Are Etsy Fees Tax Deductible? A Plain-English Answer for Sellers
October 18, 2026
Written By team taxnookly
Our goal is to provide reliable, helpful, and up-to-date content based on practical tax and bookkeeping principles.
Yes. Etsy fees are tax deductible when you run your shop as a business. You report them as business expenses, and they lower the profit you pay tax on. This guide shows which fees count, where they go on your federal return, and how to avoid the most common mistake: reporting your payouts instead of your sales.
Quick answer
Your Etsy fees are generally deductible as business expenses if your shop is a real business, not a hobby.
Report your full sales first. Deduct the fees separately.
Your bank deposits from Etsy are not your sales. Fees come out before the money reaches you.
Fees paid in 2026 belong on the return for tax year 2026.
This article covers federal rules only. State rules can differ.
The IRS lets businesses deduct ordinary and necessary expenses (costs that are common and helpful for your type of business). Etsy’s charges fit that description. You can’t sell on the platform without paying them.
Most Etsy sellers file as a sole proprietor (a one-person business with no separate company). Sole proprietors report income and expenses on Schedule C (the IRS form that shows a business’s profit or loss). Fees go in the expense section.
Here’s the benefit in plain terms. A deduction doesn’t cancel tax dollar for dollar. It shrinks your profit. Both income tax and self-employment tax (Social Security and Medicare tax for people who work for themselves) are built on that profit number. Therefore, a lower profit figure can lower both.
Which Etsy fees are tax deductible?
Etsy charges several kinds of fees. The names and amounts change over time, so check Etsy Help for the current list. These are the main types sellers see:
Listing fees for posting an item.
Transaction fees on each sale.
Payment processing fees on the money Etsy collects for you.
Advertising fees, including Etsy Ads and fees tied to ads Etsy runs for you off the site.
Shop subscription fees, if you pay for an extra plan.
Shipping labels you buy through Etsy.
All of these are business costs. Each one should be recorded as an expense, not left out because Etsy took it before payout. These fees are only one part of the deductions an Etsy business may qualify for. For a broader breakdown of eligible write-offs, including supplies, shipping, packaging, home-office costs, mileage, and software, see our Etsy tax deductions guide.
Where do Etsy fees go on Schedule C?
Schedule C has a “Commissions and fees” line. On the 2023 form, that was line 10. Many sellers put marketplace fees there. Check the form for the year you’re filing, since line numbers can change from year to year.
Advertising costs often go on the advertising line instead. Shipping costs have their own treatment. Sellers also use an “other expenses” section for charges that don’t fit elsewhere.
Here’s a simple map. Treat it as a starting point, not a rule.
Charge
Where sellers often report it
Quick note
Listing and transaction fees
Commissions and fees
Most common choice
Payment processing fees
Commissions and fees
Some sellers use other expenses
Etsy Ads and offsite ad fees
Advertising
Pick one method and stay consistent
Shop subscription
Other expenses
Check the label on your statement
Shipping labels
Shipping or cost of goods
See our shipping article
Different lines don’t change your total profit. They change how the form looks. If you use a tax preparer, ask which line they prefer, and then repeat that choice every year.
Report gross sales, then deduct the fees
Here’s what most sellers get wrong: they report only the money that lands in their bank. That amount is smaller than your sales, because Etsy keeps its fees first.
The better method is simple. Report your total sales on the income line. Then list each fee type as an expense. This also helps if you get a Form 1099-K (a form that reports payments you received through a payment platform). That form usually shows gross payment amounts. It doesn’t subtract fees.
You owe tax on sales whether or not you get a 1099-K. The form is a reporting tool. It isn’t the only record of what you earned.
Version A: the seller forgets the fees. $14,000 − $3,500 = $10,500. Then $10,500 − $500 = $10,000 profit.
Version B: the seller deducts the fees. $10,000 − $2,000 = $8,000 profit.
The seller in Version A reports $2,000 more profit than the seller in Version B, and the tax is built on that higher number.
Now look at the deposit trap. If Etsy held back $2,000 in fees, the bank deposits would show $14,000 − $2,000 = $12,000. A seller who reports only deposits would miss $2,000 of sales. That’s why the gross method is safer. This example keeps things simple. Real payouts also move with refunds, shipping labels, and timing.
When Etsy fees are not deductible
The deduction depends on your shop being a business. If the IRS treats your activity as a hobby (selling now and then without a real aim to earn a profit), the rules change. Hobby income is still income. But hobby expenses generally aren’t deductible the way business expenses are.
The IRS looks at facts, such as how you run the shop, how much time you spend, and whether you aim to profit. We can’t say where your line falls. If you’re unsure, ask a CPA or enrolled agent (a tax pro authorized by the IRS to represent taxpayers).
State rules are a separate question. This article covers federal tax only. Your state may handle things differently, so check your state’s tax agency or ask a professional.
Your monthly fee checklist
A short habit beats a year-end scramble. Try this once a month:
Open your Etsy fee records for the month.
Write down the total for each fee type.
Save a copy of the statement or a screenshot.
Match your Etsy totals to your bank deposits.
Note any refunds, since they change your sales total.
Record the numbers in one spreadsheet or bookkeeping tool.
Etsy’s menus change often, so we don’t name exact paths here. Etsy Help shows where to find your current fee records.
When to ask a tax professional
Most sellers with a simple shop can handle this deduction. A pro may help if you sell in several states, hire help, buy equipment, or aren’t sure whether you’re a business or a hobby. A pro can also pick the best line placement for your situation.
Frequently asked questions
Can I deduct Etsy fees if I sell as a hobby?
Generally not the way a business can. Hobby income still counts as income, but hobby expenses usually don’t reduce it. Whether your shop is a business depends on the facts. If you’re close to the line, ask a CPA or enrolled agent before you file.
Do I still deduct fees if I got a 1099-K?
Yes. A 1099-K usually shows gross payment amounts, so fees aren’t subtracted. Report your sales first. Then deduct your fees as expenses. This keeps your return in line with the form and lowers your profit by the amount you actually paid.
Are Etsy Ads and offsite ad fees deductible?
Yes, advertising costs are generally deductible business expenses. Many sellers report them on the advertising line. Some put offsite ad fees under commissions and fees. Either choice can be reasonable. Pick one and use it every year so your records stay consistent.
Do I need to keep proof of my Etsy fees?
Yes. Keep your Etsy fee statements, bank records, and a note of how you totaled each fee. For how long to keep records, check the current figure on IRS.gov. Good records also make it easy for a preparer to finish your return.
Not tax advice
Tax Nookly shares general education about federal tax topics. This isn’t tax, legal, or financial advice, and we don’t know your full situation. Rules change. Check IRS.gov for the current year, or talk with a qualified tax professional before you file.
Your 10-Minute Homework
Open your Etsy fee records for last month and write down the total for each fee type (listing, transaction, processing, ads, and any subscription) on one note or spreadsheet line.
Team Tax Nookly is a dedicated group of bookkeeping professionals and e-commerce tax specialists focused exclusively on the Etsy marketplace. We simplify complex tax regulations and provide actionable financial strategies to help Etsy sellers manage their businesses with complete confidence.
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