Operating an eCommerce company can be very exciting and fulfilling. But when tax season is near, it can be a stressful process that makes entrepreneurs and owners want to tear their hairs out.
Keeping your finances in check can be painful and exhausting. However, there is no need to lose hope. To make tax deductions easier to file and to be able to make use of that money instead of growing your business, it is imperative to know which expenses can be written off. After all, how can you file if you do not know which taxes can be reduced?
What is a tax deduction?
Before we detail the expenses you can write off from your income, let us define tax deduction first.
Tax deductions, also called deductibles, are the expense that eCommerce companies can deduct from their gross income. In the United States, companies often have to file their taxes at the beginning of the year, usually due in April of the same year.
Things you can deduct from your eCommerce company’s taxable income
1. Home office
Do you operate your store from the comfort of your own home? If you can prove that you are using some parts of your house as your work area, it is possible to reduce the tax you need to pay for your business.
However, you need to understand that the IRS will thoroughly check if you are eligible for the write-off. Hence, it would be best to have a dedicated office that you only use for your business and not your kitchen or living room which is essential for personal use.
2. Accounting and Insurance
Managing an eCommerce business would also include organizing your financial statements. Because of this, hiring a bookkeeper or a legal professional in your business will be considered a deductible when filing taxes.
Also, business and health insurance are eligible expenses that could qualify for a deduction. You can include general liability, worker’s compensation, and more for business insurance. Health insurance deductions are not only limited to you, as you can have your spouse, dependents, and children on your premiums.
3. Utility, Internet, Software, and Communication Tools
Since eCommerce stores are being operated using the internet, internet bills are tax-deductible. This will also apply to cell phones, types of software, VoIP and video conferencing service credits, and more.
As long as you use the utilities and services in your business, deducting the cost of the taxes is possible.
Do you have to use a vehicle to manage your business? For example, are you using a personal or company-owned car to ship items, meet customers, and do other business-related tasks?
You will incur expenses while using the vehicle, such as gas and parking fees, which can be deducted. This will also include other fees such as business meals and accommodation.
5. Shipping and delivery
When selling tangible goods and products, it is common for eCommerce stores to package and deliver these items to their customers. As a result, the fees of transporting the bought items from the warehouse to the customers are also considered a deductible.
What are the fees you may deduct from your total tax payment? In most cases, you can include the fees for your packaging, postage, office supply, and delivery charges.
6. Advertising and marketing
With most businesses, increasing the reach of your brand or goods will be more possible with advertisement. Since it is an essential cost that will help your store grow, the fees you pay could be deductible.
What does this include? Hiring marketing strategists and designers, placing adverts that promote your business, and the tools and services to do so are included.
Are you renting out a warehouse or space to store your products when they are not yet sold? In this case, you may be eligible to have your rent and utilities deducted from your tax payments.
What happens if you are using your home for inventory? As long as you can prove that you have a suitable home office to store your products, it could be considered to be a necessary expense you can write a portion off.
8. Repairs and maintenance
Do you need to fix, update, or upgrade something you use in your eCommerce business? Whether it is your website, office, vehicle, and other business-related stuff, it is possible to have it deducted from the tax you have to pay.
For example, if your company vehicle needs to be repaired, make sure to keep receipts and proof of the expense. This allows you to classify the fees as deductibles instead of paying them out of pocket.
Make eCommerce tax deductions much easier in 2022
In the present, doing your accounts manually is often a huge waste of time and effort. Since there are also many things to consider when filing taxes, it is easy to make mistakes that will surely affect your finances. In cases like this, using certain apps can make your filing much easier.
TripLog offers many products that allow its users to track mileage, which helps with logging. Feel free to schedule a live demo for more information about how TripLog can assist your eCommerce business in various tasks such as tracking expenses, shifts, and schedules. Filing taxes will surely be a more convenient process with its functional features.