The hardest part about doing your taxes is finding all your documents and receipts. So if you haven’t been keeping on top of your receipts, tax time gets a lot harder and in today’s post, we’ll go over what you need to prepare before you or an accountant can start “doing” your taxes.
Income Tax & GST Returns
If you have an Etsy store, you’re considered “self employed” and need to complete the sections for self employment income on your T1 (personal) tax return. Even if you have a registered business you will still report income your personal return. The only exception is for corporations. If you are an incorporated business, you will file a separate income tax return for the corporation and do not report your business income or expenses on your personal income tax return.
If your self-employment income (aka revenue/earnings/sales) totals $30,000 or more over a period of 12 months, you also need to register for a federal business number and start collecting GST/HST on your goods and services. You will receive a GST/HST number in the format of 123456789RT001 and will also need to file a GST/HST tax return for your business in addition to your personal income tax return1.
Do I Need to Register my Business?
If you are self employed and do business under any name other than your legal name you need to register your business as a sole proprietorship with your province2.
Eg. I want to start a consulting business and call it “Kathy Booth Consulting”. Registration required because “Consulting” is not part of my legal name and “Kathy” is not my full name
Eg. I want to do affiliate marketing. I sign up and I get paid under the name “Katherine Booth”. Registration is not required because I am a sole proprietor and the name of my business is my legal name
If you work in a partnership, such as opening an Etsy store with your bff, you need to register your business as a partnership.
Prepare Your Self Employment Tax Return
As per usual, I’m writing this from the perspective of your older slightly more experienced sister (because the best person to learn from is the person who is just a few steps ahead of you) and while this article contains affiliate links (where I may earn a commission from qualifying purchases at no additional cost to you) the opinions are my own and I would never recommend anything I wouldn’t use for my own business.
When you are self employed, you can claim certain expenses against your income tax return such as home office use and business related services or supplies. It’s important to hold onto your receipts for this purpose. At the end of the year you will need sort and total your expenses in categories to get ready to complete form T2125 or the self employment section in your tax filing software. Personally, I use Quickbooks to keep track of all my receipts, expenses, and income, so that the only thing I need to do to get ready for my income tax return is to revue any expenses that were not automatically categorized before printing off a report with everything I need to complete the self-employment section of my personal income tax return.
If you are not you are registered to collect GST/HST, (which is required if your revenue exceeds $30,00 over 12 months), you are considered a small supplier, and reporting your Etsy business’ income and expenses is fairly straightforward – just add up all your totals from your finance dashboard for each month in the year. I recommend using a profit/loss spreadsheet template like the one I demo in the video below, which you can purchase from my Etsy store here
Prepare Your Business’ GST/HST Tax Return
If your business has registered for GST/HST, you will have received a GST/HST number in the format of 123456789RT001 that you should have added to your Etsy store. Once you register and receive a GST/HST number from the Canada Revenue Agency (CRA), you are expected to report how much GST/HST you collected from your sales. Unfortunately Etsy does not have a tool or report you can use and you will need to manually calculate this based on the buyer’s location and the GST/HST rate for that province or territory.
I highly suggest you use this spreadsheet I created to copy/paste the sales report Etsy provides to calculate how much tax GST/HST was included on those sales.
Next you’ll want to determine your expenses and the GST/HST paid on those expenses. This is where a software like Quickbooks can come in handy. By uploading your receipts, Quickbooks can provide reporting on how much GST/HST you paid on expenses.
Don’t forget that Etsy charges tax on their seller fees, so make sure you download your tax statement for each month from the finance dashboard on Etsy! For more about Etsy Canadian taxes, checkout this article
Frequently Asked Questions
What expenses can I claim for my business?
For a full list of expenses available to claim on your T2125 or “self employment portion” of your tax software see the CRA website.
Should I hire someone to do my Etsy taxes?
whether or not you should hire someone can depend on a number of factors. Income tax is made to be done by individuals with the assistance of free or low cost tax software. GST/HST returns are a bit more complicated. Whether you hire an accountant will depend on the volume of work based on how complicated your revenue streams and expenses are. If you are interested in learning how to file GST/HST tax returns, doing it yourself is a possibility, especially if you use accounting software.
When do I need to file my taxes?
Income tax is typically due 4 months after the year end (April 30th) and GST/HST returns are due June 15th
Do I have to register for GST/HST
If you have done $30,000 or more in sales/revenue over the course of any consecutive 12 months, you are required to collect GST/HST on your sales and register for the GST/HST program through the Canada Revenue Agency
