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Topic: Self employed(?) selling on Etsy - taxes  (Read 2103 times)

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Self employed(?) selling on Etsy - taxes
« on: February 16, 2024, 11:50:24 PM »
My USC partner is selling stuff on the USA etsy site. She doesn't have a main job. She doesn't live off it; it supplements other household income. She lives in the UK. I have looked on the internet for IRS tax procedure/advice for this, but was wondering if anyone else has faced this and how they went about dealing with this? Forms to file, deciding if it's a hobby, self employment tax but not living in US, using tax credits from previous UK employment etc. It's not a lot of money. Will the IRS actually care?

Thanks.


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Re: Self employed(?) selling on Etsy - taxes
« Reply #1 on: February 17, 2024, 12:57:24 AM »
My USC partner is selling stuff on the USA etsy site. She doesn't have a main job. She doesn't live off it; it supplements other household income. She lives in the UK. I have looked on the internet for IRS tax procedure/advice for this, but was wondering if anyone else has faced this and how they went about dealing with this? Forms to file, deciding if it's a hobby, self employment tax but not living in US, using tax credits from previous UK employment etc. It's not a lot of money. Will the IRS actually care?

Thanks.


The IRS always cares about taxable income.  Even if not from a business, the income still has to be reported. Perhaps the info below will help:

    An activity is considered a business if it is done with the expectation of making a profit, while a hobby is considered a not-for-profit activity.
    The IRS uses a list of factors to determine whether an activity meets the criteria of a business, making determinations on a case-by-case basis.
    If the IRS determines that an activity is not-for-profit (a hobby), its expenses can't be used to reduce other income for tax purposes.
    Hobby income can not be deducted as a miscellaneous expense.


 IRS Nine Factors Test

The IRS has a list of nine factors to be used in determining whether an activity is a legitimate business or a hobby, considering each case on its own merits:

    Do you keep good business records, have a business checking account, and generally run your activity like a business?
    Do you put time and effort into marketing and other activities to bring in customers?
    Do you depend on the income from this activity for your livelihood?
    Are your business losses beyond your control or typical startup losses?
    Have you changed methods of operation to be more profitable?
    Do you have business expertise and hire competent business advisors?
    Have you been successful in similar businesses in the past?
    Do you make a profit and how much?
    Can you expect to make a profit on assets used in this activity in the future?3

Some types of income have greater potential to be hobbies, and the IRS looks at them more closely. These activities include fishing, craft sales, dog breeding, horse racing, photography, and writing.  See https://www.irs.gov/newsroom/heres-what-taxpayers-need-to-know-about-paying-taxes-on-their-hobby-activities

I have "income" in the form of free goods provided by an online entity in return for written reviews of the products. Because I only do this now and then, and consider it a hobby, I report it as hobby income. I am taxed at the "fair market value" of the items. That is, if I receive an item worth $100 on the market, I pay taxes on that $100 to the IRS. The info goes on Schedule 1 of the 1040 form. I would assume (although I'm not a tax lawyer) that your partner would be reporting their Etsy income on that form as well.  Again, assuming, does Etsy send a 1099 or other document to your partner (required if the income is over $600 in the year, I think)? If so, the IRS definitely knows she's earned some money, which isn't too much hassle if it's a hobby only.

But if it's a business -  that brings in self-employment taxes, SS tax to be paid, etc.  Quite a can of worms, really.

I'd actually be more concerned with how to report it to HMRC. If it's a business she's been conducting while living in the UK without registering it as a business.... Yikes!  Someone more knowledgeable on UK taxes will have to chime in on that. If it's just a hobby, I would assume (but am not positive) that it would be reported on a self-assessment.


Good luck.
« Last Edit: February 17, 2024, 03:42:04 AM by Nan D. »


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Re: Self employed(?) selling on Etsy - taxes
« Reply #2 on: February 17, 2024, 08:35:09 AM »
It's not a lot of money. Will the IRS actually care?


To add to Nan’s advice I would take a look at the IRS guidelines on who has to pay taxes. If she is filing as single and is under age 65 then she can have up to $12,950 of income and not need to file. If she exceeds that total income and is filing taxes then she needs to follow the guidelines above from Nan to include all income.

https://www.irs.gov/newsroom/who-needs-to-file-a-tax-return
« Last Edit: February 17, 2024, 08:39:29 AM by durhamlad »
Dual USC/UKC living in the UK since May 2016


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Re: Self employed(?) selling on Etsy - taxes
« Reply #3 on: February 17, 2024, 10:31:06 AM »
Self-employment is reported in the US on Schedule C, Form 8858, plus Form 1116 and/or Form 2555. A copy of a certificate of coverage from HMRC is attached to the US return.


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Re: Self employed(?) selling on Etsy - taxes
« Reply #4 on: February 17, 2024, 04:17:22 PM »

To add to Nan’s advice I would take a look at the IRS guidelines on who has to pay taxes. If she is filing as single and is under age 65 then she can have up to $12,950 of income and not need to file. If she exceeds that total income and is filing taxes then she needs to follow the guidelines above from Nan to include all income.

https://www.irs.gov/newsroom/who-needs-to-file-a-tax-return

The OP mentioned their "partner" without mentioning whether or not they're legally married. If they are a married couple, then OP's partner cannot file as single, meaning that she'd have to use MFS which has a filing (not necessarily taxable income) threshold of only $5 (unless the OP wants to be brought into the US tax system where they could file jointly - but that would probably put them over the MFJ threshold anyway).
« Last Edit: February 17, 2024, 04:19:27 PM by Kelly85 »


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Re: Self employed(?) selling on Etsy - taxes
« Reply #5 on: February 17, 2024, 10:23:26 PM »
The OP mentioned their "partner" without mentioning whether or not they're legally married. If they are a married couple, then OP's partner cannot file as single, meaning that she'd have to use MFS which has a filing (not necessarily taxable income) threshold of only $5 (unless the OP wants to be brought into the US tax system where they could file jointly - but that would probably put them over the MFJ threshold anyway).

Thanks. That link I posted shows this but is not clear that, as you say, if partner means married then the partner has to be filing taxes if income is over $5 because they can’t legally file as single.
Dual USC/UKC living in the UK since May 2016


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Re: Self employed(?) selling on Etsy - taxes
« Reply #6 on: February 18, 2024, 04:46:13 PM »
Also, be aware, if it's decided they are self-employed, the filing requirement will be if they've reached $400 in income in a given year.  So the pressing issue is determining if they are self-employed or pursuing a hobby. After that point, if they are not considered self-employed, the married v single v un-taxed allowable amount will come into play.

By way of reference:

Generally, you are self-employed if any of the following apply to you.

    You carry on a trade or business as a sole proprietor or an independent contractor.
    You are a member of a partnership that carries on a trade or business.
    You are otherwise in business for yourself (including in a part-time business or as a gig worker).



https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center


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Re: Self employed(?) selling on Etsy - taxes
« Reply #7 on: February 19, 2024, 12:59:15 PM »
Thanks for all the replies - those confirmed my findings or gave me new information. She is my wife. The hobby/self-employed angle is open to a bit of interpretation. More to think about! In the end, her built up tax credits should offset any tax but obviously we want to report it correctly.


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Re: Self employed(?) selling on Etsy - taxes
« Reply #8 on: February 29, 2024, 09:59:20 PM »
Thanks for all the replies - those confirmed my findings or gave me new information. She is my wife. The hobby/self-employed angle is open to a bit of interpretation. More to think about! In the end, her built up tax credits should offset any tax but obviously we want to report it correctly.
HMRC is where they tax first, if she's sold more than £1000 of goods that's when it kicks in here. (Not profit, just the value of what's been sold, and it doesn't matter that it's been from the US version of Etsy)

I'm disabled and have been trying to navigate how to sell as a hobby so that I can afford supplies and it's a bit of a nightmare!

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