Tax season is an important time for all business owners. It’s the time to track two pieces of essential information regarding your business: sales and expenses that you can potentially deduct. Tax deductions for online businesses help reduce your total income, which can in turn decrease (or even eliminate) taxes that you owe at the end of the year.
Good financial management involves taking advantage of your tax deductions – however, many business owners don’t know where to start.
We’re here to help. Here are some categories of what items are tax deductible:
Cost of Goods Sold
This is the most common deduction for any seller – both online or offline. Cost of goods sold refers to money spent to acquire the product you sell or your inventory. This could be wholesale prices you paid when you sourced your products from a distributor or the cost of the goods you manufacture.
COGS include the products, shipping, packaging costs, and any taxes paid on those items.
Undoubtedly, when you sell stuff (especially online), you pay fees to run your business. There are fees at every level: operating fees, listing fees, Paypal fees, etc. Remember that each of these fees are tax deductible. With this in mind, you should remember to go through all your records and include all fees as much as possible. Usually, if the fees are minimal, many online marketplaces or banks will provide you with an end-of-year statement, which will show you the total of all the fees you’ve paid (for tax purposes).
Costs Associated with Loans and Financing
It is important to investigate whether costs incurred from getting a loan or funding can be tax deductible. Potential items to discuss with your accountant include the following: interest, bank fees, professional fees (paid to lawyers, accountants, etc.)
Advertising your business either on Facebook, LinkedIn, or Google can be deducted from your taxes as well. Your business cards, website, and other promotional material can be tax deductible too! Take a look at what advertising efforts you’ve done for the year – from local sponsorships to printed ads to online ads – all of these can be written off.
As mentioned, shipping can be considered a cost of goods sold – so definitely it can be written off and considered as a tax deductible. Make sure to have a record of all shipping done, including your drive to and from the post office.
Training and Conferences
In business, you really do need to continue learning – especially in the e-commerce space. There are constantly new strategies and key pieces of information that will help you boost your business. It is then imperative that you, as a business owner, attend trainings and conferences as often as you can. Don’t worry, these are tax deductible.
Employees and Independent Contractors, Other Services
Look at your workforce for deductions. The salary and benefits you pay yourself or your staff are typically deductible. For independent contractors, as long as you have official invoices and payment receipts, the fees you pay them may be deductible as well. Ask your accountant about this to ensure you get all fees paid to your workers and contractors are recorded.
There are several other expenses that you can potentially deduct from your tax payables. Take a look at your finances and make sure to consult an account or a financial expert to guide you.