Do I Need an LLC to Sell on Etsy? What Etsy and the IRS Say

What Etsy asks for when you open a shop

Etsy’s guide to opening a shop explains the setup. The guide does not list an LLC. The main items on its list are:

• An Etsy account. Etsy says “You must have an existing Etsy account before creating a shop.”
• A shop language, country, currency, and name.
• A bank account to receive payments, plus a debit or credit card to pay your bills from Etsy.
• A seller type. Under “For tax purposes, what type of seller are you?” you choose “Individual or sole proprietorship” or “Incorporated business.”
• A one-time shop set-up fee. Etsy calls it “non-refundable.”
• An identity check. Etsy asks for “a photo of your government ID and a clear selfie.”
• A country Etsy can pay. Etsy says “You can only open an Etsy shop in a country where Etsy Payments is available.”

The seller type decides what else Etsy verifies. The table below compares the two choices, using the lists on Etsy’s page on seller verification.

As we read Etsy’s wording, a registered LLC fits the business column. Etsy adds a note for LLC owners: “If you’re a US seller with a business registered as a Limited Liability Company (LLC), but file your taxes as an individual, you may be defined as a disregarded entity.” Etsy tells those sellers to confirm the point with a local tax professional.

If you form an LLC after you open your shop, review your Etsy records. Etsy says a US business that uses an EIN “may need to enter your business name under Legal Name and Address on the Legal and tax information page.” If you update your bank details, Etsy says the name on the account “must match the name or business entity you have provided.”

Can you sell on Etsy without a business license?

Etsy does not require one, but your city or state might. Etsy’s guide says “Etsy doesn’t require sellers to have a business license to sell on Etsy.” The next sentence adds a limit: “However, when selling on Etsy you’re required to follow any laws that apply to you as a small business selling online.”

Government rules depend on what you sell and where you do business. The SBA says “The licenses and permits you need from the state, county, or city will depend on your business activities and business location.” It also lists retail among the activities “commonly regulated at the local level.”

Los Angeles is one example. The city’s Office of Finance says “all individuals or entities conducting business activities within the City of Los Angeles are required to apply for and obtain a Business Tax Registration Certificate.” The rule names individuals as well as entities, so having no LLC does not take you outside it.

Forming an LLC does not replace any of these steps. Our guide to whether an LLC needs a business license covers the federal, state, and city levels in more detail.

Sales tax: what Etsy collects and what you still handle

Etsy collects US sales tax for you on orders that meet its criteria. Its sales tax page says “Etsy automatically calculates, collects, and remits US sales tax on behalf of sellers located anywhere in the world” in two cases. The first case is an order that ships to a recipient in the US. The second is a digital order purchased by a US buyer. In both cases, the order must also meet “certain criteria.”

The rule comes from state law, and Etsy lists the states where it applies. Etsy says it collects “for items shipped to states that require marketplaces such as Etsy to collect sales tax.” Etsy also says “No action is required on your part to collect sales tax from buyers where Etsy collects and remits sales tax on your behalf.” The page sets no separate rule for LLCs.

Some of the work stays with you. Etsy says “It’s up to each seller to research their local laws about collecting and reporting taxes for their Etsy sales.” It says the sales tax settings in Shop Manager “are used for states/regions where Etsy doesn’t automatically collect sales tax.”

Sales outside Etsy are a separate matter, and California shows how that can work. The California Department of Tax and Fee Administration (CDTFA) says that if “all your sales of tangible merchandise will be facilitated by a marketplace facilitator that is registered as a seller or retailer with CDTFA, you are not required to be registered with CDTFA for a seller’s permit.” CDTFA then adds a limit: “However, if you make any sales of tangible merchandise other than those facilitated by a marketplace facilitator (for example, through your own website or at craft fairs) you may be required to register as a seller or retailer with CDTFA.” A marketplace facilitator is a company that runs an online marketplace for other sellers.

Other states set their own rules. The SBA says to “Visit your state’s Department of Revenue website to identify whether you need to get a state tax ID number in order to pay state taxes.” Check that page too if you plan to sell at markets or on your own website.

Does Etsy report to the IRS?

Yes, when the reporting rule is met. Form 1099-K is an IRS form that reports payments you received. The IRS says online marketplaces “are required to fill out Form 1099-K and send it to the IRS each year.” They must also send you a copy by January 31.

The IRS page states the federal threshold. A payment app or online marketplace must send the form “if the payments you received for goods or services total over $20,000 in more than 200 transactions.” The IRS adds that “they may send you a Form 1099-K with lower amounts and/or transactions.” Older articles may show a different number, because a later law reinstated the earlier threshold.

State rules can differ. Etsy’s 1099-K page, written for the 2025 tax reporting season, says “Several states have different reporting thresholds from the IRS.” Its table lists $600 for Maryland, Massachusetts, Vermont, and Virginia, among others. Etsy says it issues the form if you met “either the federal threshold or a threshold for your state.”

You report your income either way. The IRS says “Whether or not you receive a Form 1099-K, you must still report any income on your tax return.” The rule applies with or without an LLC. The same IRS guidance covers hobby sales. Its page on what to do with the form says reported payments “may also include payments you received from selling items as a hobby.” A tax professional can tell you which forms fit your shop.

Two smaller figures matter for a new shop. Etsy says “If you don’t have valid taxpayer details on file and exceed $500 in sales in a calendar year, your shop will be suspended until you add these details.” Etsy says US sellers can use an EIN, an SSN, or an Individual Taxpayer Identification Number (ITIN). The IRS says “You have to file an income tax return if your net earnings from self-employment were $400 or more.”

When an LLC starts to make sense

For an Etsy shop, one reason to consider an LLC is liability. The SBA says a sole proprietor “can be held personally liable for the debts and obligations of the business.” It also says “LLCs protect you from personal liability in most instances.” The words “in most instances” matter, because the protection has limits.

Based on the SBA’s guide, an LLC is worth a closer look when one or more of these conditions fits your shop:

• Your shop carries more risk. The SBA says LLCs can be a good choice for “medium- or higher-risk businesses.” Ask what would happen if a product injured a buyer or damaged property.
• You have personal assets to protect. The SBA also names “owners with significant personal assets they want protected.”
• You have finished testing the idea. The SBA says sole proprietorships can be a good choice for “low-risk businesses and owners who want to test their business idea before forming a more formal business.”

An LLC does not remove the rules above. You still check for licenses, and you still report your income. The IRS says that if a single-member LLC does not elect to be treated as a corporation, and the owner is an individual, its activities “will generally be reflected on” the owner’s Form 1040 schedules, such as Schedule C. A sole proprietor uses Schedule C too. The SBA also says LLC members “are considered self-employed and must pay self-employment tax contributions towards Medicare and Social Security.”

An LLC is a state filing, so ask your state what it charges to form and keep one. Our guide on when you need an LLC covers the wider decision, including where the protection stops.

What address Etsy shows buyers

Forming an LLC does not by itself keep your home address away from buyers. Etsy has several address fields, and each one has its own rule.

The return address is the field to check first, because it goes on the shipping label. Etsy calls it your “return shipping label address,” and you enter it under Shipping From. Your shop location is a separate field that can appear on your listings. Etsy says “Adding a location helps your shop and listings appear in local searches.”

Some address fields are for identity and tax. Etsy Payments asks an individual for a home address. When Etsy asks you to confirm your seller info, it says “If asked for your address, this must be your taxpayer address, and not a PO or Postal Box.” Enter what each field asks for.

Our guide to Etsy return address privacy goes through each field. Our marketplace seller address guide compares Etsy with Amazon and eBay.

A business address for general mail is a separate choice from these Etsy fields. Any limit in an Etsy field also applies to a virtual address, including ours. Our Silicon Valley and Los Angeles pages describe the business addresses save office offers.