Does it really matter how I categorize my Etsy/eBay expenses on Schedule C?

The good news is that the IRS is mainly concerned with the accuracy of your total income and expenses rather than perfect categorization. That said, it's still better to categorize expenses in a way that reasonably reflects their business purpose. For your specific expenses: - Materials for making jewelry would go under "Supplies" (not to be confused with office supplies) - Shipping costs should go under "Shipping and delivery" - Platform fees (eBay/Etsy) are typically "Commissions and fees" - Inventory software would be "Office expenses" or possibly "Software subscriptions" under "Other expenses" If the Etsy/eBay reports combine shipping and fees, it's helpful but not absolutely critical to separate them. Just use your best judgment based on the information you have. The most important thing is being able to substantiate the expenses if you're ever audited - so keep those receipts and transaction records!

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I was super skeptical about taxr.ai at first since I've tried so many business expense apps, but I finally gave it a try for my woodworking business last month. It was actually really helpful for Schedule C categorization! I uploaded a bunch of my receipts and bank statements, and it properly separated my lumber (supplies) from my tool purchases (equipment) and even correctly categorized my vehicle expenses for supply pickups. What impressed me was that it flagged some items that were partially personal use and walked me through how to properly allocate those expenses. Definitely less stressful than guessing which category everything belongs in.

After spending 3 DAYS trying to get someone at the IRS to answer questions about my Schedule C categories, I found Claimyr (https://claimyr.com) and got through to an actual IRS agent in 45 minutes. There's even a video showing how it works: https://youtu.be/_kiP6q8DX5c. The agent was able to confirm that while categorization matters for accurate reporting, they mainly care that your overall expense total is correct and that you have documentation to back it up. They also told me which specific expenses need their own categories vs. what can be grouped together. Totally worth it instead of waiting on hold for eternity.

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As someone who's been selling on Etsy for 5 years, my advice is to be more detailed rather than less in your Schedule C categories. I used to lump everything into "supplies" and "other expenses" but got audited in 2021. The audit wasn't terrible, but I had to spend hours reorganizing receipts to show what everything was. Now I break out: - Materials (separate from office supplies) - Packaging - Shipping - Platform fees - Marketing/advertising - Software subscriptions It takes a bit more time upfront but saves major headaches if you ever get questioned.

I think everyone is overthinking this. I've been running my Etsy shop for 7 years and I just put all my material costs under "Supplies" and everything else under "Other expenses" with a note of what they are. Never been audited, never had a problem. The IRS has bigger fish to fry than whether you categorized your shipping costs separately from your Etsy fees.

I've been dealing with this exact same issue for my small business! Based on my experience and what I've learned from my CPA, proper categorization does matter more than some people think. While the IRS won't necessarily flag you for minor miscategorizations, having things in the right buckets helps if you ever get audited and also gives you better insights into your actual business expenses. For your jewelry business, I'd suggest: - Materials (beads, wire, findings) → "Cost of goods sold" if you track inventory, or "Supplies" if using cash method - Shipping costs → "Shipping and delivery" - Platform fees → "Commissions and fees" - Inventory software → "Office expenses" The key is consistency. Pick a reasonable categorization system and stick with it year over year. And definitely keep detailed records - receipts, transaction summaries from Etsy/eBay, etc. That documentation is way more important than perfect categorization. One tip: I create a simple document each year noting which expenses I put in which categories, so I can be consistent if I ever need to reference it later or if my accountant has questions.