How to get the most out of filing with the IRS
eCommerce tax deductions process can be a bit more complicated than their physical location counterparts. That doesn’t mean you should miss a single deduction.
Generally, you can deduct almost all internet related expenses. This includes the things that are direct to your business, like domain and website hosting services and also things like consulting a webmaster and paying someone to build or maintain your website.
As an eCommerce business, you can sometimes even deduct your home internet services. However, you can’t deduct 100% of the bill unless you can prove the service is only used for work. Still, if you can prove on paper that you use a percentage it for work, you can claim that percentage.
Many eCommerce sellers use their home for their business. A spare bedroom, a garage, or a desk in the corner of your living room all work as a home office. More people than you’d think have completely rearranged their living room and told their kids to go somewhere else for an hour because a project was too big for their workspace.
There’s nothing wrong with that. Years before I was writing at an office, I had a too small studio apartment, with a desk in the corner of my kitchen. My fiance often came home to papers and charts printed out and spread all over the kitchen floor. My desk space was eligible as a tax deduction. Unfortunately, my kitchen floor would not pass IRS muster.
One of the reasons my desk counted, even though it didn’t even have a room of its own, was because the only time I sat at that desk was for work, and I kept track of my hours. If you use a paper calendar, you can make a photocopy of each month or week, or screenshot the information if it is digital. However you do it, as long as you can prove you regularly use that space only for business you can deduct a portion of your rent or your mortgage.
The way you deduct is up to you. The IRS has a regular and simplified option. Keep in mind, both options have the same requirements, they are just different ways of using your home office for your eCommerce tax deductions.
Vehicles and Gas
Transportation is also a big tax deduction for eCommerce businesses. It can also get very tricky, so be careful how you add up your expenses. If you drop a package off at the post office, you can deduct the mileage used to get there. Either by using the standard mileage rate or by the actual cost of the gas it took to get there. Keep in mind, deducting the cost of the gas means you’ll need to save that receipt. For 2018, the mileage rate was 54.5 cents a mile. In 2019 it is going up 3.5 cents to be .58 cents a mile. The rate typically goes up every year, so frequently check.
Apps and Programs
Though it may sound strange, apps and many programs you use for your business every day could be deductible. The IRS’s main stipulation is the expense must be ordinary and necessary. The only thing you have to do is keep the invoices or the receipts and make sure it is an ordinary and necessary expense. Things like bookkeeping and scheduling software fall into this category. If you buy or subscribe to social media management tools or SEO assistance, these could be tax deductible too.
- If you’re not sure if a specific expense is tax deductible, keep the receipt just in case and be sure to ask before you file.
- eCommerce businesses (especially those that work from home) have a lot to prove in the way of what is or isn’t a true business expense. It takes a bit of extra time, but keep track of what you use for business and what you use personally. A bit of extra time as you go is better than stress and a possible late return
- Receipt paper doesn’t keep well, even in drawers. Make a copy (digital, paper, or both) just in case.
- Don’t forget the self-employment tax. Its what you pay for social security and Medicare taxes. When you file yearly both the balance from last year AND the first quarter installment of the current year are due.
Keep in mind, this list is only meant to be a helpful guide and in no way should be viewed as complete. Also this should not be taken as official tax or legal advice.