# Bookkeeping for Freelancers and Etsy Sellers: What to Track

Canonical: https://finbryn.com/us/guides/bookkeeping-for-freelancers-and-etsy-sellers

Bookkeeping for freelancers and online sellers means one business account, income and expenses categorized every month, and a Schedule C that ties to both. Finbryn provides small business bookkeeping from $249 a month. Payment platforms file Form 1099-K federally only for more than $20,000 and more than 200 transactions (IRS, October 23, 2025), but you report all income either way.

## Key takeaways

- The Form 1099-K threshold now in force for payment apps and marketplaces is more than $20,000 in payments and more than 200 transactions. The IRS said on October 23, 2025 (IR-2025-107) that the One, Big, Beautiful Bill retroactively reinstated the threshold in effect before the American Rescue Plan Act of 2021.

- A missing 1099-K changes nothing about your tax. The IRS says you must report all income you received during the year regardless of whether you receive a Form 1099-K, and the form reports only gross payments, before fees and refunds (IRS, page reviewed 2026-06-27).

- Freelancers owe self-employment tax of 15.3% (12.4% Social Security plus 2.9% Medicare) once net earnings reach $400, and the IRS expects estimated payments from anyone who expects to owe $1,000 or more.

- Clients who pay you $2,000 or more in 2026 for services must send a Form 1099-NEC by February 1, 2027, so reconcile your ledger to the 1099s you receive.

- Sales tax depends on where you sell and how. A marketplace that collects for you, as Texas's Comptroller describes, covers marketplace sales only, and the seller may still need a permit and returns.

## What does a freelancer or online seller need to keep?

The IRS keeps the rule simple: you may choose any recordkeeping system suited to your business that clearly shows your income and expenses, and you must keep records as long as they are needed to prove the income or deductions on a return (IRS, Recordkeeping, reviewed May 1, 2026). Nothing in that requires special software. It requires that the numbers be complete and findable.

For a freelancer, that means every client payment and every business expense. For an Etsy or other online seller, it also means every platform payout and the fees and refunds behind it. A monthly routine keeps this to about an hour.

1. Keep business money in its own account and card. The IRS does not require a separate account, but one makes every later step easier, and it is our recommendation for anyone with more than a handful of sales.
2. Download the platform's monthly sales and payout reports as well as the bank deposits.
3. Record gross sales, platform and payment fees, refunds, shipping labels and supplies as separate lines.
4. Match each payout to the bank deposit and reconcile the account to the statement.
5. Save a receipt or invoice for each expense above a small amount you set.
6. Move a fixed share of every payout into a tax savings account.

The [bookkeeping basics guide](/guides/bookkeeping-basics-small-business) goes deeper on categories and reconciliation, and the [ecommerce accounting guide](/guides/ecommerce-accounting-guide) covers settlement accounting for sellers with several channels.

## What do Form 1099-K and Form 1099-NEC mean for your books?

Two forms reach most freelancers and online sellers, and they measure different things.

**Form 1099-K** comes from a payment settlement entity. For third party network transactions, which covers payment apps and online marketplaces, the instructions apply a threshold: payments above $20,000 and more than 200 transactions (IRS, Instructions for Form 1099-K). The IRS announced on October 23, 2025 that the One, Big, Beautiful Bill retroactively reinstated this threshold. Box 1a shows the gross amount before adjustments for credits, discounts, fees and refunds.

The key point: gross is not income. The IRS says the form reports only gross payments and that just because a payment appears on a Form 1099-K does not mean it is taxable. Your records decide what is.

Illustrative, made-up numbers for one year: a platform shows $30,000 of gross sales, $3,600 of fees and $900 of refunds, and pays you $25,500. A Form 1099-K, if the 200-transaction test is also met, would show $30,000. Your books show gross sales of $30,000, with fees and refunds recorded against them, and a payout of $25,500 that ties to the bank. If the three numbers do not reconcile, find the difference before you file.

**Form 1099-NEC** comes from a client. For payments made in 2026, a business that pays you $2,000 or more for services must send one by February 1, 2027, because January 31 falls on a Sunday (IRS, Instructions for Forms 1099-MISC and 1099-NEC). Compare each one with your client ledger. The [Form 1099 guide](/guides/form-1099-guide-2026) has the thresholds and deadlines.

Income without a form is still income. The IRS FAQ says you must report all income you received during the year regardless of whether you receive a Form 1099-K.

## What tax do you set aside, and when do you pay?

Freelancers pay two taxes on profit. The first is income tax. The second is self-employment tax: the IRS gives the rate as 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare, and it applies once net earnings from self-employment reach $400 (IRS, reviewed June 27, 2026). You calculate it on Schedule SE and deduct the employer-equivalent portion when figuring adjusted gross income, which lowers income tax and not the self-employment tax.

Nothing is withheld from a client's payment, so the IRS expects you to pay during the year. Individuals generally have to make estimated tax payments if they expect to owe $1,000 or more when the return is filed, using Form 1040-ES. Most taxpayers avoid the penalty if they pay at least 90% of the current year's tax or 100% of the prior year's, whichever is smaller (110% of the prior year's tax if that year's adjusted gross income was over $150,000) (IRS, Estimated taxes, reviewed September 25, 2026). The IRS Publication 509 rule puts payments at the 15th day of the 4th, 6th and 9th months and the 15th day of the month after year end, which for calendar-year 2026 means April 15, June 15, September 15 and January 15, 2027. Our [estimated taxes guide](/guides/estimated-taxes-small-business) shows how to calculate each one.

The bookkeeping link is direct. Estimated tax needs a year-to-date profit figure, and a profit figure needs a reconciled ledger. A freelancer who reconciles monthly can see on the 10th of June what the June 15 payment should be. One who reconciles in March cannot.

For a rough planning rule, ask your preparer what share of last year's profit went to tax in total, and move that share of every payout into savings. That one number prevents most April surprises.

## Sales tax basics for Etsy and other online sellers

Sales tax is a state matter, and the rules turned in 2018. In South Dakota v. Wayfair (decided June 21, 2018) the Supreme Court overruled the physical-presence rule from Quill and held that a state may require out-of-state sellers to collect tax. The South Dakota law at issue applied to sellers delivering more than $100,000 of goods or services into the state, or completing 200 or more separate transactions for delivery there. Each state has set its own threshold since.

Marketplaces changed the picture for small sellers. The Texas Comptroller's page is a clear example. A marketplace provider engaged in business in Texas must collect, report and remit state and local sales and use tax on all sales made through the marketplace, and must certify to its sellers that it will do so. A seller who receives the certification is not responsible for collecting and remitting tax on those sales. But a Texas seller is still responsible for holding a Texas tax permit and filing returns on time, keeps records of marketplace sales for four years, and should keep collecting tax on marketplace sales until it receives a certification. Remote sellers who sell only through a certifying marketplace are not required to hold a Texas permit.

Three practical rules follow.

First, find out in writing which states your platform collects in. Each platform publishes the list and the date it started.

Second, sales outside the marketplace are yours: your own website, a craft fair, a direct invoice. Track them by state.

Third, a state that is not covered by the platform can still require a permit once your sales there cross its threshold. Our [sales tax nexus guide](/guides/sales-tax-nexus-guide) explains economic nexus, and [sales tax return support](/services/tax-preparation-support/sales-tax-filings-nexus) covers filings.

## Is your side income a business or a hobby?

The IRS draws the line with questions, not a number. In its fact sheet FS-2022-38 (October 2022), the tests include whether the activity is conducted like a business, whether you change methods to improve profitability, your expertise, whether it is a main source of income, whether you have made or expect to make a profit, whether it is profitable in some years, whether losses are outside your control or normal for a startup, and whether it has elements of personal pleasure.

The first test is the one your bookkeeping answers. Complete, accurate books, a separate account, invoices and a clear costing method are what a business looks like. They also protect you if you have a bad first year.

The stakes are real. Income from an activity with no profit motive goes on Schedule 1 (Form 1040), line 8, and the IRS says a taxpayer without a profit motive cannot use a loss from the activity to offset other income. So a hobby loss cannot reduce the tax on your wages.

If you sell a few items a year to clear out a closet, a gain is taxable and the IRS says a loss on the sale of a personal item is not deductible. If you buy inventory to resell, run a shop with listings and ads, or invoice clients, treat it as a business from the first sale and keep the books accordingly.

## When is software enough, and when do you hire a bookkeeper?

Plenty of freelancers can run on bookkeeping software and a monthly reconciliation. That is a reasonable choice when you have one bank account, one or two income sources, no employees, no inventory and no sales tax beyond what a marketplace collects. The IRS accepts any system that shows income and expenses clearly.

The following triggers change the answer.

| Trigger | Why it breaks the DIY routine |
| --- | --- |
| Several platforms or channels | Each pays out on its own schedule, with its own fees and refunds |
| Sales tax in states where you must file | Returns and thresholds by state need tracking |
| Inventory | Cost of goods sold and stock counts need a method |
| Contractors or employees | 1099-NEC at $2,000 or more for 2026, payroll deposits and filings |
| Behind by a quarter or more | The year has to be rebuilt before estimated tax or the return |
| Quarterly payments you keep missing | Profit has to be known by mid-month, not mid-March |

Finbryn provides monthly bookkeeping from $249 a month (Essentials, up to $50,000 in monthly expenses, with bank and card reconciliation and a monthly profit and loss and balance sheet; you own the QuickBooks Online or Xero file). Catch-up work for a backlog is priced at $249 per backlog month. These prices are on the [pricing page](/pricing), checked 2026-10-18. That is a business-level service, and for a sole proprietor with a light year, software alone may be the right call.

See [monthly bookkeeping](/services/bookkeeping/monthly-bookkeeping), the [catch-up bookkeeping guide](/guides/catch-up-bookkeeping-guide) and the [guide to deciding between a bookkeeper, an accountant and a CPA](/guides/do-i-need-a-bookkeeper-accountant-or-cpa). For the tax return itself, a credentialed signer or partner files, and [tax preparation support](/services/tax-preparation-support) covers Schedule C.

## Frequently asked questions

**Q: What is the Form 1099-K threshold now?**

A: A payment app or marketplace must file Form 1099-K for third party network payments only when they exceed $20,000 and more than 200 transactions. The IRS said on October 23, 2025 (IR-2025-107) that the One, Big, Beautiful Bill retroactively reinstated that threshold, which was in effect before the American Rescue Plan Act of 2021. Some states set lower state reporting thresholds.

**Q: Do I report Etsy or other platform income if I do not get a 1099-K?**

A: Yes. The IRS says you must report all income you received during the year regardless of whether you receive a Form 1099-K (IRS FAQ, reviewed 2026-06-27). The form reports gross payments only, so your records decide what is taxable income after fees and refunds.

**Q: Do freelancers need a separate business bank account?**

A: The IRS does not require one. Its recordkeeping page (reviewed 2026-05-01) says any system that clearly shows income and expenses works. A separate account makes reconciliation and the Schedule C easier, and it helps show the activity is run like a business.

**Q: Do freelancers pay quarterly estimated taxes?**

A: Individuals generally must if they expect to owe $1,000 or more when the return is filed (IRS, reviewed 2026-09-25). For calendar-year 2026 the dates are April 15, June 15, September 15 and January 15, 2027. Paying 90% of the current year's tax or 100% of the prior year's (110% of the prior year's tax if that year's adjusted gross income was over $150,000) generally avoids the penalty.

**Q: What is self-employment tax for freelancers?**

A: It is 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare, owed once net earnings from self-employment reach $400 (IRS, reviewed 2026-06-27). It applies to 92.35% of net earnings, and the Social Security part stops at the year's wage base. You calculate it on Schedule SE and may deduct the employer-equivalent portion.

**Q: Does a marketplace collect sales tax for me?**

A: For sales made through it, often yes. The Texas Comptroller says a marketplace provider must collect, report and remit tax on marketplace sales and certify that to sellers. A Texas-based seller still needs a permit and returns, and must collect on its own off-platform sales. Check each state you sell into.

**Q: How do I record platform fees and refunds?**

A: Record gross sales as income and show fees and refunds on their own lines. The 1099-K reports the gross amount before fees and refunds (IRS Instructions for Form 1099-K), so your ledger should reconcile the gross figure to the payout in the bank.

**Q: Do I need a bookkeeper as a freelancer?**

A: Not always. Software and a monthly reconciliation can be enough for one account, one or two income sources and no staff, inventory or multi-state sales tax. Add a bookkeeper when platforms, sales tax, contractors or a backlog make the monthly routine slip. Finbryn bookkeeping starts at $249 a month.

## Sources

1. [IRS, IR-2025-107, FAQs on the Form 1099-K threshold under the One, Big, Beautiful Bill (2025-10-23)](https://www.irs.gov/newsroom/irs-issues-faqs-on-form-1099-k-threshold-under-the-one-big-beautiful-bill-dollar-limit-reverts-to-20000) (2026-10-18)
2. [IRS, Form 1099-K FAQs: what to do if you receive a Form 1099-K (reviewed 2026-06-27)](https://irs.gov/newsroom/form-1099-k-frequently-asked-questions-what-to-do-if-you-receive-a-form-1099-k) (2026-10-18)
3. [IRS, Instructions for Form 1099-K](https://www.irs.gov/instructions/i1099k) (2026-10-18)
4. [IRS, Instructions for Forms 1099-MISC and 1099-NEC](https://www.irs.gov/instructions/i1099mec) (2026-10-18)
5. [IRS, Self-employment tax: Social Security and Medicare taxes (reviewed 2026-06-27)](https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes) (2026-10-18)
6. [IRS, Estimated taxes (reviewed 2026-09-25)](https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes) (2026-10-18)
7. [IRS, Publication 509, Tax Calendars (reviewed 2026-04-30)](https://www.irs.gov/publications/p509) (2026-10-18)
8. [IRS, Recordkeeping for small businesses (reviewed 2026-05-01)](https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping) (2026-10-18)
9. [IRS, FS-2022-38, Know the difference between a hobby and a business (October 2022)](https://www.irs.gov/newsroom/know-the-difference-between-a-hobby-and-a-business) (2026-10-18)
10. [Texas Comptroller, Marketplace providers and marketplace sellers](https://comptroller.texas.gov/taxes/sales/marketplace-providers-sellers.php) (2026-10-18)
11. [Supreme Court, South Dakota v. Wayfair, Inc. (June 21, 2018)](https://www.law.cornell.edu/supremecourt/text/17-494) (2026-10-18)

Reviewed October 2026

[All services in Bookkeeping](https://finbryn.com/us/services/bookkeeping)

## Contact
- Phone: +1 (312) 313-7376
- Email: hello@finbryn.com
- Booking page: https://finbryn.com/us/book