[thehappypm]

How is it different in this case? Any Etsy shop can also configure into an LLC and do the necessary accounting to reduce their tax burden. If you don’t want to do that an Etsy shop is just a weird job, and you pay income tax on jobs.

[bumby]

I think a comment below addresses this, but the usual counterpoint is that a) the "necessary accounting" can become an undue burden itself and b) creating additional audit risks small may not be able to mitigate

The idea is that it is a structure that effectively prefers larger scale businesses who have the means to mitigate both of those

[thehappypm]

I’m not sure I follow. If you don’t want to set up an LLC you can just treat your Etsy dollars as plain-old personal income like you would as an Uber driver or any other side hustle. It’s just income. Why is a person paying income tax on their income controversial?

[mindslight]

The argument is that all of the bookkeeping and accounting required to adequately deduct expenses creates an undue burden on small businesses, especially when it comes to mandatory accounting paradigms like depreciation. This is effectively demonstrated by the conventional wisdom of "just hire an accountant", which will run you at least $500, in addition to needing to get up to speed on how to track expenses and what to track.

A single member LLC defaults to a "disregarded entity" for income tax purposes, meaning it has no bearing on taxation or this discussion. And opting into being taxed as an S-corp (or partnership) creates even more paperwork.

Having said that, one of the great inequalities of our tax code is that individuals are not allowed to take most deductions that business take. It's patently ridiculous that a W-2 employee driving their car to work every day cannot deduct that necessary expense to have worked. But really the whole filing process needs to be simplified, the IRS needs to release tax forms as executable programs (eg python) rather than this archaic "add the lesser of line 25 or line 27 to line 3 from form 1138", and the formulas need to be set and published ahead of the tax year as to stop being ex post-facto laws.

[bumby]

Oh, sorry. I think I misunderstood your comment. I was comparing pre-2022 to 2022 rules for other business structures; I didn't realize you were implying they settle taxes as a non-business.

[roody15]

Just configure into an LLC? How much does this cost with attorney fees and filing ?

Not a trivial amount especially for people making some money on side.

[throwawayboise]

In my state forming an LLC is an online filing that takes 5 minutes and costs almost nothing. Getting an IRS EIN is similar.

Now, to structure it properly with all the proper recordkeeping and documentation to ensure you really get the protection of an LLC when it matters, is another matter.

[thehappypm]

Yeah, and if you don’t want to do this, anything from Etsy is just regular ol’ income.