For talented crafters and hobbyists like you who want to earn by selling their work, Etsy is the best platform to do it. There are no inventory requirements, startup costs, and there are lots of people interested in purchasing handmade products. However, one of the most important things you should know when starting an Etsy shop is whether you need a business license.
Etsy may require different business licenses and permits, depending on where your state is and what type of business you’re running. Sometimes the municipality or county where you’re selling might require you to have a business license, as well.
Factors to Consider if You Need Business License
Does your Etsy store operate as a hobby or business?
The IRS has a vague guideline to know whether your store is for-profit or a hobby. However, here is a clear summarized version – It is a business if you are doing it for profit, not a hobby. A business is required to acquire the proper licenses for it to operate legally.
Does your Etsy store make a profit?
If your Etsy store is making a profit, you have to report your earnings to the IRS. While Etsy reports your gross income to the IRS, you must report yours on your personal tax return, as well.
Is your company an LLC or a partnership?
If your Etsy store is formed as an LLC or a partnership, you have to acquire an EIN for your business and the requisite business licenses, as well.
Most Common Business Licenses for Etsy Sellers
Basic Business Operation License
This permit will allow your business to operate within your local government’s geographical jurisdiction. The requirements will vary depending on your city and state. What you can do is to ask your local Small Business Administration the required permits. For eCommerce businesses, there are usually minimal licensing requirements. The cost of the application is around $50 to $100.
EIN (Employer Identification Number)
This is only required if you formed your Etsy business as a partnership or LLC. If your Etsy shop is registered as a sole proprietorship business, you are not required to get an EIN.
Home Occupation Permits
If you are operating outside your home, getting a Home Occupation Permit may be required. You can check with the local SBA of your city or city hall to know the requirements for this.
What if I Sell on Etsy Without a Business License?
You can do this if you are running your Etsy shop as a hobby, and not as a business. Several sellers on Etsy continue to sell without the needed business licenses and permits, but they are at risk of being caught by the IRS, and we know that can be a huge problem.
It would be best if you have the proper licenses, especially if you are really serious about making your Etsy store a real business.
However, you don’t have to fret about acquiring a business license as long as your store is not making profits and is not operating as a legitimate business.
Don’t be discouraged if you’re a little confused about the business side of things. You just have to be sure to follow the rules and regulations of your local city and state when it comes to permits, licenses, and taxes.