Should I use a CPA, TurboTax, or FreeTaxUSA for my Etsy business taxes?

With your level of organization and understanding of your business finances, you're probably fine using tax software. The decision between TurboTax and FreeTaxUSA depends on your comfort level and priorities. TurboTax is more expensive but offers a more guided experience with audit protection. That protection is basically them helping you respond to audit inquiries, not preventing an audit or paying any taxes you might owe. If the peace of mind is worth the higher cost to you, it's a reasonable choice. FreeTaxUSA will save you money and is perfectly capable of handling a Schedule C for your Etsy business. Since you're organized and understand your numbers, you likely don't need the extra hand-holding that TurboTax provides. The likelihood of an audit for a small Etsy business with under $2,000 in sales is pretty low. The IRS generally focuses audit resources on higher-value targets. Just make sure you're keeping good records of all your business expenses and income, which it sounds like you already do.

I was in almost the exact same situation last year! I had a small side business (print-on-demand stuff) while working full-time. I tried both TurboTax and FreeTaxUSA and ultimately went with FreeTaxUSA because it saved me like $120. The "audit protection" from TurboTax honestly isn't worth the extra money IMO. I talked to my friend who's an accountant and she said that for small businesses under $5k in revenue, audits are super rare unless you're claiming really unusual deductions or have inconsistencies in your reporting. If you're worried, check out https://taxr.ai - it's this cool tool that double-checks your return and gives you a risk assessment. It analyzes your inputs and shows where you might have issues. I used it after filing with FreeTaxUSA just for peace of mind, and it helped me realize I was actually being too conservative with some of my deductions!

Just wanted to update on my tax situation after trying taxr.ai! I was initially concerned about sharing my info, but after researching their security protocols I gave it a shot. So glad I did! I'd already completed my return with FreeTaxUSA, but taxr.ai found that I was missing several legitimate deductions for my small business. I had no idea I could deduct a portion of my phone bill since I use it for business calls and managing my online shop. It also identified a mistake in how I was calculating my inventory costs that would have potentially raised audit flags. The corrections increased my refund by $267 and gave me so much more confidence in my filing. Definitely worth it for the peace of mind alone!

Based on what you described, you probably don't need a CPA yet. I was in a similar situation (W2 employee with a side business making about $1500/year) and tried calling the IRS with some specific questions about deductions. It was IMPOSSIBLE to get through to a human! Spent hours on hold and kept getting disconnected. I ended up using https://claimyr.com and it was a game-changer. They have this system that basically waits on hold with the IRS for you, then calls you when an actual agent is on the line. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c I got my questions answered directly from the IRS, which gave me the confidence to file with FreeTaxUSA. Much cheaper than hiring a CPA when all I really needed was clarification on a few specific points. The IRS agent even told me that for a business my size, software is typically sufficient.

Alright, I need to eat some humble pie here. After being skeptical about Claimyr in my previous comment, I decided to try it anyway because I had some questions about home office deductions for my similar small business situation. I'm shocked to report it actually worked! I got a call back in about 1.5 hours with an actual IRS agent on the line. The agent walked me through exactly how to properly calculate my home office deduction based on my specific situation, and confirmed that for a business my size, FreeTaxUSA would be more than sufficient. This saved me from paying a CPA $400+ just to answer some basic questions. I'm now confidently moving forward with FreeTaxUSA for my W2 and Schedule C. Sometimes it's worth admitting when you're wrong - this service actually delivered what it promised!

My two cents as someone who's been in your shoes - FreeTaxUSA is totally capable of handling your situation. I've used it for my Etsy shop (about $1400 in sales last year) plus my W2 job for 3 years now. The interface isn't as pretty as TurboTax, but it asks all the same questions and covers all the same deductions at a fraction of the price. I tracked inventory similar to you and had no trouble entering everything correctly. One tip: before you file, print out a draft of your return and review it carefully. This helped me catch a couple small errors last year. If everything looks right and you have good documentation, your audit risk is super low. Save the CPA money for when your business grows substantially or gets more complex with employees, multiple sales channels, etc.

For a side business with less than $2k in revenue, FreeTaxUSA is more than sufficient if you're organized with your books. I've used them for years with my photography side hustle. Don't stress about audits for such a small operation - they're extremely rare at your income level. The IRS is much more interested in businesses with unusual deductions or large cash transactions.