What business owner doesn’t want to keep more of their hard-earned profits? Reducing taxable income through deductions frees up funds that you can use to raise your team’s salaries and reinvest back into the company.
But ecommerce tax deductions aren’t always obvious. You might miss out on lucrative savings simply because you don’t realize that certain expenses qualify.
To make your life easier, we’ve compiled this list of the 30 most common tax deductions for ecommerce businesses. Bookmark this article and keep it handy throughout the year—it will make tax savings and filing paperwork during tax season that much simpler.
Download our tax write-offs cheatsheet for ecommerce businesses →
Operating expenses
Stores generate a lot of expenses just through their daily operations. While many of these are dedicated tax deductions for online businesses, you can still use them to offset many costs.
1. Business licenses & permits
Plenty of US states and cities require you to get a license or permit before you can operate your online store there. While it’s usually a small annual fee, it adds up over the years.
The good news is that licenses count as a business expense. Normally, you just need a copy of the original document and many jurisdictions now send you a digital version that’s easy to store with your other files.
Extra costs for expired licenses aren’t deductible, even if they’re added to your standard fee. You must remove these charges when claiming expenses.
2. Auto expenses & mileage
The cost of gas is rising, meaning you can rack up a lot of expenses when driving around to visit suppliers or check out new products.
Fortunately, you can claim back a portion of this expense. The IRS gives businesses two methods to calculate mileage:
- The standard rate: A set amount per mile driven for business
- The actual expense method: A percentage of total vehicle costs based on business use
Use tracking apps to keep accurate records. You need to be able to prove to the IRS that any mileage you’re claiming is for business and not personal reasons.
3. Travel
If you travel for your business, you can claim a lot of expenses, including:
- Airfare
- Public transport fees
- Taxis and ride shares
- Meals
- Hotels and other accommodation
Keep detailed records of your travels and make notes about what types of business you conduct. If the IRS believes the trip was actually a vacation, you could face scrutiny or even incur a penalty.
You don’t have to spend every second of the trip focused on your business. However, the travel must primarily be for business purposes, such as meeting suppliers or attending a networking event.
4. Meals
The IRS lets you claim 50% of the cost of any business meals, but this deduction comes with some strict caveats.
- A member of your team must be present for the meal
- The meal must’ve been supplied by a restaurant even if you consume it off the premises
- You must’ve received the bill within the same tax year
- The expense can’t be overly extravagant
Grocery stores, supermarkets, and gas stations strictly don’t count as a meal expense. That means you shouldn’t include any sandwiches you and your partners grab during meeting breaks but you can add any pitstops to a diner or fast-food joint provided your business takes care of the bill.
5. Advertising
You can claim any expenses for online and offline advertising, such as:
- Social media ads
- Sponsored content
- Website banners
- Business cards
- Billboards and other outdoor advertising
- Branded packaging
Note that you can’t include any personal branding unless it’s explicitly related to increasing customer engagement or business growth. This applies to any influencers running an online store as well as managing a following.
6. Charitable contributions
Donations you make to charities and non-profits can be claimed as business expenses. But make sure they’re registered and approved by the IRS before you include them in your tax return; Otherwise, payments may be considered sponsorship instead of donations.
7. Education & training
If you’ve enrolled any members of your team in courses, you can include this in your tax return. They just need to be related to the business.
For example, jewelers could deduct the cost of a jewelry-making course. Even if they’re not responsible for production, they might want to become more knowledgeable about the process so they can evaluate suppliers and sound like experts to customers.
Whereas a self-improvement course wouldn’t typically be deductible. You might feel it helps your staff’s confidence, but it isn’t related closely enough to your business operations.
8. Gifts
The IRS lets you deduct $25 per client per year. While it may seem like a small amount, you might save a significant amount if you send samples to lots of different businesses.
If you spend more than $25 on a gift, they’re still deductible up to that limit.
9. Security
Did you know you can write off any money you spend on security for your store? That includes both physical and digital security measures such as:
- Antivirus software
- Firewalls
- VPNs
- Security cameras
- Alarms
- Safes
This lets you claim back some of the expenses of keeping your website, physical storefronts, and warehouses secure.
10. Memberships
Are you involved in any industry associations or networking groups? If you pay a membership fee, you can claim this as a tax expense.
Note that social clubs aren’t deductible even if you use them to network. Only memberships with a clear business purpose qualify.
11. Software
All the software subscription costs can be claimed as deductions. Given how much online stores rely on SaaS services, these expenses can add up.
Here are just some of the subscription fees you can deduct:
- Ecommerce platforms like Shopify and WooCommerce
- Bookkeeping software
- Inventory management solutions
- Ecommerce accounting apps (including MyWorks!)
- Advertising and marketing tools
The list goes on and on. Provided you can show how you use it for your business, you can claim just about anything as a business expense. For example, do you use a paid version of ChatGPT to write blog articles for your ecommerce? If yes, then you can include it in your list of possible deductibles.
Product and Sales costs
You can take advantage of many ecommerce business tax deductions through your sales and services. Here are the main ones to look for:
12. Cost of Goods Sold (COGS)
Since COGS is probably one of your biggest expenses, deducting it can significantly reduce your taxable income. COGS includes:
- Raw materials
- Whole inventory
- Manufacturing and production
- Direct labor
- Shipping between warehouses
To claim it properly, keep a running total of your COGS through your inventory software. Then, download Form 1125-A from the IRS website and complete it with these figures.
Note that the IRS requires you to use the LIFO inventory method to calculate your COGS. That’s where you assume the first stock you sell was the oldest and use those unit prices to determine the overall cost.
Read our guide to LIFO vs FIFO for details on this inventory method and how to calculate your expenses as per the IRS guidelines.
13. Merchant processing fees
All the charges from the various payment processors you use to facilitate transfers can be claimed. That’s great news if you have a high volume of transactions – you can recover a significant portion of the costs on your taxes.
Accounting software can help you track these fees. Solutions can provide you with a report summarizing everything you’ve paid over the year and breaking charges down into categories. All you need to do is connect your ecommerce and accounting platforms to keep your books constantly updated with accurate sales data from across your various channels.
You can use a dedicated sync tool like MyWorks to connect leading accounting software like QuickBooks and Xero to platforms like Shopify, automating data transfers between systems.
Do you sell on Shopify? Check out our comparison of the top 5 accounting software for the platform.
Make sure you don’t confuse fees with refunds. Again, accounting software can help by categorizing all transactions and keeping charges separate from customer refunds and chargebacks.
14. Seller fees
Similarly, you can claim any fees you pay for marketplaces like Amazon, eBay, and TikTok Shop in your tax return.
Many websites should give you a breakdown of all the fees you’ve accrued over the year. However, you can also sync many leading marketplaces with your ecommerce platform and accounting solution to record transactions.
If you’re using MyWorks to sync platforms, you can also use this for all your seller fees. This lets you track charges no matter where you sell and never lose track of all the different percentages.
15. Shipping & packaging
Costs directly related to shipping products to customers qualify for deductions. Depending on the size of your operations, this can cover a wide range of expenses:
- Bags and boxes
- Tape
- Protective fillers
- Postage fees
- Courier services
- Tracking
Often, shipping costs get bundled in with sales. Make sure you separate these and categorize them correctly to maintain accurate records.
Don’t have time to analyze every sale? Your accounting software can help you categorize transactions as they happen, provided you sync the solution to your ecommerce site with a robust integration like MyWorks.
Financial expenses
Given that stores have a high volume of transactions, it’s only natural that financial fees rack up. You can deduct most of them in your tax return.
16. Bank fees
Any fees related to your business bank account are usually deductible, including:
- Monthly maintenance fees
- Overdraft fees
- Transaction fees
- Transfer charges
- Currency conversion charges
That’s why it’s important to keep your personal and business accounts separate. Generally speaking, you can’t include any fees related to your own banking in your tax return.
17. Bad debts
The IRS allows you to claim bad debts as deductions on Schedule C, including any loans to partners or credit sales to customers.
But you must have previously recorded the unpaid amount as income. That means any online stores using cash accounting over accrual accounting are ineligible for this deduction as they only record income when they receive the money.
18. Interest expenses
Maybe your business took out a loan when starting up. You can include the interest you’re paying in your tax return to offset the ongoing cost of repayments.
Sadly, you can’t include any interest from personal loans, regardless of whether you use the money to support your online store.
As you might expect, any interest on underpayments or penalties also doesn’t count. You must separate these from your regular interest payments before claiming the deduction.
19. Insurance
Premiums for business-related insurance policies can be deducted. Check whether you’ve applied for any of the following:
- General liability
- Product liability
- Cyber liability
- Workers’ compensation
All policies must be under the business name. That means you can’t include any auto or property insurance for assets that are primarily for personal use.
20. Startup costs
Is this the first year of your business? Setting up operations can involve a lot of upfront costs that can drain your finances.
The IRS recognizes this challenge and allows business owners to deduct up to $5000 from each startup.
Note that you can’t claim this deduction unless you are officially open for business. That means you must launch your website and start taking orders from customers before you can include startup costs in your tax return.
Facility costs
Even though you run an online store, your business probably has some physical assets. You can claim many of these on your tax return.
21. Rent
Rent can count toward your deductibles. That includes any payments toward office spaces, storage units, and factories used exclusively for your business operations.
But be careful – the following factors may disqualify you:
- Owning shares in the property
- Making contributions towards ownership of the property
- Using office spaces for mixed purposes (namely, to live in)
- Paying above or below market rates as part of a personal agreement
- Paying rent in advance of the tax year
Renting from friends and family may lead to extra scrutiny from the authorities. Make sure you’re paying a fair market rate or, as the IRS guidelines state, the “same amount a business owner would pay to a stranger for use of the same property.”
22. Utilities
Bills can take chunks out of your business income throughout the year, especially due to rising inflation. Deductions are a chance to offset some of this overhead.
If you have a standard office set up, you can claim:
- Electricity and gas
- Water
- Internet services
- Phone bills
Again, you can’t claim this deduction for personal expenses. Look into the home office deduction if you or any members of your team live on the business premises.
23. Home office
If you’re running your store out of your home, you can claim a portion of the rent and utilities as online business expenses. But you must fall into one of the following categories:
- Exclusively using some of the space to manage operations
- Regularly meeting partners or customers at your home
- Storing inventory or product samples on an ongoing basis
Download Form 8829 to claim the home office expense. The IRS gives you two acceptable methods to calculate your total deductible for the year based on your property’s square footage.
Be honest about how much space you use to run your store. Claiming an unrealistic percentage of your home could raise red flags with the IRS.
24. Office furniture
Any furniture you use exclusively for your business counts as an expense. That includes large items like desks and chairs and smaller things like lamps, wastebins, and corkboards.
Avoid claiming any furniture that you’ve ended up using at home. Even if you planned to use something for business purposes, it now counts as a personal expense.
25. Equipment
Under Section 179 of the tax code, business owners can deduct any depreciable office equipment.
As you might expect, that’s any computers, printers, and cameras you buy for your business. Chances are that you also use plenty of label printers, barcode scanners, and possibly even forklift trucks to help run your online store too.
But don’t overlook other commonplace appliances. Section 179 also allows you to claim equipment like HVAC (Heating, Ventilation, and Air Conditioning) and fire extinguishers on your tax return — and those can be some of your highest-cost items!
Personnel costs
Any money you’ve paid to people to help run your business can usually be claimed as expenses. However, it’s important to categorize them properly to stay compliant with both federal and state law, so here are the different types of deductions:
26. Payroll
If you hire a team to help run your business, payroll is probably one of your biggest expenses. Sole proprietors and single-member LLCs can claim them as deductibles on their Schedule C (Form 1040).
You can use payroll software to calculate wages and taxes and generate annual reports. Leading solutions like QuickBooks let you share this data with their accounting and tax management features.
But before claiming this expense, make sure you’ve classified workers correctly. Payments to freelancers and contractors don’t fall under payroll, but you may deduct them as contract labor.
Equally, you may not deduct your own salary from taxes. As the owner of the company, you don’t count as an employee, no matter what duties you perform.
27. Employee benefits
All the contributions you make toward employee benefits can be deducted, including:
- Health insurance
- Life insurance
- Retirement plans
- Wellness programs
- Work-from-home stipends
Keep records of all benefit-related payments, and be sure to follow IRS regulations for qualified retirement plans.
Only include the contributions you’ve made as the employer. Your team’s share of the contributions isn’t tax deductible, even though you manage them through payroll withholdings.
28. Independent contractors
You can deduct any payments you’ve made to freelancers for their services using IRS form Schedule C for sole proprietors or Form 1120 for corporations.
Store any invoices they’ve issued you and proof of payment transactions for the deduction. Accounting software like QuickBooks and Xero should take care of this for you.
Are you 100% sure your contractor doesn’t count as an employee in the eyes of the law? If you classify a worker incorrectly, your business may incur hefty penalties.
29. Legal & accounting fees
Have you hired an accountant to help you with your tax return? Ironically, you can also claim fees for their business services as deductibles.
The same applies for any:
- Lawyers
- Business consultants
- Marketing agencies
- Recruiting firms
- Payroll services
- Cleaning services
Just be sure to keep your personal and business expenses separate. For instance, you can claim your company’s tax return from your accountant but you must leave out your individual one.
30. Commissions
Shopping on social media sites like Instagram and TikTok is becoming more and more popular. If you’ve hopped on this trend, you’re probably paying a percentage of sales to influencers and content creators you’ve partnered with.
You can claim these commissions as tax deductions. Just check that all fees you’ve paid are work that directly benefits your store, such as reviews, try-ons, and endorsements.
Get tax breaks, and work breaks with the right software
Claiming all these ecommerce write-offs can reduce taxable income and keep more profit in your business. It can set you up for success in the following year.
But this starts with tracking expenses properly. If you make a habit of recording and categorizing all your business expenditures, tax season is less likely to be a desperate scramble.
Automate this task where you can. Solutions like MyWorks can help you record and organize costs accurately in your bookkeeping software so no deductions get overlooked or expenses get miscategorized.
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