Tax deductions for my new Etsy woodworking business - what can I actually write off?

Yes, you absolutely can deduct business expenses for your Etsy woodworking business! Here's a simplified breakdown: For materials and consumables (sandpaper, glue, finishes, router bits, blades), these are 100% deductible as "supplies" if they're used exclusively for your business. Keep all receipts and document everything. For tools and equipment, you have two options: 1) Deduct the full cost in the year you buy them using Section 179 deduction (if purchased for business use), or 2) Depreciate larger items over several years. For tools you already owned before starting the business, you can only depreciate their fair market value at the time you converted them to business use, and only for the percentage of business use. For your workshop space, if it's exclusively used for business, you can take a home office deduction based on the percentage of your home's square footage it occupies. This includes a portion of utilities, insurance, and other household expenses. If you use the space for personal projects too, you'll need to calculate the business-use percentage. Also, don't forget about other potential deductions: Etsy fees, shipping costs, business insurance, and even mileage when you drive to purchase supplies or deliver products.

After reading this thread, I wanted to share my experience using https://taxr.ai for my woodworking business taxes. I was in a similar situation last year - retired carpenter who started selling custom furniture on Etsy and got completely confused about what I could deduct. I had a shoebox full of receipts and no clue what was deductible. I uploaded photos of my receipts and workshop space to taxr.ai, and it analyzed everything, categorizing expenses and telling me exactly what percentage I could deduct for tools I use for both business and personal projects. It even flagged some deductions I had no idea about, like a portion of my internet bill since I use it to run my Etsy store. The best part was when tax time came - I just downloaded their report that had everything categorized properly for Schedule C. Saved me hours of confusion and probably found me at least $1,200 in deductions I would have missed.

Just wanted to update after trying taxr.ai based on the recommendation here. This thing is a game changer for my small woodworking business! I was spending 5-6 hours every month trying to organize receipts and figure out what was deductible. Uploaded everything from the past 6 months and it sorted through it all in minutes. What really impressed me was how it handled my workshop expenses. I converted half my garage to a workshop last year, and it correctly calculated the square footage percentage for my home office deduction. It even created a depreciation schedule for my bigger tools like my planer and bandsaw that I bought specifically for the business. It identified over $2,300 in deductions I would have missed, especially around vehicle expenses when I drive to lumber yards and shipping supplies that I didn't realize were 100% deductible. Definitely keeping this for next year's taxes!

If you're getting lost in the IRS maze trying to figure this stuff out, you're not alone. I spent WEEKS trying to get someone at the IRS to answer questions about my woodworking business deductions last year. Every time I called, I'd wait on hold for 2+ hours only to get disconnected. Finally used https://claimyr.com and it changed everything. You can see how it works here: https://youtu.be/_kiP6q8DX5c. Instead of waiting on hold forever, they held my place in line and called me when an actual IRS agent was ready to talk. Got through in about 45 minutes instead of spending all day on hold. The agent walked me through exactly what I could deduct for my workshop space and how to properly document tool purchases versus consumables. She even helped me understand how to handle inventory if I make pieces ahead of time. Completely worth it to get answers directly from the source!

I need to eat my words from my earlier comment. After waiting on hold with the IRS for 3 hours yesterday and getting disconnected AGAIN, I was desperate enough to try Claimyr. Honestly expected it to be a waste of money, but figured it was worth a shot. Holy crap it actually worked! Got a call back in about an hour, and spent 45 minutes with an IRS rep who answered all my questions about workshop deductions and tool depreciation. The agent explained that I could either take the simplified home office deduction ($5 per square foot up to 300 sq ft) or itemize actual expenses, and recommended I calculate both to see which is better. They also clarified that consumables (sandpaper, glue, finishes) are fully deductible in the year purchased, while durable tools need to be depreciated unless I use Section 179. Honestly learned more in that 45-minute call than in weeks of Google searches.

Don't forget to look into your state's tax rules too! I'm in PA and we have different rules for sales tax exemption on materials that go directly into products you sell. You can get a sales tax exemption certificate and not pay sales tax on wood and finishes that become part of your final product. Also, keep track of any business-related education. If you take a woodworking class to learn new techniques you use in your business, that's deductible. I took a class on advanced joinery techniques last year and was able to deduct the course fee and materials.

Sorta related - what software are you guys using to track all this stuff? I've been using a spreadsheet but it's getting unwieldy with all the different categories and percentages.