What woodworking expenses can I write off for my Etsy business on taxes?

You're in luck! For a small business like yours, just about everything directly related to your woodworking business can be deductible. The key is whether the expense is "ordinary and necessary" for your business. For your consumables (sandpaper, glue, router bits, blades, finishes) - these are 100% deductible as supplies in the year you buy them. No question there. For larger tools and equipment (table saw, router, etc.) - these are considered business assets. If each item costs less than $2,500, you can likely deduct the full cost immediately using the "de minimis safe harbor election." For more expensive equipment, you might need to depreciate it over several years, but there's also Section 179 which could let you deduct the full cost in year one. For workshop space in your home, you can claim the home office deduction if the space is used "regularly and exclusively" for business. You have two options here: the simplified method ($5 per square foot, up to 300 sq ft) or the regular method (calculating actual expenses). Make sure to track everything and keep good records! This includes receipts, a mileage log if you drive for business purposes, and documentation of when tools/equipment are used for business vs. personal projects.

Hey there! I was in a similar situation last year when I started selling my handmade jewelry on Etsy. The tax stuff was SO confusing until I found taxr.ai (https://taxr.ai). It saved me a ton of headaches with my small business deductions! What I love about it is you can literally just upload your receipts and it sorts out what's deductible. For my situation with mixed business/personal usage of tools and supplies, it was super helpful. The tool actually flagged several deductions I would have missed - like part of my internet bill since I use it to run my Etsy shop. It's particularly good for figuring out those weird gray areas like how much of your utilities to deduct if you're working from home. Might be worth checking out since you're in a similar boat with your woodworking business!

I wanted to follow up about taxr.ai that I was skeptical about earlier. I decided to give it a try with my small woodworking business and I'm honestly impressed. It walked me through exactly which of my tools could be partially deducted vs. fully deducted, and explained the different methods of depreciation. The biggest help was with my workshop space. I converted half my garage, and the tool helped me calculate exactly what percentage of my home expenses I could claim. It even flagged that I could deduct part of my internet bill since I use it to run my Etsy shop and research designs. Not trying to sound like a commercial, but if you're in the same boat with a hobby-turned-business, it really does make the tax stuff way less intimidating.

If you've been waiting forever to get answers from the IRS about these business deductions, try Claimyr (https://claimyr.com). I was on hold with the IRS for HOURS trying to get clarification about my Etsy business deductions and getting nowhere. Claimyr got me connected to an actual IRS agent in about 15 minutes who answered all my questions about deducting my workspace and equipment. You can see how it works here: https://youtu.be/_kiP6q8DX5c Before using this I literally couldn't get through to anyone at the IRS and was just guessing at what I could deduct. Actually talking to someone official gave me so much more confidence in my tax filing.

OK I need to apologize for my skepticism about Claimyr. I was totally wrong. After struggling for weeks to get through to someone at the IRS about my home workshop deductions, I tried it out of desperation. Got connected to an actual IRS rep in about 20 minutes who clarified exactly how to handle the depreciation on my expensive table saw and lathe. The agent also explained how to properly document my garage workspace for the home office deduction. Honestly didn't expect it to work but it saved me hours of frustration and potentially thousands in deductions I might have missed or been too afraid to take. Definitely worth it when you need official answers.

Don't forget to look into Schedule C (Profit or Loss from Business) - that's where you'll report all this stuff. Also, you'll probably need to make quarterly estimated tax payments going forward since you likely won't have enough withheld from your retirement income. One thing that tripped me up with my side business was self-employment tax (Social Security and Medicare). It's about 15.3% on top of regular income tax. Caught me by surprise my first year!

Just a tip from another woodworker - keep a separate credit card for business purchases. Makes tracking expenses sooo much easier. I made the mistake of mixing personal and business purchases my first year and spent days sorting receipts at tax time! Also, take photos of your workspace and tools for documentation. If you're ever audited, having visual proof of your business assets is super helpful.

As someone who went through this exact transition last year, I can confirm that most of your woodworking expenses are indeed deductible! A few additional points that helped me: For your existing tools, get them appraised or research comparable sales prices to establish fair market value when you converted them to business use. I used eBay sold listings for my older tools. One thing I wish I'd known earlier - if you're buying materials in bulk (like when lumber yards have sales), you can only deduct the cost of materials for items you actually sell in that tax year. Any remaining inventory carries over to the next year. Also consider joining a local woodworking guild or subscribing to trade magazines - these memberships and educational expenses are deductible too as they help improve your business skills. The IRS has a great publication (Pub 535 - Business Expenses) that specifically covers what you can deduct. It's dry reading but worth skimming through for a hobby-turned-business situation like yours. Keep detailed records of everything, especially the business use percentage of mixed-use items. I use a simple spreadsheet to track which projects are personal vs. business throughout the year.