20 Tax Deductions Ecommerce Businesses Need To Take Advantage Of Now


If you use tools like Klaviyo or AdEspresso to manage your email and Facebook campaigns, they count as “ordinary and necessary” marketing expenses. Sometimes customers or clients simply won’t pay for the product or service you already provided.

20 tax deductions ecommerce businesses need to take advantage of now

You can deduct the fees you pay for professional financial services such as bookkeeping and accounting that relate to your business. This includes your tax preparation costs if an accountant prepares your business tax return or, if you do business as a sole proprietor, your personal tax return. There are a lot of small business deductions you can potentially claim on your tax return. The best practice for making sure you’re claiming all the business deductions available to you is working with an accountant (and remember, that’s tax deductible as a professional service ��). It’s known as a “professional services” deduction, and this deductible expense actually applies to a range of professionals who help with all things small business finance.

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If you use your dining room, a desk in your living room, or work from your coffee table, those won’t qualify because they’re also for personal use. Similarly, if you use Zoom, Google Voice, Skype, or another VoIP service to make business calls, and you purchase credit for the service, keep the receipts. If you use these services for business purposes, they qualify as a tax deduction. That way, should you ever be questioned by the IRS, you’ll be able to prove that your home office is only used for business purposes. Melissa Hollis is the marketing content manager and educator at inDinero, an accounting and tax software+service for small to medium size businesses. She is a lover of all things entrepreneurial and enjoys waking up every day with the chance to enable the dreams of aspiring business owners through her writing. ECommerce bookkeeping firm to guide you through these eCommerce tax deductions.

20 tax deductions ecommerce businesses need to take advantage of now

Be sure to back up your claims with receipts and other documentation. Technically, you would also need to be able to pass an on-site exam if someone were to ask to see your office. While some of these expenses may seem small, they can quickly add up to significant savings. Get free online marketing tips and resources delivered directly to your inbox. Savings Incentive Match Plan for Employees (SIMPLE.) A retirement savings plan for small businesses with less than 100 employees. SIMPLE IRAs work like traditional IRAs and are easier to set up than a 401 but the employee retirement plan contributions limits are lower, compared with 401s. The majority of the time you spend in your home work area must be devoted to doing business.This also includes liability insurance and workers’ compensation insurance costs. Chances are that if you have an e-commerce business, you’ll need to send products and equipment to your customers when you make a sale. The costs of packing and wrapping products, shipping and mailing costs are tax deductible for your business. Not only can Xendoo’s outsource accounting solutions be deducted from your taxes; we can also help you plan your eCommerce tax deductions to help you make the most from your business. If you use the simplified option for claiming tax deductions, the IRS permits you to deduct $5 per square foot of office space. However, you’ll be capped at a maximum of 300 square feet, which often prevents you from claiming garage space as a work area.

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It never hurts to snap a few photos to document your workspace to demonstrate its use for your business. You can deduct repairs from your taxes if it’s a betterment, restoration, or adaptation of that piece of equipment. The most customizable eCommerce platform for building your online business.

What is the 2021 standard deduction?

The standard deduction amounts for the 2021 tax year are: $12,550 for single taxpayers. $12,550 for married taxpayers filing separately. $18,800 for heads of households.You can deduct expenses for office equipment, paper, boxes, tape, ink, markers, and all the other supplies your office needs to run efficiently. Hiring professional services such as accountants, lawyers and tax preparers.

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Your bookkeeping team imports bank statements, categorizes transactions, and prepares financial statements every month. With Bench’s premium subscription package, you get access to a tax professional year round in addition to automated bookkeeping. Our tax professionals are there to ensure you take advantage of every deduction available to you. While spending your money right can decrease your tax bill, the confidence of going into tax season knowing it will be the smallest bill possible is priceless. Do you use your vehicle to mail off packages, meet clients, or conduct other business activities? There is a range of deductions you can claim for business use of a vehicle.

Should e-commerce be taxed?

E‑commerce serves to inhibit excessive taxation: when tax rates get too high, it provides consumers with a shopping alternative. That alternative induces state and local governments to keep tax rates down. … If states are concerned about local retailers, they should address the issue by reducing tax rates.Your work area must be the principal place of business for your ecommerce company. You should be ready to prove this with a consistent, printed schedule. You can record this info on the back of your receipts, or choose to keep track of it in your journal or online calendar.

Startup Costs

If you plan on claiming travel deductions, be sure to keep very detailed, thorough records. Occasionally conducting management or administrative activities from another fixed location (such as doing a little bit of paperwork from a co-working space). Conducting management and administrative activities in non-fixed locations such as cars or hotel rooms while traveling. Having other staff members who conduct management or administrative activities at locations other than your home office. You don’t conduct substantial management or administrative activities at another location. For a modified version, track dates and miles traveled for business and use the 2021 IRS standard mileage rate of 56 cents per mile .If you take a third-party member to an event with the intention of discussing business and you eat a meal, you can deduct 50% of the cost of the meal but not the ticket/entrance. Canopyprovides cloud-based, practice management software for accounting firms. With Canopy, accountants can keep their firm organized and running smoothly, as well as create a more connected experience for their clients. Buying equipment doesn’t fall under startup costs, but many equipment costs can be depreciated.When you hire a business lawyer, CPA, bookkeeper, online bookkeeping service, or tax consultant, their fees qualify as deductible business expenses. If you use a credit card to pay for business expenses throughout the year, or take out a small business loan, any interest you pay is an eligible tax deduction. Additionally, any bank fees you incur while managing your business account are also tax deductible. For equipment to qualify for a tax deduction, it must be required to run your business and not used for any personal activities. Your printer can qualify as business equipment, but it must be in your office and used solely for work. In the US, your business can qualify for up to $500,000 in tax deductions for equipment costs alone.This refers mostly to personal expenses like rent, gas, and entertainment. However, in some instances, the context of your cost may validate tax deductions. For example your gas may be considered a business expense if you are traveling for the purpose of a business meeting or event. The more complicated calculation is where you take the square footage of the office space and divide it by the total square footage of the house.Other travel expenses you incur in the course of doing business—parking fees, cab fares, or conferences tickets, for example—can be claimed. Subscriptions to trade magazines related to your industry are tax deductible too. Make sure they’re specifically connected to your industry, though. So, if you publish a newsletter, you can deduct the cost of your email marketing solution. If you schedule social media posts, you can deduct the cost of Hootsuite.

Deductible Expenses Vs Non

You may be able deduct health insurance premiums for yourself, your spouse, and your dependents if you are not insured under your spouse’s employer’s insurance. Conducting substantial non-management and non-administrative activities at another fixed location other than your home office . While the second method is more work, it could give you a larger total deduction. The entire cost of what you paid in vehicle costs over the course of the year—including fuel, maintenance, and repairs. If you hold any of these insurance policies to help protect your business, you may be able to write the premiums off. If the insurance policies are common and necessary, you can write off the full amount.So if you’re taxed at 40%, every dollar you spend on expenses might only cost you 60 cents! Not all business expenditures are measured equally, so let’s look at the difference between costs and expenses. This includes envelopes, packing material, labels, tape, markers, printer ink, boxes, and anything else you use to package your goods. If you use tools or software to manage your marketing efforts and campaigns such as social media scheduling tools, email software, etc. be sure to deduct those expenses. Are you always taking classes or other certifications to improve your knowledge and skills? You can include educational classes, certifications, workshops, or other forms of training, as long as they directly improve your day-to-day business operations.

  • 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.
  • Understanding your deductible expenses can save you thousands in the long run.
  • You can deduct repairs from your taxes if it’s a betterment, restoration, or adaptation of that piece of equipment.
  • The word “nexus” is used by the law to describe the connection sellers must have with a particular area before they are required to charge and collect taxes for online sales there.
  • So, if 10% of your home’s square footage is used for doing business, you can deduct 10% of your heat, water, and electricity payments.

Whether you advertise your business on Instagram or in your local newspaper, the cost of advertising is tax deductible. For example, if you use 10% of your home’s square footage for business, you can deduct 10% of your mortgage interest on your tax return. Ecommerce photography can get pretty pricey, but luckily cameras and video equipment for business use count as tax deductions. Don’t limit yourself to just the cameras – any additional equipment like tripods, lenses, lighting, etc. are also deductible. If you work from home, you’re eligible for a variety of home office deductions, including mortgage interest, insurance premiums, utilities, repairs, maintenance, and depreciation. To qualify, your home office must be used exclusively and regularly for your business.

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But even with accounting help, it pays to know a little about your own taxes — in particular which tax deductions and write-offs for ecommerce can save you the most money. If you use your own car to send packages, meet with customers, or other business activities, you can deduct the vehicle’s operating costs. In the event that the use of this car is shared for personal and business activities, you will need to calculate the percentage of usage for your business. Equipment, materials and supplies for your office are critical to run a business running; for an e-commerce business, it is essential to maintain supplies to pack and wrap products . If you have an office in your home, and you run and manage your e-commerce business from this office, you can claim a tax deduction based on the total square footage of this office.

How Do You Maximize Tax Deductions As A Small Business?

Since operating expenses and cost of goods sold are incurred in the production of revenue, they’re deductible on your business tax return, reducing your income tax bill. Or, calculate the percentage of your home’s square footage that is your working space. Then, apply that percentage to your home expenses like rent or mortgage, interest, property taxes, and utilities . These can include business-related expenses, investment losses, and employee payroll. It’s also common to refer to deductible expenses as “write offs.” We’ll list common examples below that you can consider.You may wish to contact your office or property administrator about how to handle shared fees, as they may be able to recommend best practices based on past tenants. Mixing your business and personal expenses is a surefire way to get into trouble. Avoid this by setting up an account that is purely used for business. Once you’ve done this, link this account to your cloud accounting software to easily record and track expenses.If you pay the premiums for these types of insurance, you can deduct those premiums. Chances are, advertising is one of the biggest expenses you have, so it’s great news that it’s tax deductible! Ask your accountant about writing off everything from billboards to Facebook ads.