E-commerce tax deductions from the IRS were designed to legitimately lower a taxpayer’s tax bill. Tax deductions can make a huge difference in a an e-commerce businesses’ tax obligation by offsetting the cost of doing business with revenue. Congress’ view is simple: they want to encourage you to put your money back into the economy, for which you get a tax break. So take advantage of how the code was written. There are many e-commerce tax deductions from the IRS that are completely legal (in fact, are encouraged by lawmakers) and can really help you lower your tax bill. While many of the deductions you may be aware of, some of them you maybe didn’t know existed.
Top E-Commerce Business Deductions
Many e-commerce businesses take advantage of e-commerce tax deductions from the IRS every year to successfully lower their tax bill. Some of examples of the most used e-commerce tax deductions include:
- Shipping costs – Shipping costs can add up, especially for e-commerce businesses. Fortunately the IRS allows e-commerce businesses to deduct the cost of shipping. This includes: postage and supplies.
- Merchant Fees – When processing electronic payments like credit card, many merchant services charge merchant fees. These fees can also add up. Because they are a necessary part of doing business, they also qualify as e-commerce tax deductions.
- Website – The cost of maintaining a website is a crucial business expense for e-commerce businesses. The IRS allows e-commerce businesses to deduct the cost of designing the website, domain registration fees, hosting fees, and maintenance fees.
- Marketing and Advertising – Marketing and advertising costs are associated with growing your business, and therefore and considered tax deductible. This includes traditional marketing expenses such as TV or radio commercials, printed ads, and printed marketing pieces like: business cards, postcards, and flyers. It also includes digital marketing activities like SEO, content marketing, social media, and digital ads.
- Selling Costs – Selling costs associated with membership fees for sites like Shopify are also considered e-commerce tax deductions.
Creative Tax Deductions The IRS Say Are Good & Legit
There are also some more creative ways to take advantage of e-commerce tax deductions from the IRS. Many e-commerce businesses are not fully aware of all of the tax deductions that could apply to their business. Some creative tax deductions from the IRS include:
- Moving – If you move as a result of a new job opportunity, the IRS allows you to deduct a portion of your moving expenses. If you operate your business out of your home, the move has to be at least 50 miles away from your original location. This includes packing and shipping costs, up to 30 days of storage fees, travel to your new residence with a gas allowance at $0.17 per mile, and hotel rooms.
- Home office – If you operate your business out of your home, which many e-commerce businesses do, you may be able to take advantage of the home office tax deduction. This includes partial rent and utilities, as well as insurance. Keep in mind, that the space must be solely designated for work.
- Charitable donations – Charitable donations like donations made to a church or other non profit organization are tax deductible. Did you know that expenses associated with volunteer work also qualify for the charitable donations tax deduction?
- Hobby vs small business – Do you have a hobby or a small business? Many e-commerce businesses start out as hobbies at first. Perhaps you love woodworking, and decided to start selling your pieces on etsy, as an example. The difference according to the IRS is whether the activity is profit-seeking. The IRS defines that as a business that has at least 3 profitable years out of 5 years, meaning you can have no more than 2 consecutive loss years. While this rule is clear cut, in practice there have been exceptions to this rule so long as the business is profit-seeking, meaning you intend to make a profit down the road. The IRS doesn’t allow for a hobby deduction,so be careful – the IRS could disallow your deductions. However, if you can take your hobby and turn it into a passion-driven business that generates extra income, you get the benefit of doing something you love while being able to write off your expenses while you do it.
IRS-Approved Deductions You Should Be Using To Reduce Your Taxable Income
Deductions are used to reduce your taxable income. This lowers the amount you are obligated to pay on your taxes. Are you taking advantage of all of the tax deductions that apply to your business? Are you leaving money on the table? The best way to reduce your tax obligation is by working with a tax professional. They will know which tax deductions are applicable to your business. A professional will also know how to properly file your taxes, so as not to raise any red flags and avoid hobby-loss rules, and in the event of an audit can provide guidance. To learn more about e-commerce tax deductions from the IRS subscribe to our newsletter!
Are You Maximizing Your Deductions?