Are You Required to have a Business License to Sell on Etsy?

Do You Need a Business License To Sell On Etsy?

Etsy’s seller policies do not require you to have a business license to sell on their platform. The inquiry does not end there, however. A seller of goods on Etsy may need a license or permit from municipal, county, state, or federal agencies that regulate businesses.

You can run your Etsy shop as a business or as a hobby. You need a business license if you run it as a business. If you are just doing it for fun, you don’t need it.

How to Decide if You Need a Business License?

Are you operating your Etsy store as a business or a hobby? Despite IRS guidelines on how to determine whether your business is a hobby or for-profit, here’s the summary: If you’re doing it for profit, it’s a business, not a hobby. In order to operate legally, businesses must obtain the appropriate business licenses.

Are you making a profit on Etsy?

In order to report your earnings to the IRS, you must have a profit on your Etsy store. You must also report your earnings on your personal tax return. Etsy will report your gross income to the IRS.

Is your company a partnership or LLC?

You will need an EIN for your Etsy store if it is set up as a partnership or LLC, as well as the requisite business licenses.

What business licenses do I need to sell on Etsy?

When you are running your Etsy store as a business and turning a profit, you will be required to comply with the same rules as any other online seller. The fact that you sell on Etsy instead of your own website does not exempt you from getting the appropriate licenses. There are many types of business licenses we’ve compiled a list of the most commonly-needed licenses for Etsy merchants below:

The 3 most commonly-needed business licenses for Etsy sellers

1. A basic business operation license

With this permit, you can operate your business in the local government’s territory. License requirements vary by state and city, so the best way to find out what permits are required in your city is to contact your local Small Business Administration office. The licensing requirements for eCommerce merchants are usually minimal.

2. An Employer Identification Number (EIN)

Taxes are reported to the IRS by using an Employer Identification Number. You don’t need an EIN if your business is a sole proprietorship, which is very common for Etsy sellers since you’ll report taxes on your personal income tax returns. If you have formed a partnership or LLC, you will need an EIN.

3. Home Occupation Permits

You may need a Home Occupation Permit if you operate your business from your home. Most online merchants do not need a permit, but if you are manufacturing your products from your home (as many Etsy merchants do), you might need one. Check with your city’s SBA or city hall to find out what the local requirements are.

Is it Safe to Sell on Etsy Without a Business License?

The only exception is if you’re running it as a hobby, not a business. Large sellers continue to sell on Etsy without the appropriate business or tax licenses, which puts them at risk of being caught by the IRS, as well as local or state fines. It’s important to make sure you have the proper licenses if you’re planning to turn your Etsy store into a real business, mainly because we don’t know of many people who have tangled with the IRS and came out on top.

As long as you’re not operating your Etsy store as a legitimate business and aren’t making profits, you don’t have to worry about getting a business license. Hobbyists, crafters, and other casual Etsy sellers (which are most of their sellers) don’t need a business license. If you want to run your Etsy store as a legitimate business, you will need to report your income and get business licenses. You can use the five-year exemption if you’re just starting your business and aren’t sure if it will be profitable just yet.

Applying For a Business License

For a home-based or online business, license requirements differ by jurisdiction. To obtain a business license, you must complete an application and pay a license fee. Your business license will need to be renewed every year.

However, you first need to decide on a business name and then on a business structure.

Business Name

Choosing a business name is the first step. It becomes your brand when you choose the right business name. In your business name, you can use part of your name or describe your product.

When choosing a business name, choose something memorable and easy to pronounce and spell. Particularly if you are selling online, you want your name to stand out from the crowd.

You should secure the business name if it is available. In the case of a sole proprietor, you can register it by filing a fictitious name or DBA (doing business as) with your local government. If you are forming a corporation, you must register the business name with the Secretary of State when you file your formation documents.

Business Structure

There are different types of business structures. You specify your corporate status when applying for a business license. A sole proprietorship, corporation, limited liability company (LLC), or other business entity qualifies.