How Much Can You Make Selling Crafts Before Paying Taxes?

You owe federal self-employment tax once your craft business earns $400 or more in net profit — total sales minus expenses — in a tax year.¹ Below that, you may still have to file an income tax return if your combined income from all sources exceeds the standard deduction for your filing status, which is $16,100 for a single filer in 2026.² How much you can make before actually paying tax depends heavily on whether the IRS treats your craft activity as a business or a hobby, because that decides whether you can subtract expenses from your sales first.

Hobby or Business Changes the Math

If your craft sales are a hobby, you report every dollar of income but cannot deduct a single dollar of expenses against it. The Tax Cuts and Jobs Act of 2017 suspended the deduction for hobby expenses, and the One, Big, Beautiful Bill Act made the elimination permanent.³ A hobbyist who sells $2,000 in pottery after spending $1,500 on clay and kiln time pays tax on the full $2,000. A business owner in the same situation pays tax only on the $500 net profit.

The IRS presumes your activity is a business if it turned a profit in at least three of the last five tax years.³ Newer sellers who cannot meet that test are judged on a broader set of factors, weighed together:

Whether you keep complete books and records
The time and effort you put in
Whether you depend on the income for your livelihood
Your expertise or that of your advisors
Your history of profit in similar ventures
Whether you can reasonably expect to profit in the future
Whether losses stem from circumstances beyond your control or from a startup phase
Whether you carry on the activity mainly for recreation

No single factor decides the question.⁴ Keeping a separate bank account, tracking your hours, and documenting efforts to grow the business both support your classification and simplify filing.

The $400 Self-Employment Tax Threshold

Once your craft activity qualifies as a business, self-employment tax kicks in when your net profit reaches $400.¹ The tax covers Social Security and Medicare — the same contributions a W-2 employer would split with you, except you pay both halves. The combined rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.⁵

The calculation includes an adjustment many sellers miss. Before applying the 15.3% rate, you multiply your net profit by 92.35%.⁶ Say a woodworker earns $1,000 selling bowls and spent $550 on lumber and tools. The $450 net profit becomes about $416 after the multiplier, and the self-employment tax works out to roughly $64. If the same woodworker had spent $700 on materials instead, the $300 profit would fall below $400 and no self-employment tax would be owed that year.

The Social Security portion applies only to earnings up to $184,500 in 2026, and wages from a salaried job count toward that cap first.⁷ The Medicare portion has no cap. You can deduct half of the self-employment tax you owe when calculating your adjusted gross income, which lowers your income tax.⁶

When You Have to File an Income Tax Return

The $400 self-employment threshold is not the only trigger. Even if your craft profit stays under $400, you have to file a return when your total gross income from every source — wages, interest, investment gains, and craft sales combined — passes the standard deduction for your filing status. For 2026, those figures are:

Single or married filing separately: $16,100
Head of household: $24,150
Married filing jointly: $32,200

Filers 65 or older add $2,000 (single or head of household) or $1,600 (married).²

Federal law requires you to report all income regardless of amount and regardless of whether any tax form arrives in the mail. Cash from a weekend market counts. So does a handful of online orders. Failing to report modest income can trigger penalties and interest if the gap surfaces later.

What a 1099-K Does and Doesn’t Mean

Etsy, PayPal, Venmo, and similar platforms are required to send you and the IRS a Form 1099-K once your activity on the platform crosses certain limits. Under the One, Big, Beautiful Bill Act, the third-party payment platform threshold is $20,000 in gross payments and more than 200 transactions in a calendar year — you have to exceed both.⁸ Credit and debit card processors follow a separate rule and report at any dollar amount.⁹

Two things matter here. First, the number on a 1099-K is gross receipts, not taxable profit. If you sold $22,000 of jewelry on Etsy but spent $15,000 on materials and fees, you pay tax on the $7,000 profit. Second, not getting a 1099-K does not eliminate your tax obligation. A seller taking $5,000 in cash at craft fairs receives no form but still owes tax if the profit and filing thresholds are met.

Expenses That Reduce What You Owe

Because business classification lets you tax the profit rather than the gross, the expenses you can subtract directly change how much you can make before paying anything. Deductible expenses are ones that are ordinary and necessary for your kind of craft business. Common ones include:

Materials and supplies such as fabric, yarn, wood, paint, beads, and glue
Tools and equipment like sewing machines, kilns, cutting machines, and printers, with expensive items sometimes depreciated over several years rather than deducted in full
Booth fees, marketplace listing fees, payment processing fees, and shipping
Advertising, including social media promotions, business cards, and website hosting
A portion of rent, utilities, and internet if you have a home office used exclusively for the business
Mileage for trips to buy supplies, deliver goods, or attend craft shows

In your first year, you can deduct up to $5,000 in startup costs incurred before your first sale. That allowance phases out dollar-for-dollar once total startup costs pass $50,000, and any remaining amount is spread over 180 months.¹⁰

Paying as You Go

Craft income comes with no automatic withholding. If you expect to owe $1,000 or more in total federal tax for the year after any W-2 withholding and refundable credits, the IRS generally requires quarterly estimated payments rather than a single April bill.¹¹ For 2026, the deadlines are April 15, June 15, September 15, and January 15, 2027. You can skip the January payment if you file your return and pay in full by February 1, 2027.¹²

To avoid an underpayment penalty, your payments through the year must total at least the smaller of 90% of your current-year tax or 100% of the tax on your prior-year return. That prior-year figure rises to 110% if your adjusted gross income the year before was over $150,000 ($75,000 if married filing separately).¹² When craft income swings — a strong holiday season, a slow spring — basing payments on the prior year and reconciling at filing is often the simplest approach.

Sales Tax Is Separate

Federal income and self-employment tax are not the only obligations. Most states charge sales tax on tangible goods, and this operates on its own thresholds and rules. If you sell through a major platform like Etsy or Amazon Handmade, marketplace facilitator laws in nearly every state make the platform collect and remit sales tax for you. If you sell at fairs, through your own website, or over social media, you may need to register for a sales tax permit and collect from buyers yourself. Registration thresholds, rates, and exemptions vary by state, so check with your state’s department of revenue before your first direct sale.

1
Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
2
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
3
Office of the Law Revision Counsel. 26 U.S. Code 183 – Activities Not Engaged in for Profit
4
Internal Revenue Service. Income and Expenses – Frequently Asked Questions
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eCFR. 26 CFR Part 1 – Tax on Self-Employment Income
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Internal Revenue Service. Topic No. 554, Self-Employment Tax
7
Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
8
Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold Under the One, Big, Beautiful Bill – Dollar Limit Reverts to $20,000
9
Internal Revenue Service. Understanding Your Form 1099-K
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Internal Revenue Service. Tax Guide for Small Business
11
Internal Revenue Service. Estimated Tax
12
Internal Revenue Service. Form 1040-ES – 2026