How do I properly document business expenses for my Etsy shop on Schedule C?

Thanks for the breakdown! Quick follow-up question: what about when I buy materials in bulk that I'll use over several months? Do I deduct the full cost in the year I buy them, or only when I actually use them in products? Also, for home workspace - I have a dedicated craft table in my living room. Can I deduct any portion of my rent for that?

For materials bought in bulk, you can generally deduct the full cost in the year you purchase them, as long as you reasonably expect to use them within a year or so. This falls under "supplies" which are immediately deductible. If you're buying more expensive equipment with a longer life (like a specialized jewelry tool over $2,500), that might need to be depreciated instead. For the home workspace question, this gets tricky. Since your craft table is in your living room (a shared space), it would be difficult to qualify for a home office deduction. Typically, you need a space used "regularly and exclusively" for business. Since your living room has personal use too, it likely wouldn't qualify. If you had a separate room dedicated solely to your business, that would be different.

Does it handle Etsy and PayPal fees too? I'm always confused about whether those are separate deductions or if they just reduce my income.

I'm a bit skeptical - how accurate is it really? I've tried other expense apps before and they messed up my categories constantly. Does it understand craft business specifics like knowing the difference between supplies for products vs personal crafting?

Yes, it handles all Etsy and PayPal fees perfectly! You can connect your Etsy seller account directly, and it automatically imports and categorizes all platform fees, payment processing fees, and even shipping costs as separate business expense categories. This makes it super clear what reduces your income versus what counts as a separate deduction. I was skeptical at first too, but I've been impressed with how it recognizes craft supplies. It has specific categories for different creative businesses and understands the difference between business inventory and personal craft supplies. It's definitely more specialized than general expense apps. What I love is that when it's unsure about something (like when I buy items that could be either personal or business), it flags it for me to review rather than guessing wrong.

Wait, so this service just helps you skip the IRS phone queue? How does that even work? The IRS phone lines are notoriously impossible to get through.

Yeah right. I've been trying to reach the IRS for months about my business expenses. No way they got you through in 15 minutes. Sounds like a scam to me.

It basically uses an automated system to continuously call the IRS and navigate the initial menu options for you. Then when it actually reaches a human, it calls you and connects you. So you don't have to sit on hold for hours - you just get a call when an agent is actually available. The system does all the waiting for you. It's definitely not a scam. I was super skeptical too, but after months of trying to get answers about my craft business deductions with no success, I was desperate. I figured I'd try it once and if it didn't work, I'd just dispute the charge. But I literally got connected to an IRS agent within 15 minutes of signing up. The agent answered all my specific questions about how to categorize and document my mixed-use supply purchases. Getting that official guidance directly from the IRS gave me complete confidence in my Schedule C documentation.

Does having a separate business card affect your credit score? I'm worried about opening new accounts.

It might cause a small temporary dip when you first apply due to the credit inquiry, but in the long run it can actually help your score by increasing your total available credit (assuming you maintain low utilization). I just got a second personal card that I use exclusively for business - you don't need an actual "business credit card" if you're a sole proprietor. The organization benefits are huge though. At tax time, I just download my annual statement and everything's already separated. You also look more professional to the IRS if you keep business and personal expenses clearly separated. My accountant said mixing personal and business expenses on the same cards/accounts is one of the biggest red flags for Schedule C audits.

Etsy fees should go under "Commissions and fees" on line 10 of Schedule C. This is the correct category for marketplace selling fees. The payment processing fees (the percentage they take from each sale) also go here.