When you own an e-commerce business navigating the tax code can be tricky. There are a lot of deductions for your business that you may not be aware of.! In fact, you could be leaving money on the table because of what you don’t know! Even though tax season is a few months away, it is never too late to educate yourself and prepare yourself for the inevitable. Knowledge is power, and when it comes to filing your taxes for your e-commerce business, knowledge means dollars. Here are some e-commerce tax deductions you don’t want to overlook.
- Shipping & Packaging
Unless you’re running a dropshipping business, it’s your job to deliver the goods. Luckily, the IRS considers the cost of doing so “ordinary and necessary.”
Postage, shipping meter subscriptions, delivery charges—they’re all deductible come tax time. Still, you’re better off paying less for shipping in the first place.
The cost of all ecommerce packaging and of getting your product delivered on time and in one piece can be deducted on your tax return. This includes envelopes, boxes, paper, packing material, tape, labels, markers, and printer ink.
- Advertising & Marketing – Freelancers and Subcontractor Costs
Whether you advertise your business on Facebook/Instagram or a local newspaper, the cost of advertising is tax-deductible.
This includes both the price of placing the ad and any fees you pay to have it written and designed. If you hire a designer, copywriter, or marketing professional to produce ads for you, you deduct their wages as you would any 1099 worker.
Everything that you pay to contractors like graphic designers, photographers, web developers, bookkeepers, content writers, and office assistance is entirely deductible. If you pay any contractor at least $600 for the year, be sure to file a 1099 to report their payments.
- Website Expenses
As the primary place of business for many eCommerce brands, your website has a lot of potential write-offs. Domain names, hosting services, and subscription fees to services like Shopify are the big ones, but there are plenty of others.
For example, you can write off paid plug-ins, apps, or paid themes — that includes your WordPress plugins if you use WooCommerce.
- Co-working Space/Home Office/ Office Supplies
Office supplies may seem cheap, but these costs add up over time. Consider things like notebooks, printer paper, ink, file folders, envelopes, and postage. This also extends to smaller items like staplers, markers, pens, and pencils — even business-related books.
If you run your business from a co-working space, the costs associated with the space may be eligible to be deducted as office costs. Similar to claiming the costs associated with a traditional office space, you may be eligible to deduct the cost of rent, utilities, supplies, and any equipment that you use in the co-working space.
- Financial and Legal Fees
Not just for eCommerce, but all businesses can deduct certain financial and legal fees like accounting and banking. Fees for professional services like a business lawyer, CPA, or bookkeeping service can potentially be deducted. Moreover, you can deduct your interest rates on any business loans or credit cards exclusively for business use, as well as regular bank fees for business accounts.
- Communication Tools (Phones, Voice over IP & Internet)
You probably use the internet a lot. After all, that’s where you conduct your business. The same goes for your cell phone. How much time do you think you spend every month on your phone dealing with business matters?
You may be able to write off some of your cell phone and internet bill. The amount really depends on how much you use it for your online company. Sometimes, it can be as much as 50% or more of your bill.
The deduction for your internet costs is similar to your cell phone – you can write off a portion based on how much is used for your online business. This can help you support high-speed internet, essential for any eCommerce professional.
- Merchant Processing Fees & Credit Card Convenience Fees
Whatever payment methods you use have associated fees, but these too can be deducted. That includes platforms like PayPal, Stripe, or Square, as well as convenience fees from major credit card companies.
- Travel Expenses
If you travel often for business, you may be able to deduct travel expenses like parking fees, transportation charges, cab fare, tips, conference tickets, etc. For car owners, there are even more opportunities for deductions.
If you use your personal car to complete tasks like mail packages, acquire inventory, meet with customers, or conduct other business activities, your vehicle becomes tax-deductible. Likewise, if your car is used exclusively for business needs, you can claim the entire cost of operation.
You have two options for deducting mileage in 2021, as per the IRS. You can either deduct the standard 56¢ per mile, or the “actual cost,” meaning the sum total of expenses like oil changes, emissions tests, and other costly car-related activities.
- Education
If you take online courses, attend webinars or in-person classes that relate to your business, you can deduct the enrollment costs. Be aware though, the courses have to be applicable to your business — not necessarily related to your industry or products, but related to your business in general. For example, a course on social media marketing would be considered legitimate for eCommerce business owners.
- Charitable Donations
Certain charitable donations are tax-deductible, but only if they relate to business. For example, donating $100 to your local church is not deductible, but buying a $100 ad in your church newsletter is. This can come in handy if you need to give away some of your inventory, one of our recommendations for getting rid of dead stock.
Always check with a Tax Professional
Good accountants pay for themselves — quite literally, considering that their services are write-offs as well. This guide is meant for you to take a more proactive role in your eCommerce taxes and uncovering new areas for saving money, but it can’t replace the work of a knowledgeable accountant. Feel free to bring up any of the above items that you’re curious about in your next meeting.