Because of the ease with which one can essentially join the Etsy platform and generate an income via their listing of some sales offerings, often this makes for bit of a cause for confusion around taxes. For some reason which I guess is only justifiable to a conceptual extent, people who go on to realise some success on platforms such as Etsy don’t quite believe they have the tax obligations that they actually do.
This oblivion is further aggravated under those circumstances which have the seller dealing in hobbyist items as part of their Etsy store inventory and the general rule of thumb is that hobbies aren’t taxed / taxable. That rule should be clarified though because it doesn’t supersede the rule of how income is income, regardless of the fact that it’s derived from activities which are related to one’s hobby.
Otherwise we could all find a way to neglect our responsibility to pay tax by simply making what would undoubtedly be ridiculous claims that our source of income is our hobby. I could claim that replica guns are my hobby, set up an Etsy store through which I’d be selling replica gun accessories and then declare that, as a result, I’m not liable to pay tax.
In any case, the laws around tax deductions in relation to your hobby are designed for efficiency, meaning you really only get the tax break that you’re entitled to, nothing more. A hobby that’s not a business will have a general range into which the expenditure falls and since a real hobby is not indeed a business, as a hobbyist you’re not entitled to the same tax deductions as those which can be claimed by businesspeople, so really, the law works the other way around.
Filing your tax id number application as early as you can is a good idea, even if you haven’t quite fully figured out as yet where you stand as someone who needs to fulfil their tax obligations as someone who earns an income via relatively unconventional channels such as your Etsy account.
To set you in the right direction with regards to your tax liability however, basically if you’re going to be selling under a name that isn’t your own, you’ll probably need to register as a DBA (Doing Business As) in your local state. You probably won’t require a license though, but the bottom line is that any income you generate, even from a structure such as an Etsy store, is indeed taxable.
You can get going with your acquisition of a tax ID number at Gov Doc Filing, which should be an easy enough process to complete for someone who has gone through the process of opening an Etsy account and following all the simple steps to set up their store.
The bottom line is that an Etsy business definitely needs a tax ID number so your need to comply with those requirements is inevitable. You might as well get it done sooner rather than later.