@Mike9241 wrote:
if the expenses are for your self-employment work, they are deductible on schedule C. however, the IRS could consider your activity a hobby if you have losses in 3 out of 5 consecutive years, this is determined by the IRS upon audit. in such a case your income would be taxable but your expenses would be non-deductible.
The difference between a business and a hobby is that a business is an "ongoing trade or business" that is run with a profit motive. You advertise, seek out customers, and do other things that businesses do. For taxes, you must report hobby income and can't deduct expenses. You can deduct expenses from a business. While the IRS will usually tell you that a "business" that mostly loses money should be reclassified as a hobby (which limits your deductions), that's not necessarily the case and you should look at your intent. Likewise, if you make a small amount of profit every year, it might still be a hobby and not a business depending on your actual intent and how businesslike your activities are.
Either way, you keep your "regular" business and your Etsy business or hobby separate on your tax return.
