Small E-Commerce Business Owner? 3 Little-Known Tax Deductions You May Be Missing Out On Year After Year
If you are a small business owner who runs an e-commerce website and completes your own taxes every year, then you may be missing out on some tax deductions. Even if you use tax software that points out some deductions for you, there is no master list of deductions that includes every expense you can claim as a business write-off. The golden rule of tax deductions as a business owner is that you can claim any expense incurred to help you earn more money. Here are a few deductions you may be missing out on year after year.
1. Gifts You Provide Customers to Keep Them Coming Back
When you obtain good customers who shop from you often, you likely do whatever you can to keep them loyal and coming back to you and not your competitor. You may pad their orders with a couple of "freebie" items that you know they will enjoy and appreciate. You may hate taking the loss of cash you could have earned by selling the items, but it is worth it in the end to help retain customer loyalty.
Since the items you give customers free on occasion are used to keep them spending with you, then you don't have to lose out completely when gifting them. You can claim the price you paid for them from your supplier as a business tax deduction. Play it safe and don't claim the retail price you typically sell them at, though, because that was not the true cost of them for you.
2. Cost of Shipping Items Free to Customers
You may have decided to provide free shipping to all customers or only those who place large orders that surpass a certain dollar amount to help earn new customers in the competitive e-commerce business. Shoppers hate paying shipping fees, so this is a great strategy. Shipping is expensive, though, so you are likely taking a huge hit financially. Thankfully, you can claim the cost of shipping those items as a business expense on your taxes. You can also claim the money you spend on boxes, packing material, and even the cost of your gasoline when driving to and from the post office to drop off orders, whether you offer free shipping or not.
Since this will be such a huge deduction, be sure to keep careful records of all of these expenses and have them on hand in the case of an audit.
3. Overhead Expenses When You Work From Home
If your business is brand-new, then you may be working out of your own home and just waiting for the day when you can afford a business office or warehouse. You may not only be eager to have this extra space to run your business, but also for the opportunity to write-off your rent and utility expenses when you have your own shop. The truth is you can claim a portion of all utilities and potentially a portion of your mortgage or rent when running your business from your home.
The IRS actually has strict guidelines you can follow to calculate what percentage of all of your utility bills and rent/mortgage you can deduct on your taxes. It is relatively simple, and you just have to determine what percentage of your home is dedicated to only performing activities related to your business and then claim about that percentage of each bill.
The e-commerce industry is tough, so take advantage of all of the tax deductions you can to help keep your bank account in the black while competing with the larger companies. It can really be worth it to have a tax professional, such as Wiggins, Smit, Burby, Reineke, & Company P.A., help you find all of the deductions you can claim so you don't pay more than you have to year after year.