Introduction
Selling handmade candles, crafts, soaps, or jewelry on Shopify? Then you’re not just an artist you’re a business owner. And that means the IRS expects you to treat your creative venture like a business in 2025.
With new rules for online income reporting, lower 1099-K thresholds, and tighter IRS audits, Shopify sellers need more than creativity they need tax smarts. This blog is your go-to guide for staying tax-compliant while protecting your profits.
IRS Tax Code References
- IRC §162 – Deductible business expenses
- IRC §263A – Capitalization and inventory rules
- IRC §6050W – Third-party payment reporting (e.g., 1099-K)
- IRC §1402 – Self-employment tax obligations
- IRC §6001 – Mandatory recordkeeping for businesses
Relevant IRS Forms
- Schedule C (Form 1040) – Report business income
- Form 1040 – Individual tax return
- Schedule SE – Self-employment tax
- Form 1099-K – Required if Shopify Payments exceeds $600
- Form 4562 – For depreciation on business tools
Example: How a Seller Is Taxed in 2025
Meet Aanya, who runs a handmade jewelry store on Shopify. In 2024, she earned $85,000 and spent:
- $22,000 on materials and packaging
- $4,000 on website, tools, and internet
- Received a 1099-K for $80,000 from Shopify Payments
Her taxable profit = $85,000 – $26,000 = $59,000
She pays self-employment tax and reports on Schedule C and Schedule SE.
She depreciates her printer and tools using Form 4562.
Step-by-Step Compliance Guide for 2025
1. Track Income from All Sources
Don’t rely solely on Shopify reports. Include Etsy, craft fairs, and wholesale buyers. Use software like QuickBooks, Wave, or Bench.
2. Separate Business & Personal Finances
Open a dedicated business account. This simplifies deductions and protects you in case of IRS scrutiny.
3. Comply with Inventory Rules
Under IRC §263A, track materials, packaging, and shipping. You must report cost of goods sold (COGS) accurately.
4. Prepare for 1099-K Reporting
Starting 2025, platforms issue 1099-K for just $600 in gross payments. Compare it to your actual revenue. Report all income even if you don’t receive a form.
5. Save for Self-Employment Tax
You’re responsible for Social Security and Medicare. Budget at least 15.3% of your net income.
3. Claim Legitimate Deductions
Deduct tools, subscriptions, packaging, internet, home office (if exclusive use), and advertising.
4. File Estimated Taxes Quarterly
Avoid penalties by paying in April, June, September, and January using Form 1040-ES.
5. Depreciate Expensive Equipment
If you bought a heat press, kiln, or machinery over $2,500, use Form 4562 to spread out deductions.
6. Keep Organized Digital Records
Save digital copies of receipts, invoices, and 1099s. If audited, the IRS will expect documentation.
7. File by the 2025 Deadline
Most individual tax returns for 2024 are due April 15, 2025. File early to avoid delays.
Conclusion
Selling handmade products online is exciting but the IRS treats your shop like a real business. Accurate bookkeeping, inventory tracking, and early tax planning will protect your profits in 2025. Most importantly, don’t rely on automated Shopify summaries. Track everything and plan quarterly.
Avoid IRS mistakes, maximize deductions, and pay what you legally owe nothing more, nothing less.
Call to Action
Running a handmade business doesn’t mean you have to do taxes alone. Whether you’re confused about 1099-K, unsure how to track inventory, or just want to avoid IRS penalties, expert help can save you time and money.
Schedule a personalized 1-on-1 meeting with Anshul Goyal, CPA, EA, FCA
He’s a licensed U.S. CPA and enrolled agent who helps Shopify creators navigate the IRS, plan for self-employment taxes, and claim every deduction they’re entitled to. His specialty is guiding online sellers through IRS rules, sales tax challenges, and year-end tax planning.
Book a meeting today: https://calendly.com/anshulcpa/
Let’s make your taxes as profitable as your shop.
Disclaimer
This blog is for informational purposes only and does not constitute legal or tax advice. Please consult a qualified tax professional regarding your individual tax situation.
About Our CPA
Anshul Goyal, CPA, EA, FCA
Anshul brings 15+ years of U.S. and international tax experience. He specializes in helping online sellers, foreign founders, and U.S. residents with IRS and multi-state compliance. Known for his deep knowledge in Shopify and Amazon seller tax strategy, Anshul has helped hundreds of entrepreneurs minimize taxes and scale legally.
Top 5 High-Searched FAQs for 2025
1. Do I need to report Shopify income if it’s under $600?
Yes, all income must be reported even if you didn’t receive a 1099-K.
2. Can I write off craft supplies as a business expense?
Absolutely. Supplies, packaging, and even storage fees are deductible under IRC §162.
3. How do I track inventory for tax purposes?
You must record starting inventory, purchases, and ending inventory for each tax year.
4. Do I have to pay quarterly taxes?
Yes, if your tax due is over $1,000. Use Form 1040-ES to estimate and pay.
5.What’s the penalty if I don’t file my taxes?
You may face failure-to-file penalties and interest. Plus, if income is underreported, IRS audits may follow.