10 Tax Deductions for eCommerce Supplements Business
Whether you are a startup, building your business up to a sustainable enterprise, or an established business that is adding value to its brand, you don’t want to leave any write-offs on the table. That means claiming all possible deductions so that you can reduce your taxable income and use the money you reclaimed for other purposes (e.g., investment, emergency fund, paying down debt).
When operating an eCommerce supplement business, you have numerous deductions that may be available to you. Provided these are business expenses incurred during the operation of your business, you can document them, and get receipts for the payments made to secure the services, you or your financial adviser will be able to determine which ones are appropriate and defend your deductions if you are audited.
Let’s review the top 10 deductions for an eCommerce supplement business.
10 Tax Deductions for Your eCommerce Supplement Business
1. Business Home Office/Workspace
If you have an area of your office, home, or property committed to your business, then you can deduct the expenses associated with that space. For example, if you use a corner of your basement or pantry to store your supplements, you can deduct the expenses associated with maintaining that space. The expenses that can be deducted include, rent, mortgage payments, property taxes, utilities, maintenance, and repairs.
Other expenses that you can include in your home office deduction are office supplies (e.g., pens, pencils, staples), office equipment (e.g., printers, laminators, paper shredder), and your computer equipment (e.g., laptop, desktop, tablet, keyboards, camera, speakers). These expenses may be fully deductible or partially deductible. Just like with the home office space, you must decide what percentage of these expenses can be attributed to your business.The percentages may vary between items.
2. Travel Expenses
Any travel-related expenses associated with your business are tax-deductible. If you are using your personal vehicle for business-related travel you can deduct the costs of mileage, fuel, parking, repairs, maintenance, car payments, car insurance, and even your subscription to emergency road repair services (e.g., AAA).
You can also deduct the cost of air travel, hotels, taxis, rental cars, meals, and entertainment. When claiming these fees, make sure that you have receipts to support all your claimed expenditures. Also, note down any special circumstances or situations that you encountered while traveling (e.g., natural disasters, transportation strikes, rioting). These conditions may affect your expenses or cause you to unexpectedly change your travel plans and incur greater costs. Regardless, make note of things during your trip so that you can keep accurate accounting and tax records.
3. Packaging and Shipping
As an ecommerce supplement business, you must ship your supplements to your customers. Shipping requires you to use boxes, packing material, postage, envelopes, tape, shipping labels, shipping insurance, and package delivery services. There may be other shipping or packaging related expenses (e.g., refrigeration, special handling, import /export taxes) that you can deduct from your gross income. Note, the shipping costs deducted can include the costs of shipping supplements to your customers and the costs incurred for you to receive shipments from your suppliers.
4. Training & Education
As a supplement provider, you are expected to know about the different supplements available, their pros and cons, how they interact with each other, and other nutrition-related information. While this can be learned from books, blogs, and podcasts, you may want to attend lectures, seminars, conferences, etc., to not only learn about the supplements you sell, but new supplements, and how to market them to your customers. These are all costs of doing business, so they are tax-deductible too.
5. Software, Apps, Plugins, Themes, Websites
An ecommerce supplement business requires you to have an online presence. Your web hosting fee, domain name registration, website plugins, themes, and other website related services are tax-deductible business expenses. Moreover, software that you purchase (e.g., bookkeeping, tax, scheduling) and app subscriptions (e.g., Canva, Calendly) are tax-deductible expenses too. Other software expenses that you can deduct include antivirus software, email encryption software, and other types of software that make it easier for you to operate your business, keep track of expenses, and perform other kinds of business record keeping.
Another set of fees that are included in this category are platform fees. eCommerce businesses using the Shopify platform must pay Shopify (and other similar platforms) an access fee. The platform fee and any other fees paid to Shopify for hosting the subscriber’s supplement business qualify as tax deductible business expenses.
If you are using social media accounts to promote, market, and/or conduct business, the fees paid to the providers can be deducted from your gross income. That means the fees you pay to YouTube, Facebook, Instagram, TikTok, Discord, Reddit, and/or Twitter, are tax-deductible. Even better, any additional fees you pay to attract viewers and subscribers and get your channel to standout can be written off too.
6. Professional Services
As an ecommerce business owner, you are responsible for dealing with a variety of business matters. Yet, you know that some business matters should be handled by professionals. It is important to recognize that the consequences of making certain kinds of errors outweighs any potential cost savings. Plus, some errors come with lawsuits, penalties, interest, and the potential loss of intellectual property. These errors can be avoided by hiring accountants, lawyers, website developers, bookkeepers, tax advisers, etc. In short, when it is prudent to hire a professional to perform services for your business, do it. The cost of their services is tax-deductible, so it is a win-win situation for you and your business.
7. Phone and Internet Fees
eCommerce business owners must have phone services and Internet access. Phone services, mobile and/or landline, are necessary to operate your business. If your mobile phone is only used for your business, the cost of the phone and phone subscription services are expenses that can be used to reduce your tax burden. However, if your mobile phone is used for your ecommerce business and personal use, you can only deduct part of the cost of maintaining it.
Moreover, you must have Internet access to run your business, communicate with your customers, and manage other business-related affairs. Thus, your Internet fees are business fees that can be deducted from your gross income. In addition, any special modem, premium subscriptions services, or other Internet-related fees are write-offs. Note, if you use your Internet service for anything besides your business, only a partial deduction is possible.
8. Banking, Retirement Plans, Insurance
Whether your ecommerce business is your only source of income, primary source of income, r a side hustle, you may have insurance fees, retirement plan fees, and banking fees to manage. The insurance fees can include your business and health insurance payments. Allowable health insurance expenses include health insurance premiums for you, your spouse, and your dependents.
If you are contributing to an individual retirement account (IRA), then you can make the maximum annual contribution and deduct the payment. There are different kinds of IRAs, so find the one that suits you or gets you the maximum allowable tax deduction. If you are also contributing to other retirement plans, check the tax laws and regulations so that you know which deductions are allowed and if there are any restrictions on which contributions can be deducted from your gross income.
Banking fees related to making payments, receiving payments, managing your business accounts, transaction fees paid to third-party payment processors, wire transfer fees, etc., can be deducted from your gross income because the costs were incurred while you were operating your business. If you work with international clients, there may be other fees that you must manage, and a tax adviser can tell which, if any, of those fees can be written off.
9. Startup Costs
If you just opened your business, you can deduct up to US$5,000 in startup costs from gross income. The startup costs that can be included in the deduction are travel, advertising, accountant fees, market research, marketing, business incorporation fees, mailbox fees (e.g., renting a mailbox, setting up a mailbox arrangement with a brick-and-mortar firm), co-working space fees, storage fees, money spent on office equipment, furnishings and supplies.
10. Qualified Business Income (QBI)
The Qualified Business Income (QBI) tax deduction allows you to deduct a maximum of 20% of your QBI from your gross income. To qualify for the QBI deduction, your ecommerce business must meet specific criteria. The criteria are the business must be a pass through business, have qualified business income, and have an owner that meets specific income requirements.
Let’s look at each requirement in more detail.
A pass through business is a business that has its income reported on the business owner’s tax return. Businesses that meet this requirement are sole proprietorships, S corporations, partnerships, and limited liability companies.
QBI is the total value of your business’ income, gain, tax deductions and business losses from qualified trade or business, including income from partnerships, partnerships, S corporation, sole proprietorships, and specific types of trusts. To be clear, this deduction lets you subtract your self-employment tax, self-employed health insurance premiums, and your contributions to approved retirement plans (e.g., SEP, SIMPLE, qualified plan deductions), and other expenses.
Income restrictions for single and married filing jointly tax filers are different. Single tax filers with an income equal to or less than US$164,900 married filing jointly tax payers with an income equal to or less than US$329,800 qualify for QBI deductions. Single and married filing jointly tax filers who earn more may still qualify for QBI, but special rules will apply.
There are some types of business income and expenses that cannot be included in the QBI. To avoid potential problems with the IRS and decrease your chances of being audited, carefully review the QBI deduction guidelines before claiming it on your taxes.
Final Thoughts
There are numerous other tax deductions that ecommerce supplement businesses can claim. The ones listed here are only the tip of the iceberg. To maximize your deductions, itemize your expenses and ways that you save money or cut costs. With this information, you can start decreasing your tax burden by claiming the expenses incurred to generate your business’ income.
Note, it is important that you only claim legitimate business expenses and the percentages allowed by the IRS. For example, you can deduct 50% of the cost of your meals and entertainment when you’re traveling for business. However, if you decide to take your dog with you on your business trip, you should think twice before trying to claim the dog’s food as part of your meals and entertainment expenses.
When in doubt or uncertain about the deductions you can claim and the best way to claim them, consult a tax adviser. You can also consult with an accountant to better understand how different types of expenses, or even the same expense, can be classified on your tax return.
Contact Free Cash Flow (FCF) for tax and accounting professionals who have years of experience working with eCommerce businesses. FCF professionals assist you with your finances or manage them for you so that you can focus on your goal, running a profitable business.
