I doubt many Etsy sellers are running their business on an accrual basis to be eligible for depreciation expense. Beyond that Inventory is a non-depreciable ass

I doubt many Etsy sellers are running their business on an accrual basis to be eligible for depreciation expense. Beyond that Inventory is a non-depreciable asset. If they're not generating any revenue they can't claim COGS. Any of these scenarios are obvious red flags and would be audit candidates. Now if you're suggesting people are submitting fraudulent returns thats another thing but there's no "loophole" here. EDIT - just to add, I'm sure there is a ton of attempted illicit activity on Etsy, just like any other marketplace. See this [0] for example. I don't think there is any tax "loophole" here, however. [0] https://www.etsy.com/listing/1200405951/t-shirt https://www.etsy.com/listing/1200405951/t-shirt