What Expenses Should You Track for Your Craft Business — 2026 Guide for Etsy and Shopify Sellers
Most craft sellers track materials — and miss half their actual costs. Here's the full list of expenses to track for your craft business in 2026, including the Etsy and Shopify fees that quietly eat your margins.
Most craft sellers track their materials. Some track their Etsy listing fees. Very few track everything — and at tax time, the gap between “what I spent” and “what I actually recorded” shows up as a nasty surprise.
Here’s the thing most people won’t tell you: materials are only the beginning. Platform fees, your own time, packaging, shipping supplies, and marketplace taxes can add up to 20–30% of your revenue — and if you’re not tracking them, you’re not pricing correctly, and you’re leaving real tax deductions on the table.
This guide covers every expense category your craft business should track in 2026, including the ones most Etsy and Shopify sellers miss.
Stop guessing at tax time
Craftybase tracks all of your craft business expenses automatically — materials, platform fees, and production costs — so you always know your true profit margin. Start your free 14-day trial.
Why tracking craft business expenses matters
If you’re running a handmade business — even a small one — your expenses are tax deductible. But you can only deduct what you’ve tracked and documented. The IRS requires records for any business expense you claim, and “I think I spent about $400 on supplies” isn’t going to cut it.
More importantly: if you don’t track your costs, you can’t price correctly. A lot of craft sellers set prices by guessing at margins or matching what competitors charge. That’s how you end up busy but barely breaking even.
Knowing your actual expenses — every material, every fee, every hour — is the only way to know whether you’re running a profitable business or an expensive hobby.
What counts as a craft business expense?
An expense is any cost directly related to running your business. This includes what you spend to make your products, sell them, and keep your business operating.
Materials vs overhead — what’s the difference?
This is one of the most common points of confusion in craft business bookkeeping.
Material expenses are costs that go directly into making a specific product — yarn, wax, resin, clay, soap base, packaging for that item. These are variable costs: you spend more when you make more.
Overhead expenses are costs that apply to your business as a whole, not a specific product — your Etsy shop fees, software subscriptions, studio rent, tools. These are fixed (or semi-fixed) costs that you incur regardless of how much you produce.
Both are fully deductible. But the distinction matters for your cost of goods sold (COGS) calculation and for understanding your true profit per item.
The complete craft business expense checklist
Supply and materials purchases
For a craft business, this is your most important expense category. Track exactly how much you spend on raw materials — not just the bulk purchase, but the portion that goes into each product. Dedicated inventory software like Craftybase tracks this automatically as you record production.
Platform and transaction fees
Every marketplace charges fees. These are business expenses and fully deductible. See the dedicated section below on Etsy and Shopify fees for the current 2026 rates.
Advertising costs
More than you might think. This includes:
- Etsy Ads and Offsite Ads
- Google Ads and social media advertising
- Listing fees (Etsy’s $0.20 per listing counts here)
- Business cards, labels, and brochures
- Your website domain and hosting costs
Equipment
Any tools or machinery you use to make your products — sewing machines, kilns, heat guns, presses, 3D printers. Large equipment may need to be depreciated over time rather than deducted in full in the year of purchase. Talk to your accountant about the Section 179 deduction.
Office expenses
Pens, printer ink, stationery, hang tags, labels, postage, and shipping supplies. Don’t overlook the small stuff — it adds up across a year.
Travel
Costs to get to and from craft fairs, supply stores, printers, and accountants. This includes fuel, tolls, parking, and meals (50% deductible). Keep a mileage log — the IRS standard mileage rate for 2026 is 70 cents per mile.
Software subscriptions
Craftybase, Canva, accounting software, email marketing tools, and any other subscription services you use to run your business.
Insurance
Liability insurance, product insurance, and any business insurance premiums are deductible.
Home office / studio
If you work from a dedicated space in your home, you may be able to deduct a proportion of rent/mortgage interest, utilities, and internet. Either use the simplified method ($5 per square foot, up to 300 sq ft) or the regular method (actual expenses × percentage of home used for business).
Legal and professional services
Accountant fees, attorney fees, and any professional services related to running your business.
Repairs and maintenance
One-off repairs or regular maintenance on your equipment. Keep receipts.
Taxes and licenses
Business registration fees, occupancy permits, and state/local business licenses.
Platform fees — what Etsy and Shopify actually charge (2026)
This is the category most sellers undertrack. Platform fees aren’t just “Etsy takes a cut” — there are multiple fee types, and they compound.
Etsy fees in 2026
On a $30 item sold through Etsy Payments, here’s what comes off the top:
| Fee | Rate | Amount |
|---|---|---|
| Transaction fee | 6.5% of item + shipping | ~$1.95 |
| Listing fee | $0.20 per listing | $0.20 |
| Payment processing | ~2.9% + $0.25 | ~$0.87 |
| Total platform cost | ~$3.02 |
That’s over 10% of the sale price going to Etsy — before you’ve spent anything on materials.
If you’re also running Etsy Ads, add your daily ad spend on top. Use our free Etsy fee calculator to calculate your exact profit margin per item.
Etsy also charges Offsite Ads fees of 15% (or 12% if you exceed $10,000 in sales in a 12-month period) when a buyer finds you through Etsy’s offsite advertising. If you’re eligible to opt out, that’s worth evaluating carefully against your actual traffic sources.
Shopify fees in 2026
For Shopify sellers on the Basic plan using Shopify Payments:
| Fee | Rate |
|---|---|
| Credit card processing | 2.9% + $0.30 |
| Transaction fee (if not using Shopify Payments) | 2% |
| Monthly subscription | $39/month (Basic) |
The monthly subscription is a fixed overhead expense. Payment processing fees are a variable cost per transaction.
Expenses most craft sellers miss
These are the categories that consistently show up as gaps in maker bookkeeping — and the ones most likely to mean you’re underpricing your work.
Your own labor
You can’t deduct your personal labor as an expense on your tax return if you’re a sole proprietor (it’s built into your profit). But you absolutely should track it for pricing purposes. If you spend 3 hours making a batch of candles and don’t account for that time, you’re not actually pricing profitably — you’re subsidising your business with free labor.
For pricing, assign yourself an hourly rate (even a modest one like $15–20/hour) and record the time spent per product. This isn’t a tax deduction — it’s business intelligence.
Packaging materials
Boxes, tissue paper, bubble wrap, tape, thank-you cards, branded stickers. These are real costs that come out of every sale. Track them as supply purchases — they’re deductible and they affect your margins.
Shipping supplies
Separate from postage (which goes in Office Expenses) — the physical materials you use to ship: poly mailers, padded envelopes, packing peanuts. Easy to forget, easy to deduct.
Marketplace facilitator taxes
If you sell on Etsy or other marketplaces, the platform collects and remits sales tax on your behalf in most US states (under marketplace facilitator laws). You generally don’t owe this — Etsy handles it. But you do need to understand how it flows through your financials and how it shows up in your Etsy payment account. It’s not income, and it’s not your liability in most states, but it can confuse your bookkeeping if you don’t account for it correctly.
Bank and payment processing fees
PayPal transfer fees, Square fees, bank account service charges. Small individually, but across hundreds of transactions they add up to meaningful deductions.
How to track your craft business expenses
Getting organised doesn’t have to be complicated. A few habits make a big difference:
Keep receipts for everything — physical and digital. For online purchases, save email receipts in a dedicated folder.
Separate your business and personal accounts. Use a dedicated bank account and/or credit card for business expenses. This makes bookkeeping dramatically simpler and gives you a clear paper trail.
Record expenses when they happen — not at the end of the quarter. The more time passes, the harder it is to categorise and remember what things were for.
Categorise as you go. Use your expense categories (materials, platform fees, advertising, etc.) consistently so you can pull useful reports at tax time.
Review monthly. A quick 15-minute monthly expense review catches errors, spots trends, and means you’re not doing a year’s worth of catchup in April.
What records should your craft business keep?
The IRS requires businesses to keep financial records for at least three years (and up to seven for certain situations). For each expense, you should be able to show:
- What was purchased
- When it was purchased
- How much it cost
- What business purpose it served
Keep digital copies of all receipts where possible — cloud storage with organised folders by month and category is fine.
For mileage, keep a logbook (date, destination, purpose, miles). Apps like MileIQ make this automatic.
For home office expenses, document the square footage of your workspace relative to your total home size, and keep records of your rent/mortgage and utility bills.
Frequently Asked Questions
What expenses can I deduct as a craft business?
As a craft business, you can deduct any ordinary and necessary business expense — costs that are common in your industry and helpful for running your business. This includes raw materials and supplies, platform fees (Etsy transaction fees, Shopify subscriptions), advertising costs, equipment, shipping supplies, packaging, software subscriptions, home office expenses, and travel to shows or supply stores. You cannot deduct your own labor as a sole proprietor, but you should still track it for pricing purposes.
Do I need to track expenses if I sell on Etsy?
Yes — if your Etsy shop is a business (not a hobby), you're required to report income and expenses on your tax return. Tracking expenses is how you reduce your taxable income: if you earned $20,000 in sales but spent $12,000 on materials, fees, and overhead, you're only taxed on the $8,000 profit. Without expense records, you'd owe taxes on the full $20,000. Etsy will send you a 1099-K if you meet the reporting threshold — your expenses are what offset that income.
What is the difference between a material expense and overhead?
Material expenses are costs that go directly into making a specific product — the wax in a candle, the yarn in a hat, the resin in a pendant. These vary with production volume. Overhead expenses are business costs not tied to a specific product — your Etsy shop fee, Craftybase subscription, studio rent, or electricity bill. Both categories are tax-deductible, but the distinction matters for calculating your true cost per item and for your COGS (cost of goods sold) figure at year end.
How do I track Etsy fees as a business expense?
Etsy provides a monthly Payment Account Statement that breaks down your transaction fees, listing fees, payment processing fees, and any Etsy Ads spend. Download this each month and record the totals under your "Platform Fees" or "Advertising" expense categories. In the US, Etsy's 6.5% transaction fee, $0.20 listing fee, and payment processing fee are all deductible business expenses. Craftybase can import your Etsy orders and automatically track the associated fees alongside your material costs.
Does Craftybase help me track craft business expenses?
Yes — Craftybase is designed specifically for handmade sellers who need to track both material costs and business expenses in one place. It automatically calculates your cost of goods sold (COGS) as you record production, syncs orders from Etsy and Shopify nightly, and generates the financial reports you need for Schedule C at tax time. Rather than maintaining separate spreadsheets for inventory, expenses, and sales, Craftybase keeps everything connected — so you always know your true profit margin per product.
Knowing your expenses is the difference between running a craft business and running an expensive hobby. Most makers who struggle with pricing aren’t pricing wrong — they’re missing half their costs.
Start by tracking the categories above consistently. If you’re on Etsy or Shopify, download your monthly statements and record those fees. Use a tool like Craftybase to automatically connect your material costs to your production and sales data — so at tax time, your Schedule C almost fills itself out.
For a deeper look at how platform fees affect your profit on every Etsy sale, try our free Etsy fee calculator. And if you want to understand how your material costs roll up into your year-end tax figures, see our guide to calculating COGS for handmade sellers.
Ready to stop guessing at your margins? Craftybase tracks every expense automatically — from raw materials to platform fees — so you always know exactly where your money is going.
