Blog · 5 min read

How Much Should an Etsy Seller Set Aside for Taxes? A Calm, Simple System

By the Oak & Tally team

Important: This article is general information for US-based sellers, not tax advice. Everyone's situation is different. For your own numbers, talk to a qualified tax professional or check IRS.gov. Oak & Tally is not affiliated with or endorsed by Etsy or the IRS.

The first year your shop really takes off is exciting, right up until you realize nobody has been taking tax out of your sales. Unlike a paycheck, Etsy payouts arrive in full, and the tax bill comes later. Sometimes it comes all at once.

The fix isn't complicated. You need a habit: set aside a slice of every month's profit in a separate place, and track it. Here's how to think about it, step by step.

Why "sales" is the wrong number to start from

Generally, you're taxed on your profit, not your sales. If you sold $30,000 of jewelry but spent $12,000 on materials, packaging, postage, platform fees and supplies, the number that matters is much closer to $18,000.

That's why the first step in any tax set-aside system is good bookkeeping: income in one place, expenses in another, and a monthly profit figure you trust.

What taxes might apply to a handmade seller?

For a typical US sole proprietor selling handmade goods, the main ones to know about are:

• Federal income tax on your business profit, added to any other income you have.
• Self-employment tax, which covers Social Security and Medicare for self-employed people. It applies on top of income tax once your net self-employment earnings pass a small threshold.
• State (and sometimes local) income tax, depending on where you live.
• Sales tax is different: in many US states, marketplaces like Etsy collect and remit sales tax for you on marketplace sales. Sales on your own website or at craft fairs may be your responsibility. Sales tax isn't your income, so keep it out of your profit figures.

Because these depend on your total household income, filing status, state and deductions, there's no single correct percentage. That's exactly why you should pick a rule of thumb, track it, and adjust it with real advice.

Choosing a set-aside percentage

Many self-employed people use a flat percentage of net profit as their savings rule, often somewhere in the 20–35% range, and then adjust once they've seen a real tax return. A tax professional can give you a better number for your situation in one short conversation.

A few things that tend to push the right percentage up or down:

• Up: a large other income (your share lands in a higher bracket), a high-tax state, a fast-growing shop.
• Down: a modest total income, lots of legitimate business expenses, or credits you qualify for.

The goal isn't to be exactly right. It's to never be caught short. If you save a bit too much, that's a nice surprise in April.

Step-by-step: a simple monthly set-aside system

1. Open a separate savings account (or a sub-account). Call it "Taxes". Money in there isn't yours to spend.

2. Record income and expenses every week or two. Log your Etsy payouts, craft fair sales and any other channels. Log every business expense with a category, and note whether you've saved the receipt.

3. Calculate net profit at the end of each month.

Net profit = gross sales − refunds − platform & payment fees − cost of goods − other expenses − mileage deduction (if you track it)

4. Multiply by your set-aside percentage.

Set-aside = net profit × your %

If you made $1,800 profit in March and use 25%, move $450 into your tax account.

5. Track what you actually moved, not just what you planned. Life happens. Some months you'll be short. Writing down the actual amount shows you the gap before it becomes a problem.

Quarterly estimated taxes

In the US, self-employed people who expect to owe more than a certain amount for the year are generally expected to pay estimated taxes in four installments during the year, rather than all at once at filing time. Missing them can mean penalties.

The due dates usually fall in mid-April, mid-June, mid-September and mid-January of the following year. Note that these "quarters" aren't equal three-month blocks. Check the current dates on IRS.gov (Form 1040-ES), because they shift when a date falls on a weekend or holiday.

A good habit is to line up your set-aside with these periods. For each one, track:

• Net profit in the period
• Suggested set-aside (profit × your %)
• What you actually set aside
• Any estimated tax you paid
• The gap, and how many days until the due date

When you see "Days to due date: 21" next to a gap of $300, you have time to fix it calmly.

Don't forget deductions you might be missing

Good records can lower your tax bill legitimately. Common categories handmade sellers track include:

• Materials and supplies (cost of goods)
• Packaging and shipping supplies
• Postage and shipping labels
• Platform, listing, transaction and payment fees
• Advertising (including marketplace ads)
• Software and subscriptions
• Equipment and tools
• Business mileage, for example driving to markets or picking up supplies (the IRS publishes a standard mileage rate each year, so use the current one)
• A home office, if you qualify

Ask your tax professional which ones apply to you and how to handle bigger items like equipment.

Year-end: hand over one clean file

When tax season arrives, the best gift you can give yourself (and your preparer) is a single, tidy summary: income by channel, expenses grouped into Schedule C-style categories, mileage totals and what you paid in estimated tax. It saves time, often saves fees, and you'll understand your own return much better.

A spreadsheet that does this for you

We built the Maker Bookkeeping & Tax Set-Aside template for exactly this routine:

• Income and expense logs with categories and a "receipt saved?" check
• A mileage log using the rate you enter
• A monthly summary of income, costs and net profit
• Schedule C-style totals to share with your preparer (it's not a tax form or tax software)
• A Tax Set-Aside tab with suggested vs. actual set-aside per estimated-tax period, due dates and days remaining
• A dashboard showing your next due date and missing receipts

It works in Google Sheets and Excel, with no macros and no subscription. Take a look →

Quick recap

1. Start from profit, not sales.
2. Pick a set-aside percentage as a rule of thumb, then refine it with a professional.
3. Move the money every month into a separate account.
4. Track planned vs. actual set-aside by estimated-tax period.
5. Keep receipts and categories tidy all year.

Tax season, but calm. Know your numbers. Keep making.

This article is for general information only and is not tax, legal or financial advice. Tax rules change; confirm current rules and dates on IRS.gov or with a qualified tax professional.

Not tax, legal or accounting advice. Our templates are organizing and estimating tools; results depend on the data and rates you enter. Etsy is a trademark of Etsy, Inc. Oak & Tally is independent and not affiliated with, sponsored or endorsed by Etsy, Inc. Screenshots show a fictional demo shop.