Do I Need Business Insurance To Sell On Etsy?

So maybe you’ve got a natural talent for crafting, and your pals can’t get enough of your mittens for their cats. If that’s the case, you could be considering Etsy as a method to supplement your income while also sharing your creativity with others outside of your book club.

Etsy, the internet marketplace for fantastic handcrafted finds, has exploded in popularity in recent years. In fact, the platform now has over 1.93 million sellers who serve 33 million purchasers every year. Now it’s your turn to play.

However, you can’t just jump in. You must understand what you’re getting yourself into and be prepared for some surprises. That’s why we’ve compiled some useful information about selling on Etsy and how to keep your handmade shop safe and growing.

Does Etsy Require You to Have Business Insurance?

In a nutshell, no. You, on the other hand, are in desperate need of it. Although you are not required to obtain business insurance in order to sell your products on Etsy, being prepared and protected is essential if you want to keep your business afloat. So you can focus on the crafting, master your Etsy store and carefully preserve it.

Etsy, like most other marketplaces, is set up in such a way that they are not liable for anything that goes wrong with your product. That implies it’s up to you to safeguard yourself in the event that something goes wrong.

Should I Get Insurance for My Etsy Store?

Even if your bank account says no, smart business practice will say yes. You’re at risk whenever you sell items to other individuals. People can and will sue firms for almost anything, especially if they sell anything that may cause harm to others. Even perfumed soaps might result in a dangerous rash and an enraged customer.

Do you need insurance to sell items on Etsy?

Etsy does not demand that you have insurance in order to sell on their platform. But it’s necessary if you want to protect your online store against occurrences that could shut it down.

For example, if your merchandise is stolen or damaged, you will have nothing to sell. Or a customer claiming compensation after a severe allergic response is triggered by something you manufactured.

Solving problems like these takes time and money. Furthermore, they divert your attention away from the day-to-day operations of your company.

When you factor in court fees, legal bills, and lost revenue, you could be looking at some significant losses.

However, the relatively small amount you invest on Etsy seller insurance goes a long way toward resolving those issues. It makes things right, covers whatever compensation you owe, and keeps you up and running no matter what happens.

Can you sell things on Etsy without a business license?

You do not need a business license to sell on Etsy, according to their seller policies. The investigation, however, does not end there. A municipal, county, state, or federal agency that regulates businesses may require a license or permit from an Etsy seller.

Your Etsy store is either a business or a personal interest. A business license is required if you own a company. You don’t if you’re doing something you enjoy.

As a result, the first step is to determine whether your Etsy activity is a business or a hobby.

Do You Have a Business?

If you’re unsure whether your activity is a hobby or a business, the IRS offers nine criteria to consider. They consider the amount of time and effort you put into the activity, for example. They also assess if you run the activity as a business and rely on the income to support yourself.

The IRS considers your activity to be a business if you profited from it in at least three of the previous five tax years. You have a business if you intend to engage in a profit-making venture.

One of the benefits of owning a business is that you can deduct business expenses from your Etsy earnings. The disadvantage is that you must obtain a business license.

Do You Have a Hobby?

If your Etsy activity is a hobby, you cannot claim any deductions in excess of the hobby’s income. So, if you spend $200 to manufacture an item and only get $150 for it, you can’t deduct the $50 loss.

Keep in mind, however, that regardless of your categorization, you must pay taxes on all income. As a result, all revenue earned by your Etsy shop is taxed.

Do you need a business account for Etsy?

Etsy does not require merchants to acquire a business license in order to sell their products. When selling on Etsy, however, you must abide by all applicable laws as a small business selling online.

Do you need insurance to sell homemade products?

Crafting has grown in popularity in the United Kingdom, as more people begin to profit from their creativity. Whether you sell your handicraft for a living or as a hobby, you must have insurance coverage if you sell your work.

Even if you don’t consider yourself a business, you are just as vulnerable to legal action as any large corporation. For example, if a piece of one of your crafts fell away, it may injure a consumer. If you are the subject of a claim, you may be forced to pay some exorbitant fees.

Our Arts & Crafts Insurance policy can be tailored to your specific needs, ensuring that you only pay for what you require.

You’ll just have to pay one monthly or annual premium, with one renewal date, whether you choose to insure your products, equipment, or premises. It doesn’t get any easier than this.

Do I have to report Etsy income?

If you sell items on Etsy, you must pay income tax on your earnings, which is usually the total amount you made from your sales less your company expenses. Etsy sends your gross income to the IRS on Form 1099-K, but you must record Etsy sales income on your tax return even if you don’t receive a 1099-K. If your state has an income tax, you must also pay state income taxes on your Etsy sales net income.

Changes to Form 1099-K reporting requirements for third-party payment networks like Venmo and Cash App that process credit/debit card payments or electronic money transfers were changed under the American Rescue Plan. The adjustment will take effect in January 2022, thus it will not affect taxes in 2021. Beginning in the tax year 2022, if someone gets payment for products and services through a third-party payment network, their income will be reported on Form 1099-K if $600 or more was processed, rather than the present minimum of 200 transactions and $20,000 for Form 1099-K reporting. People in the gig economy, online vendors, independent contractors, and other self-employed business owners may be affected by this shift.

Do you need a tax ID to sell on Etsy?

If you’re running an Etsy store as a business and making money, you’ll have to follow the same guidelines as any other online vendor. Just because you’re selling on Etsy rather than your own website doesn’t mean you don’t need to secure the necessary permits. We’ve compiled a list of the most typically required licenses for Etsy sellers below:

The 3 most commonly-needed business licenses for Etsy sellers:

  • A license for basic commercial operations. This is a permit that allows you to operate your business within the geographical jurisdiction of the local government. The criteria for operating a business differ by state and city, so contact your local Small Business Administration office to find out what permits are required in your area. Licensing requirements for ecommerce companies are often inexpensive, with application fees ranging between $50 and $100. (although this varies by city and state).
  • A unique number assigned to an employer (EIN). You’ll use an Employer Identification Number to report taxes to the IRS. You don’t need an EIN if you’ve registered your firm as a sole proprietorship, which is fairly typical among Etsy sellers, because you’ll report taxes on your personal tax returns. You’ll need an EIN if you’ve formed a partnership or LLC.
  • Permits for Home Occupation You may be required to obtain a House Occupation Permit if you operate your business from your home. This isn’t a big deal for most internet businesses, but if you’re creating your things at home (as many Etsy sellers do), you could require this permit. To learn more about the local rules, contact your city’s SBA or city hall.

Because the requirements for business licenses and permits differ significantly by state and city, we strongly advise you to contact your local SBA for a complete list of your local permit requirements. Most places have an office dedicated to assisting small businesses get started, and they’ll be able to walk you through the paperwork and ensure that you complete it correctly. Check out our guide to ecommerce business licensing for a list of additional licenses you could require.