Top 7 E-commerce Tax Deductions in 2023

Special tax deductions are available to proprietors of e-commerce businesses. Take advantage of the following e-commerce tax deductions to maximize your tax savings. Tax season is quickly approaching, so now is the time to get your records in order!

What is a tax deduction for e-commerce businesses?

Tax deductions for online businesses are similar to those in other small business realms: They offer monetary incentives for business owners by lowering their taxable income. E-commerce tax deductions are specific to the operations and methods of online businesses. Seven deductions are available to help with your e-commerce company’s start-up costs. Keep reading to learn more about each e-commerce tax deduction and how you can save.

7 Tax Deductions for E-commerce Businesses 

1. Advertising and Marketing

Advertising and marketing are necessary to help spread the word about your e-commerce business. It’s an added benefit that some of these expenses are tax-deductible. This includes product ads, software, subscriptions (Canva, Hootsuite, etc.), printing materials, and hiring writers, designers, photographers, and other communications professionals.

2. Employee Costs

If your e-commerce business utilizes employees, you’re in luck. Employee pay and benefits are tax-deductible. The benefits covered are pretty wide-ranging and include everything from health and life insurance to education assistance and retirement plans. You can even deduct the cost you pay to ensure your business is insured. Make sure you classify your employees properly; the IRS penalizes business owners who try to classify workers as 1099 independent contractors in an effort to avoid taxes. 

Another deduction available to both you and your staff is for training sessions and other professional development opportunities. Whether it's a seminar on leadership or courses for e-commerce skills such as SEO or copywriting, you may be able to deduct these expenses. You need to justify that the professional development opportunity directly contributes to performance improvement. 

3. Shipping and Office Supplies

If most of your business involves shipping products to customers, you might be wondering is shipping tax-deductible? Fortunately for you, yes, it is. Keep track of your company’s postage, envelopes, packaging materials, labels, and other shipping-related charges. You can also deduct paper, ink, boxes, tape, pens, and markers.

4. Travel

Traveling for everything from work errands to picking up products can be tax-deductible. If you use your own vehicle for these duties, do your best to separate the costs and mileage incurred while you drive for your company versus during your personal time. Costs for fuel, maintenance, parking, and even cab fares can be deducted as long as those costs are incurred in a context related to your business. 

Starting in 2023, the standard mileage rate for operating a vehicle, which includes cars, vans, pickup trucks, or panel trucks will be increasing. The rate for business-related travel will be 65.5 cents per mile, an increase of 3 cents compared to the adjusted rate in the second half of 2022.

5. Utilities

You can write off several utility bills, including water, heat, electricity, internet, and phone. Much like the workspace deduction (see below), a proportion of your day-to-day bills can be written off as business expenses if you work from home. With your water, heat, and electricity bill, you calculate whatever percentage of your home you claim as your home office (relative to the rest of your home). Then, that percentage is deductible from your total utility bills. Phone and internet bills are actually both deductible whether you work from home or an office or warehouse.

6. Website

Maintaining a strong website is crucial to the success of an e-commerce business. If you’re wondering, “Can you write off web hosting on your taxes?” the answer is yes! Keep track of the costs for your domain and web hosting, stock images, technical management, optimization tools, and other web-associated costs because these can lower your taxable income.

7. Workspace

Your home office can be written off on your taxes if it meets the IRS home office deduction criteria. To qualify, it must be the principal place where you do business, and that space must be used regularly and exclusively for business purposes. If your space qualifies, you’ll want to keep track of that space's square footage since that will be an important metric to include on your tax return. 

If you work from somewhere besides your home, such as a coworking space or a warehouse for inventory storage, you may be eligible for certain deductions. The rent you pay to use a space is typically an eligible deduction. You can also deduct maintenance, repairs, and even improvements you make to your workspace, so keep receipts and track these costs throughout the year. Deductions are also available for installing energy-efficient equipment or renovations made for medical purposes.

Work with a Professional to Maximize Your E-commerce Business Deductions

There are even more deductions out there based on your particular situation, so it’s best you work with a 1-800Accountant tax professional to maximize the e-commerce tax deductions available to you. Don't forget, your partnership with a tax professional may be tax-deductible! Reach out today to see how we can help you grow you e-commerce business.