Do I need to have an LLC? 

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, or 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.

In other words, you don't need an LLC to sell on Etsy, but creating one could still help various aspects of your business. Firstbase makes it easy to incorporate an LLC in either Wyoming or Delaware.

I don’t want an LLC. Do I still need to register my business? 

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. 

So, do I need a business license? 

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. 

Consideration for renters 

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. 

Can I operate an Etsy business out of my home?

While some Etsy sellers are concerned about running a business from their homes, this is unlikely to be an issue. These regulations typically apply to brick-and-mortar businesses rather than ecommerce sales.

It may be worth talking to a lawyer if you start generating tens of thousands of dollars in monthly sales, but it isn't a concern for a typical seller. The main reasons to consider incorporating a business are to avoid liability and get more tax flexibility for your Etsy revenue.

Ready to register your US business? Click below to start the incorporation process with Firstbase.

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