How to Do Bookkeeping for Etsy, eBay, and Online Side Hustles (Fees, Inventory & Taxes): S7E2

If you sell on eBay or another online marketplace and quietly wonder whether you’re recording sales, fees, or inventory the right way, you’re not alone, and you may be overcomplicating it. In this episode, our resident Bookkeeping Mensch, Paul Rosenblum, answers a listener question about how online sellers should actually handle bookkeeping, especially when platform reports, fees, and inventory start to blur together at tax time. He breaks down what really needs to be tracked, what doesn’t, and how to keep your books clean without turning your side hustle into a full-time accounting project, because spreadsheets should help you sleep better, not keep you up at night.

Transcript

Season 7 Episode #2

It’s almost 1099 day as this episode goes live, and I hope that all of the 1099’s are almost done and the process wasn’t too stressful!  Now, the next phase of tax season is just beginning.  For bookkeepers, it’s getting the books not just completed for the previous year, but also actually going through the January transactions to make sure that any paper checks that were written in December 2025 that could have been missed (that weren’t part of the 1099’s just created) have been cashed in January of 2026. Remember, it’s not the date that the check was cashed, that’s important, it’s the date that they were issued. Now it’s a matter of completing everything and getting the books to the tax preparer.  In theory, the bookkeepers season ends before April, maybe even as early as right after the March 15th deadline for partnerships and S Corporation filings, but it seems that it never is like that for me.  There are always things that clients and/or tax preparers are asking me to do at the last minute.  I’m Paul Rosenblum.

I love the questions that are coming in on the website in voicemail.  Keep them coming! And talking about that, this leads me to the next question in this season. This question is from Andrea --- another great question.  The microphone is (Temporarily) yours Andrea----

I haven’t had firsthand experience with Poshmark, Facebook Marketplace and E-Bay from a selling viewpoint, but I am very familiar with Etsy, and I’m sure these third parties work in a very similar way.  If you are keeping monthly books for your side business (which you should be), there are monthly reports that you can pull from all of these companies mentioned. In Etsy, the reports are downloadable to Excel and they have columns set up for the total sale, and then a column for each of their fees they charge you.  Per transaction fees is one column, shipping is another column, sales tax (if applicable) would be another column, and any other fees taken away from your actual sale of the product that you sell.  In other words, all the numbers are there.  

 The monthly entry (via a journal entry) would be a credit to your sales category, and a debit to all the charges that deduct from the actual sale, such as per transaction fee, shipping, restocking fee for returns, and all of the others.  This would be a monthly entry on the last day of each month.  You could just make one entry for the entire year on 12/31 of that current year and even though it would skew the monthly sales, the annual sales would be correct since you would be running an annual report in each of these third-party sales platforms.  

I do have some clients that I do the bookkeeping for their main company, but they do the bookkeeping  for their side gig, and they just run the reports from the third-party sales platforms and hand them over to the tax preparer for them to make the adjustment entries. 

Andrea ---  if you listen to the chart of accounts episodes: Season 3, #8 and #9, that will give you an idea of how to set up all of the accounts or categories. Being an online business, there aren’t going to be a LOT of deductions, but I can name the ones that come to mind here.  

Any computer and printer that you use for the side business (even if you purchased it for personal use) can now be in the books of your side gig and get depreciated starting at the market value when you first started using it for the business.  If you use your car to pick up merchandise to sell, then you should take an odometer reading to get reimbursed 68 cents per mile in 2025 (72.5 cents per mile in 2026) if you use the car for business.  If you have a dedicated space in your home or apartment that is used for business, take a square footage measurement of that space.  If you have 1,000 square feet for the apartment, and 100 square feet is used for your office, then you can take 10% of the mortgage or rent, for example, as a business deduction, as well as internet costs and utilities (still that 10%). 

Inventory can be tricky.  Do you actually have inventory or do you purchase the inventory only after you have an online order? If you do have inventory, I’d count the inventory and give the accountant or tax preparer a (Purchase) value at the beginning of 2025, for this example, and an ending balance at the end of 2025.  That is one adjusting entry in your books that they can do.  And part of that entry is to adjust the difference in those numbers into the cost of goods section which in turn, would change your profit and loss.

I know you said that you don’t have a lot of time to put into this bookkeeping wise, but unfortunately, small businesses should be taken as seriously with bookkeeping as large businesses.  (I might be able to fit you in and do the bookkeeping for you, let’s talk!) 

And Andrea -- You should have a separate bank account and credit card for the business, so if ever looked at by other eyes, they can easily understand what is going on financially. 

So, inventory needs to be entered into the system, even if it’s just a starting and an ending balance, transportation expenses associated with the business, seminars, webinars, office expenses such as paper and printer ink, as mentioned, all the cost of goods associated with the third parties, shipping costs, if any that you incur to get the items that you sell or to send to the customer directly, and as mentioned your computer and printer.

If you have business cards for that business, they would be deductible too. In my experience, online businesses don’t have a whole lot of deductions, because there is no office that people can visit, or a storefront that people can come to, and you don’t have meals with perspective clients or current ones. However, all website expenses are 100% deductible for any business, especially online ones. 

An Online business is a pretty low maintenance business, hence less deductions than most. So be prepared to pay taxes on a larger profit since you have less deductions.  Since it’s a side gig, you might want to take most of the profit and put money into an IRA SEP to lower your liability to the IRS.  (But talk to your tax preparer about that, since if you have W2 income and other things going on, one has to look at the big picture with all of the information -- such as your tax preparer). 

I hope that helps Andrea, and thanks so much for the question! 

Keep the questions coming Folks!  This is a big purpose of this podcast, to answer questions from bookkeepers and from business owners. Don’t be shy!  Leave me voicemail at the website.  The link is in the episode’s notes. 

There are two tax preparers that I have worked with for years, and they have announced that this is their last season before retirement.  It tempts me since they are right around my age, but nope.

  I’m going to keep doing this for a while. Or until I don’t enjoy it. I am still cutting down on clients but have taken on a few new people after very careful vetting. So, there are fewer clients, but less stress-- that sounds like a good combination to me!  

Since I am recording this at 7am on a Monday morning, it’s now time for work.  More dry- eye, more eye strain, but more of finishing the jigsaw puzzle for companies which is called ‘Bookkeeping’. 

.. which leads us to the next episode ---  A question that involves what we, as bookkeepers can do for clients that help them plan and make good business decisions.  Let’s turn the page to Feb., almost! 

I’m Paul Rosenblum