Etsy’s fees, payment processing fees, Etsy promoting costs, and shipping costs are all common business expenses for the platform’s sellers, in response to Long — but there are many other expenses to think about, too. To determine if something is a sound business expense, she adds, placed on your “business crown” and ask yourself, “Would I make this purchase if I wasn’t trying to grow my business?” If so, then it’s probably not deductible out of your taxable income.
The costs related to generating business income are considered “deductible”. Any costs which are “mixed use”, meaning they might be used for each personal and business purposes (akin to a house office or a automotive), should be prorated to reflect only business use.
If you make physical items to sell, raw materials and other items you must make a finished product are obvious costs—these go under a special category called “cost of goods sold,” Long says. But there are countless other costs you must consider, like software and subscriptions (think Canva or Adobe), website hosting and email, tools, or paying people to assist you to along with your social media or accounting. These costs are related to running a business and generating revenue, and you’ll be wanting to ensure you track them in categories and keep receipts in a way that is easy to access so you possibly can claim them in your taxes and likewise be audit-proof. (Does your small business or side hustle need insurance?)
Also note that there are two forms of expenses. Ongoing expenses are deductible as described above. However, in the event you buy an asset that has a useful lifetime of a couple of 12 months – akin to furniture, a automotive or machinery – you can not claim full tax depreciation. Instead, a percentage of the asset’s value is claimed as a deduction, often called the Capital Cost Allowance (CCA), which takes under consideration wear and tear over time. Claiming the complete cost within the 12 months the item is purchased is a mistake taxpayers often make.
Pay your taxes
If you’ve a “day job,” your employer will typically deduct income tax and Canada Pension Plan (CPP) and Employment Insurance (EI) contributions and file them with the Canada Revenue Agency (CRA) in your behalf. However, in the event you are self-employed, this responsibility falls to you. Specifically, each the employer and worker portions of the CPP should be remitted together with taxes once you file your tax return.
Self-employed people get an extension to file their taxes – they aren’t due until June 15. (For 2024, that’s June 17, because June 15 is a Saturday.) However, all amounts owed were due by April 30. “If you wait until June 15 to pay, you may have to pay interest,” Long says.
The amount of income tax you pay will rely upon your overall financial situation for the 12 months, but a very good guideline is to put aside about 20% to 30% of your net income from the business and pay that to the CRA once you file your taxes, especially due to CPP requirement. Newer and smaller businesses typically need to file this amount annually with their tax return, but in lots of cases – especially in case your income is higher – it’s possible you’ll also need to make payments all year long. You can check your CRA My Business account or call the CRA Helpline (1-800-959-8281) to search out out if this is applicable to you. Tax filing software also can calculate this for you.
Does Etsy pay your sales tax?
Like many things in Canada, sales tax gets complicated once you (or your products) cross provincial borders. There are rules about how much you’ve to charge customers, and rules about whether you’ve to charge them anything in any respect – plus there may be the query of How Etsy handles sales tax. Let’s break things down one after the other.
