What e-commerce expenses are tax deductible?
Platform and marketplace fees are usually the biggest deductible expense for online sellers. Amazon seller fees, referral fees, and FBA charges add up fast. Shopify subscriptions, Etsy listing fees, and payment processing fees from Stripe or PayPal are all deductible. These fees are operating expenses that reduce your taxable income directly.
Inventory costs are deductible as cost of goods sold. This includes products you purchase for resale, raw materials if you make handmade items, and manufacturing costs. Shipping you pay to receive inventory counts too. The timing matters here because COGS only hits your return when you sell the item, not when you buy it. If you buy $10,000 in inventory but only sell $6,000 worth, you only deduct the cost of what sold.
Shipping and packaging for orders you fulfill yourself are fully deductible. Boxes, tape, poly mailers, packing materials, shipping labels, and postage all count. If you use a fulfillment center, those fees are deductible too. Returns shipping you cover for customers is also a legitimate expense.
Software subscriptions that run your e-commerce business are deductible. This includes inventory management tools, email marketing platforms, listing software, design tools for product images, and accounting software. If you pay for apps that integrate with your selling platform, those count as operating expenses.
Advertising and marketing expenses are fully deductible. Amazon PPC, Facebook and Instagram ads, Google Shopping campaigns, and influencer payments all reduce your taxable income. Product photography costs, whether you pay a photographer or buy equipment yourself, are deductible. Website costs including domain registration, hosting, and theme purchases count too.
Home office deduction applies if you have dedicated space for your e-commerce operation. This could be a room where you store inventory, pack orders, or handle administrative work. The space needs to be used exclusively for business. You can use the simplified method at $5 per square foot up to 300 square feet, or calculate actual expenses if your space is larger. Storage space for inventory counts even if it’s in your garage or basement, as long as it’s dedicated business use.
Business insurance, bank account fees, and professional services like bookkeeping and accounting are all deductible. If you pay for a trademark or LLC formation, those costs count. Interest on business loans or credit cards used for inventory purchases is deductible too.
The problem most e-commerce sellers run into is tracking. You remember the big inventory purchases but forget the $15 monthly software subscription, the packaging supplies from Uline, or the $200 you spent on product photos. Working with a Richmond bookkeeper who understands e-commerce means someone is reviewing your transactions regularly and catching deductions you would otherwise miss. By tax time, reconstructing a year of small purchases from memory doesn’t work, and you end up paying more than you owe.
Greater Richmond's Small Business Bookkeeper
The Next Step:
A Short Conversation
Fifteen minutes to tell us what you're dealing with. We'll let you know how we can help and give you a clear price quote.
More Questions
What should I look for in monthly financial reports?
Focus on revenue trends, gross margin, expense changes, and cash position. The value comes from comparing current numbers to prior periods and spotting patterns before small issues become serious problems.
Read answerDo I need to charge sales tax on labor and installation?
It depends on what you're selling. If you're selling products and installing them, the labor is usually taxable with the materials. If you're providing a pure service without selling goods, the labor is often exempt.
Read answerWhat's the Virginia unemployment tax rate for new employers?
New employers in Virginia typically pay 2.5% on the first $8,000 of each employee's wages annually. After you build employment history over a few years, your rate becomes experience-based and can drop significantly if you have few unemployment claims.
Read answerCan a bookkeeper help me catch up on years of messy records?
Yes. Catching up on neglected books is one of the most common reasons small businesses hire a bookkeeper. The process involves reconstructing transactions from bank records, categorizing expenses, and reconciling accounts month by month.
Read answerWhat financial reports should I be reviewing every month?
Start with the profit and loss statement, balance sheet, and cash flow statement. Add accounts receivable and payable aging reports to track money coming in and going out. Monthly review catches problems while they're still small.
Read answerWhat's the difference between bookkeeping and accounting?
Bookkeeping is the recording of financial transactions. Accounting is the analysis and interpretation of those records. Both matter for small businesses, but they serve different purposes and happen at different rhythms.
Read answer
