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10 min readReviewed 2026-07-04

Schedule C for craft sellers

Schedule C is where many sole-proprietor craft sellers report business income and expenses. The hard part is not the form name. It is having clean records before the form is due.

Quick answer

Schedule C is used to report income or loss from a business operated as a sole proprietor. Verified July 4, 2026, the IRS says an activity qualifies as a business for Schedule C when the primary purpose is income or profit and the taxpayer is involved with continuity and regularity. Craft sellers should bring gross sales, refunds, COGS, fees, shipping, and expense records to the form or their tax preparer.

Test the answer with your own cost, fee, and margin numbers.

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Decision checkpoints

  • Schedule C is for sole proprietor business income or loss.
  • Business purpose and regularity matter.
  • COGS and expenses are not the same line of thinking.
See worked examples

Use the numbers while you read

Etsy Profit Calculator

Open this guide beside the calculator and test your own cost, fee, margin, or ad assumptions. The examples below are useful, but your decision should use your own numbers.

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Core formulas

The formulas to keep straight

Gross profit = gross receipts - returns and allowances - COGS
Net profit = gross profit - business expenses
COGS = beginning inventory + purchases - ending inventory
Monthly records reduce Schedule C cleanup time

Do craft sellers use Schedule C?

Many sole-proprietor craft sellers use Schedule C to report business income or loss. The IRS says Schedule C is for a business operated or profession practiced as a sole proprietor.

If the activity is carried on for income or profit with continuity and regularity, start organizing records as a business. If you are unsure, ask a tax professional before filing.

Schedule C record map for craft sellers

RecordWhy it matters
Gross salesStarting income record.
Returns and refundsReconciles sales.
COGSCost of products sold.
Marketplace feesBusiness selling expense.
Shipping labelsFulfillment cost.
Supplies and softwareBusiness expenses.
Mileage and showsNeeds logs and receipts.

What is the difference between COGS and expenses on Schedule C?

COGS is the cost of the products sold. Expenses are other costs of running the business. For a candle seller, wax used in sold candles belongs in product cost logic, while bookkeeping software is a business expense.

Do not throw every purchase into one bucket. Inventory and COGS need enough detail to explain what sold and what remains on hand.

COGS vs expenses

ItemUsually track as
Wax used in sold candlesCOGS.
Shipping labelsShipping or fulfillment expense.
Etsy listing feesSelling expense.
Bookkeeping appSoftware expense.
Unopened material stockInventory until used or sold.

What should craft sellers give a tax preparer?

Give the preparer totals and backup: sales by platform, refunds, fees, shipping, COGS, inventory value, expense categories, mileage, and copies of any tax forms.

The best handoff is a summary plus source files. Do not send a pile of screenshots and expect clean advice.

  • Annual sales by channel.
  • Refunds and returns.
  • COGS and inventory records.
  • Expense totals by category.
  • 1099-K and other tax forms.
  • Questions about gray areas.

Decision table

Schedule C prep decisions

IssueBetter recordWhy
Sales across platformsChannel summaryAvoid missed income.
InventoryBeginning and ending countsSupports COGS.
Mixed purchasesReceipt notesSeparates personal and business.
MileageMileage logNeeded before filing.
Uncertain treatmentTax pro question listAvoid guesses.

Worked examples

Examples you can compare against your own numbers

Example: Schedule C prep summary

A craft seller prepares a year-end summary before meeting a tax professional.

Gross sales$24,000Etsy and craft fairs.
Refunds$800Returned or canceled orders.
COGS$8,600Sold product cost.
Fees and shipping$3,900Marketplace and fulfillment.
Other expenses$2,700Software, supplies, mileage, show fees.

Takeaway: The tax meeting becomes a review, not a cleanup job.

Action checklist

Before you use this number in the real business

  1. 1Export annual sales by channel.
  2. 2Total refunds and returns.
  3. 3Calculate COGS and ending inventory.
  4. 4Categorize business expenses.
  5. 5Gather 1099-K and other forms.
  6. 6Ask a tax professional about unclear items.

Common mistakes

Mistakes that make the answer look better than reality

Using gross sales as profit.
Ignoring inventory on hand.
Mixing personal expenses with shop expenses.
Not keeping receipts.
Trying to learn Schedule C only after a form arrives.

FAQs

Questions people ask before making the decision

What is Schedule C?

Schedule C is the IRS form used to report profit or loss from a sole proprietor business.

Do Etsy sellers file Schedule C?

Many Etsy sellers who operate as sole proprietors use Schedule C. Business structure and facts matter, so ask a tax professional when unsure.

Does Schedule C require inventory records?

Product sellers should track inventory and COGS. Good records make gross profit much easier to explain.

Is this tax advice?

No. This is a recordkeeping and form-orientation guide. Filing decisions belong with IRS instructions and a qualified tax professional.

Sources and notes

Where the assumptions come from

IRS: About Schedule C

Official IRS page for Schedule C and sole proprietor business income or loss.

IRS: Guide to business expense resources

Official IRS resource map for business expenses, inventory, records, depreciation, and related forms.

IRS: Hobby or business

Official IRS tax tip on hobby versus business factors and recordkeeping.

FeeProofed methodology

FeeProofed source, calculator, and review methodology.