Running an e-commerce business means juggling everything from inventory management to customer service — and that’s before taxes enter the picture. The key thing many sellers overlook? Every legitimate business expense you deduct is money you keep in the business instead of sending to the IRS.

The problem? Many e-commerce entrepreneurs leave thousands of dollars unclaimed simply because they don’t know what qualifies or how to document it. With 2025 bringing some major updates — including permanent 100% bonus depreciation and higher Section 179 limits under the One Big Beautiful Bill Act (“OBBBA“), signed into law on July 4, 2025, this is the year to get intentional about your deductions.

This guide walks through 30 essential deductions that can dramatically reduce your tax bill, complete with practical examples and the documentation the IRS expects to see.

The Big Picture: Why E-Commerce Tax Strategy Matters

E-commerce businesses face challenges that traditional brick-and-mortar stores rarely encounter. Marketplace fees cut into margins, multi-state sales tax rules create compliance headaches, and inventory is often scattered across warehouses nationwide. Yet the tax code offers specific advantages for online sellers — if you know where to look.

Take Marcus, who runs a $1.2 million e-commerce business across Amazon, Shopify, and wholesale channels. Last year, he missed out on more than $15,000 in tax savings simply because his CPA didn’t understand the nuances of e-commerce. After switching to specialized tax help, Marcus uncovered deductions ranging from marketplace fees to product development costs.

To put it in perspective, that $15,000 could have bought him 3,000 additional units of his best-selling $5 accessory or funded an extra $15,000 in ad spend — enough to drive thousands of new customer clicks. Instead of disappearing into taxes, that money went straight back into fueling his growth.

The takeaway: the right tax strategy doesn’t just lower your bill — it strengthens cash flow for the things that matter most, like inventory, marketing, and growth. Town’s approach helps small businesses tap into the same tax advantages that big corporations have relied on for years.

Essential E-Commerce Deductions You Can't Afford to Miss

How to Read These Examples: To keep things simple, the savings examples in this guide assume an e-commerce business taxed as a sole proprietorship or single-member LLC with income flowing through to the owner’s personal return at the 22% federal tax bracket. If your income puts you in a higher or lower bracket, or if you operate as an S corporation or C corporation, your actual savings will vary. The concepts, though, apply across all entity types.

1. Marketplace and Platform Fees

Every fee you pay to sell on Amazon, eBay, Shopify, or other online platforms is fully deductible. These often-overlooked expenses include:

• Seller fees and commissions

• Monthly subscription or store costs

• Payment processing fees

• In-platform advertising and promotional costs

Example: If you pay $8,000 in Amazon fees in 2025, that’s $8,000 less in taxable income. At a 22% federal tax bracket, that equals about $1,760 in tax savings — and potentially more if you’re in a higher bracket.

Documentation tip: Download annual fee and transaction reports from each platform (Amazon, Shopify, eBay). These reports provide the detailed breakdowns the IRS looks for if your deduction is ever questioned.

2. Inventory Costs (When Sold)

This is one of the most common areas of confusion for online sellers. You can’t deduct the full cost of inventory when you purchase it — you can only deduct the portion that was actually sold during the year. The IRS calls this cost of goods sold (COGS).

Example: You purchase $50,000 worth of products in 2025 but only sell $35,000 of that inventory before year-end. You can deduct $35,000 as COGS, while the remaining $15,000 stays on your books as inventory to be deducted in a future year when those items are sold.

Pro tip: Your choice of inventory accounting method (FIFO, LIFO, or weighted average) affects how much income you report, especially in periods of inflation. For example, LIFO can reduce taxable income during inflation, while FIFO often shows higher profits. You can’t switch methods without IRS approval, so choose carefully from the start.

Documentation tip: Keep year-end inventory counts, supplier invoices, and detailed records of purchases and sales. Accurate records are critical — inventory is one of the first areas the IRS will scrutinize during an audit.

3. Shipping and Fulfillment Costs

Every cost tied to getting your products into customers’ hands is deductible. This includes:

• Postage and shipping labels

• Packaging materials and boxes

• Bubble wrap, tape, and labels

• Third-party fulfillment fees (like Amazon FBA)

Example: Trisha, owner of jewelry brand Maison Miru, spent about $20,000 on shipping and fulfillment in 2025. At a 22% tax rate, that translated into $4,400 in tax savings — making shipping her second-largest deduction after inventory.

Documentation tip: Save receipts from carriers (USPS, UPS, FedEx) and invoices from fulfillment providers. Many sellers also pull a year-end expense report from their accounting software to summarize these costs.

4. Digital Marketing and Advertising

Your customer acquisition costs are fully deductible, including:

• Google Ads, Facebook/Instagram advertising

• Influencer partnerships and sponsorships

• Email marketing platform subscriptions

• SEO tools and services

• Content creation (copywriting, video, design)

Documentation tip: Download monthly ad spend reports from Google, Meta, or other platforms. Keep invoices from agencies or influencers, along with campaign contracts, in case the IRS requests proof that the expenses were business-related.

5. Professional Photography and Product Images

High-quality product visuals are essential for e-commerce — and the costs are fully deductible. Eligible expenses include:

• Professional photographer fees

• Camera and lighting equipment (can qualify for Section 179 or bonus depreciation)

• Photo editing software subscriptions

• Stock photo purchases

6. Website Development and Maintenance

Your online storefront is the backbone of your e-commerce business, and the costs of running it are fully deductible. This includes:

• Web hosting and domain fees

• E-commerce platform subscriptions (Shopify, BigCommerce, WooCommerce)

• Website design and development services

• SSL certificates and security services

• Apps and plugin subscriptions

Documentation tip: Keep invoices from web developers, receipts for hosting and domain renewals, and subscription records from your e-commerce platform. If you outsource work, contracts and statements of work are especially useful for audit protection.

7. Business Software and Tools

The software that keeps your e-commerce business running qualifies for immediate deduction. Common examples include:

• Inventory management systems

• Accounting software (QuickBooks, Xero)

• Customer service tools (helpdesk/chat platforms)

• Project management platforms

• Analytics and reporting tools

2025 update: Thanks to the OBBBA, most off-the-shelf software can be fully expensed in the year of purchase under Section 179 or 100% bonus depreciation. Custom-developed software may still need to be capitalized and amortized over time.

8. Home Office Deduction

If you run your e-commerce business from home, you may be eligible to deduct a portion of your household expenses. For 2025, the IRS allows two calculation methods:

• Simplified method: $5 per square foot, up to 300 square feet (maximum $1,500 deduction). An added benefit of this method is that there’s no depreciation to recapture when you sell your home.

• Actual expense method: Determine the percentage of your home used exclusively for business, then apply that percentage to eligible expenses such as utilities, mortgage interest, rent, and property taxes. Using this method may require depreciation, which can trigger recapture when you sell your home.

Example: If your home office is 200 square feet out of a 2,000-square-foot home (10%), and your annual home expenses total $20,000, you can deduct $2,000.

Critical requirement: The space must be used exclusively and regularly for business. A kitchen table or guest room doesn’t qualify if it’s also used for personal purposes.

Documentation tip: Keep utility bills, mortgage or rent statements, and photos of your dedicated workspace. A simple floor plan sketch can also help demonstrate the business-use percentage if ever questioned.

9. Vehicle Expenses for Business Use

If you use a personal vehicle for business purposes, you can deduct the costs in one of two ways:

• Standard mileage method: For 2025, the IRS rate is $0.70 per mile. Multiply your business miles by the rate to calculate your deduction.

• Actual expense method: Track all vehicle costs (gas, maintenance, insurance, registration, and depreciation) and deduct the portion related to business use.

Example: If you drive 5,000 business miles in 2025, you can deduct $3,500 using the standard mileage rate.

Important note: The actual expense method generally gives larger deductions if you drive an expensive or heavy vehicle, but it may involve depreciation, which can trigger recapture when you sell the car. The mileage method avoids this issue and is simpler for most e-commerce owners.

Documentation tip: The IRS requires a contemporaneous written mileage log — paper or digital. Apps like MileIQ or Everlance work well. Without a mileage log, the deduction can be disallowed. If using the actual expense method, also keep receipts for gas, repairs, insurance, and other costs.

10. Equipment and Technology (Section 179)

The OBBBA made major improvements for businesses investing in equipment and technology.

• Section 179 deduction: For 2025, the limit has been increased to $2.5 million with a $4 million phase-out threshold (indexed for inflation). This allows most small and midsize businesses to immediately expense the full cost of qualifying purchases.

• 100% bonus depreciation: In addition, the law makes 100% bonus depreciation permanent, meaning you can immediately deduct the entire cost of new and used assets without worrying about future phaseouts.

State Conformity Issues

Not all states conform to federal rules for Section 179 or 100% bonus depreciation. Some cap deductions at much lower levels, while others disallow bonus depreciation entirely. Always check state law when planning large purchases or leasehold improvements.

Qualifying purchases include:

• Computers, servers, and other technology

• Office furniture and fixtures

• Camera equipment for product photography

• Warehouse equipment and machinery

• Vehicles over 6,000 pounds (like large SUVs or vans used for business)

Example: If you invest $40,000 in a product photography setup and warehouse shelving in 2025, you can deduct the entire amount that year — not spread it over several years — saving roughly $8,800 at a 22% tax rate.

11. Business Insurance Premiums

All insurance policies that protect your e-commerce business are fully deductible, including:

• General liability insurance

• Product liability coverage

• Cyber liability insurance

• Business interruption insurance

• Commercial auto insurance

12. Professional Services and Consulting

The cost of hiring experts to support your e-commerce business is fully deductible. This includes:

• Legal fees for contracts, compliance, or business matters

• Accounting and tax preparation fees

• Business consulting and coaching services

• Web development or design services

• Marketing consultants or agencies

Documentation tip: For ongoing retainers, a year-end summary from your accountant or consultant can simplify recordkeeping.

13. Trade Shows and Industry Events

When you attend business-related events, you can deduct:

• Registration and booth fees

• Travel expenses (flights, hotels, rental cars)

• Materials and promotional items

• Promotional and display materials

Meal deduction note: Business meals with customers, suppliers, or prospects are generally 50% deductible. But food and beverage samples given away to the public at trade shows are treated as advertising/marketing and are 100% deductible.

14. Business Banking and Financial Fees

Banking and financial costs may seem small individually, but they add up over the year — and they’re fully deductible. These include:

• Monthly account maintenance fees

• Transaction and ATM fees

• Wire transfer costs

• Credit card processing fees

• Business loan interest

• Overdraft fees (unlike tax penalties) are deductible

Example: If your business pays $200 per month in bank fees, that’s $2,400 annually. At a 22% tax rate, that equals about $530 in tax savings.

Important note:

• Cashback earned on business credit cards is generally treated as taxable income or a reduction of expenses, not an extra deduction.

• Airline miles or points earned from business purchases are usually considered a purchase discount (not taxable income). But if you use them for personal travel, you cannot also deduct the related business expense.

15. Education and Professional Development

Investing in skills that improve or maintain your current business is fully deductible. Qualifying expenses include:

• Industry conferences and workshops

• Online courses related to e-commerce or your product niche

• Business books, journals, and publications

• Certification or continuing education programs

Important note: The education must relate to your existing business. Expenses that prepare you for a completely different career (for example, a coding bootcamp if you currently sell home décor) are not deductible.

16. Office Supplies and Materials

Everyday supplies used in your e-commerce business are fully deductible, including:

• Printer paper and ink

• Office furniture and equipment

• Cleaning supplies for business areas

• Basic tools and maintenance items

17. Telecommunications

The cost of keeping your e-commerce business connected is deductible. This includes:

• Business phone lines

• Internet service (business portion)

• Business cell phone plans

• Communication software subscriptions (Zoom, Slack, etc.)

Mixed-use tip: If you use your phone or internet for both business and personal purposes, you can only deduct the business-use percentage.

18. Research and Development Credits

The OBBBA delivered a major win for innovators. Beginning in 2025, businesses can now immediately deduct all domestic R&D expenses, eliminating the prior requirement to amortize them over five years. This means you get the tax savings up front, rather than spreading them over time.

On top of that, the R&D tax credit still applies, providing a dollar-for-dollar reduction in your tax bill. The credit is typically worth 6–10% of qualifying expenses, such as:

• Product development costs

• Software development for your business

• Process improvement activities

• Testing and prototyping

Example: If you spend $100,000 developing a new product line, you can deduct the full $100,000 in 2025 and also potentially qualify for $6,000–$10,000 in credits.

Common misconception: Many e-commerce owners assume R&D only applies to tech or biotech companies. In reality, expenses like developing new packaging, designing innovative products, or improving fulfillment processes may qualify.

Payroll tax credit option: Small businesses with limited income tax liability can elect to use the R&D credit to offset up to $500,000 in employer payroll taxes — a valuable cash-flow boost for growing e-commerce companies.

2025 update: The IRS now requires more detailed reporting on Form 6765. Proper documentation is key — working with a CPA who understands R&D credits can help ensure you capture both the deduction and the credit.

For more information, see R&D Credits for E-Commerce: Eligibility and Benefits

19. Business Meals and Entertainment

Meal deductions depend on who you’re eating with and why:

• 50% deductible: Meals with clients, suppliers, or business partners where business is discussed.

• 100% deductible: Food and beverage samples given away at trade shows or promotional events (treated as advertising/marketing).

• Not deductible: Meals you eat alone as a self-employed business owner — including your own lunches.

Entertainment rule: Entertainment expenses — like sports tickets, concerts, golf outings, or bar tabs — are not deductible, even if business is discussed during the event. If a meal is bundled into the entertainment cost, the meal is also non-deductible.

Important Note for 2026: Meals provided for the convenience of the employer (like free staff lunches at the office) will no longer be deductible after 2025.

Myth-buster: Many sellers believe talking business during entertainment makes it deductible — it doesn’t. The IRS is clear on this in Publication 463.

Documentation tip: Keep receipts that show the date, location, amount, and attendees. Add a short note about the business purpose (e.g., “discussed Q4 supplier contract”).

20. Rent and Utilities for Business Space

If you rent space for your e-commerce operations, those costs are fully deductible. This includes:

• Monthly rent payments for warehouse, office, or retail space

• Utilities for business locations (electricity, water, internet)

• Property insurance on rented space

• Maintenance and repairs

Leasehold improvements: If you pay to improve a rented space (such as shelving, lighting, or office build-outs), these are capital expenses. Under the OBBBA, many qualify for Section 179 expensing or 100% bonus depreciation, allowing you to deduct the full cost in the year placed in service.

If the landlord pays for the improvements, you generally cannot deduct or depreciate them — since you didn’t bear the expense.

21. Business Travel Expenses

When you travel for business purposes under IRS travel rules, these expenses are deductible:

• Airfare and transportation

• Hotel accommodations

• 50% of meals while traveling

• Rental car expenses

• Tips and incidental expenses

Requirement: The travel must be primarily for business purposes and take you away from your “tax home” overnight.

Business + personal travel: If you combine business and personal activities, only the business portion is deductible. For example:

• If you fly to a trade show and stay an extra three days for vacation, your airfare is fully deductible (since the primary purpose was business), but only the hotel nights for the business portion are deductible.

• Personal side trips, excursions, or extra lodging/meals unrelated to business are not deductible.

Myth-buster: Many owners assume they can write off the whole trip if business is discussed at some point. The IRS is clear: only expenses directly tied to the business portion of the trip qualify (Pub. 463).

Documentation tip: Keep travel itineraries, receipts for flights, hotels, and meals, plus notes on the business purpose of the trip. If combining business and personal days, document which days were business versus personal.

22. Contractor and Freelancer Payments

Payments to independent contractors are fully deductible, including work by:

• Virtual assistants

• Graphic designers

• Writers and content creators

• Marketing or technical freelancers

Reporting rules:

• 1099-NEC: For payments in 2025 and beyond, you must issue a Form 1099-NEC to U.S.-based contractors if you pay them $2,000 or more in a calendar year (raised from the old $600 threshold). Payments made in 2024 are still subject to the $600 rule.

• 1042-S: Applies only if you pay a non-U.S. contractor for services performed inside the U.S. If the contractor performs services entirely outside the U.S., no 1042-S reporting or withholding is required.

Practical tip: Many payment platforms — such as Venmo Business, PayPal, Deel, and Upwork — handle tax form reporting and withholding automatically. Still, it’s your responsibility to verify that 1099s or 1042-S forms are issued correctly.

Classification matters: Be careful not to misclassify workers. If someone is treated as a contractor but meets the IRS tests for an employee (e.g., you control their hours, methods, or provide all tools), the IRS or state agencies can reclassify them as employees — potentially triggering payroll tax liability and penalties.

Documentation tip: Collect W-9 forms from U.S. contractors and W-8BEN forms from foreign contractors before making payments. Keep invoices, contracts, and proof of payment (bank transfers, PayPal, or Deel statements).

23. Warehouse and Storage Costs

Space for storing your inventory is a core business expense and fully deductible. This includes:

• Storage unit rentals

• Warehouse rent

• Climate control costs (HVAC, refrigeration)

• Security systems and monitoring

Multi-state note: Storing inventory in different states may create both sales tax nexus and income/franchise tax nexus. For example, inventory in an Amazon FBA warehouse can trigger obligations to collect and remit sales tax in that state and may also require filing a state income or franchise tax return — even if you have no other presence there.

24. Business Licenses and Permits

Fees you pay to comply with government regulations are fully deductible, including:

• Business licenses

• Sales tax permits

• Professional certifications

• Regulatory compliance fees

25. Retirement Plan Contributions

Contributions to business retirement plans are deductible under IRS rules, and they can significantly reduce taxable income while helping you save for the future. Common plans include:

• SEP-IRA: Contributions up to 25% of compensation, capped at $69,000 for 2025.

• Solo 401(k): Allows both employee deferrals (up to $23,000 in 2025, plus $7,500 catch-up if age 50+) and employer contributions up to 25% of compensation. Combined cap is $69,000 ($76,500 with catch-up).

• SIMPLE IRA: Employee deferrals up to $16,000 in 2025 (+ $3,500 catch-up at age 50+), plus employer match of up to 3%.

• Qualified retirement plans: Traditional defined benefit or profit-sharing plans.

Example: A self-employed seller with $100,000 in profit could contribute up to $25,000 to a SEP-IRA, lowering taxable income and saving about $5,500 at a 22% tax rate.

Planning tip: For many e-commerce owners, a Solo 401(k) allows higher contributions at lower income levels compared to a SEP-IRA. The Solo 401(k) also permits Roth contributions and participant loans — making it more flexible for growing businesses.

26. Business Interest Expenses

Interest paid on business-related borrowing is deductible, including:

• Equipment financing interest

• Business credit card interest (on business purchases only)

• Interest on lines of credit used for inventory or operations

• SBA loan interest (e.g., 7(a), 504, or microloans)

• Financing fees from merchant cash advances and BNPL programs (like Shopify Capital, Stripe, PayPal Working Capital, etc.) — these are treated as interest, even if labeled as “fees” or “factor rates.”

Not deductible:

• IRS penalties (late filing, late payment, accuracy penalties).

• Personal credit card interest, even if occasionally used for business purchases.

Special note on IRS interest:

• For C corporations, interest on IRS underpayments is deductible as a business expense.

• For individual filers (sole proprietors, S corps, partnerships), it’s treated as personal interest — deductible only on Schedule A, not on Schedule C or the entity return.

27. Qualified Business Income (QBI) Deduction

This isn’t technically a business expense, but it’s one of the most valuable tax breaks for e-commerce owners. The QBI deduction allows eligible pass-through businesses (sole proprietors, partnerships, and S corporations) to deduct up to 20% of qualified business income.

2025 update: The OBBBA made this deduction permanent, removing the uncertainty of its expiration after 2025. This provides long-term certainty for your tax planning. The OBBBA also introduced a minimum QBI deduction of $400 for taxpayers who have at least $1,000 of qualified business income from an active trade or business.

Interaction with retirement contributions: Contributions to retirement plans reduce qualified business income — which may reduce the QBI deduction. 

Income thresholds: The QBI deduction is fully available to taxpayers with taxable income below:

• $197,300 for single filers

• $394,600 for married couples filing jointly

Above these thresholds, the deduction may be limited based on factors like W-2 wages paid and the unadjusted basis of qualified property held by the business.

Limitations: The QBI deduction phases out at higher income levels for certain “specified service trades or businesses” (SSTBs, certain fields — including health, law, accounting, consulting, financial services, and other businesses where income is tied to the reputation or skill of the owner). Fortunately, most e-commerce sellers are not restricted.

Documentation tip: Due to its complexity, it is highly recommended to work with your CPA to calculate QBI carefully, especially if you have other income sources or contribute to retirement plans.

28. Bad Debt Deductions

If customers don’t pay, you may be able to deduct the loss under IRS bad debt rules. This includes:

• Uncollectible accounts receivable

• Customer refunds that become uncollectible

• Chargebacks that can’t be recovered

Key requirement: You must have previously included the amount in income.

Accounting method matters:

• Accrual basis: You can claim a deduction for bad debts since income is recognized when earned, not when collected.

• Cash basis: No bad debt deduction is allowed, because unpaid amounts were never included in income to begin with.

29. Product Returns and Damaged Inventory

Losses from business operations are deductible:

• Products damaged in shipping

• Customer returns that cannot be resold

• Inventory destroyed due to defects

• Theft losses (with police report)

Important note: These losses are accounted for through cost of goods sold (COGS) or inventory adjustments, not as a separate “bad debt” expense. Proper tracking ensures the deduction flows through your inventory accounting method.

Insurance reimbursements: If you receive reimbursement from an insurer (or from a shipping carrier for damaged goods), you must reduce the deduction by the amount reimbursed. You cannot claim a full deduction for the loss and also exclude the reimbursement.

30. Start-up Costs (For New Businesses)

If you’ve just launched, you can deduct up to $5,000 in start-up expenses in your first year under IRS rules. Eligible costs include:

• Market research

• Initial advertising and promotion

• Business formation costs (legal, accounting, state filings)

Limits:

• The $5,000 immediate deduction begins to phase out once start-up costs exceed $50,000.

• Any remaining start-up costs above the immediate deduction are amortized over 15 years.

Timing matters: Expenses incurred before your business officially launches must be capitalized as start-up costs. They aren’t deductible until your business is actually up and running. Once operations begin, you can deduct up to $5,000 in that first year and amortize the rest.

Not included in start-up costs: Certain expenses — such as R&D, interest, taxes, and depreciation — are deductible in the year paid, even before launch, and are not subject to the $5,000 limit or 15-year amortization rules.

Documentation tip: Keep dated invoices and receipts, and document your official launch date — meaning the date your business was truly open and available to customers, not just when you incorporated. This is what determines when start-up costs move from being capitalized to deductible.

Special Considerations for E-Commerce Businesses

Inventory Accounting Methods

Your choice of inventory accounting method significantly affects your taxable income according to IRS inventory guidelines:

FIFO (First In, First Out): During inflation, this typically results in higher profits and taxes.

LIFO (Last In, First Out): Can reduce taxes during inflationary periods but comes with complexity and restrictions.

Weighted Average: Smooths out price fluctuations.

Pro tip: You cannot change inventory methods without IRS permission, so choose carefully at the outset.

Multi-State Considerations

E-commerce businesses often trigger multi-state tax obligations through:

• Inventory stored in warehouses across state lines

• Using third-party fulfillment (e.g., Amazon FBA)

• Exceeding state economic nexus thresholds

This can create compliance requirements for both sales tax and income/franchise tax. While burdensome, multi-state operations can also provide planning opportunities for income allocation and state tax optimization.

Entity Structure Optimization

Your business structure determines how deductions flow through to your tax return:

• Sole Proprietorship/LLC: Income and deductions flow to Schedule C.

• S Corporation: May allow payroll tax savings but requires paying yourself a reasonable salary.

• C Corporation: Subject to corporate tax rates and different deduction rules.

The right entity structure can significantly affect how you benefit from deductions and credits.

Digital Assets and Crypto

If you accept cryptocurrency as payment, you must report income at its fair market value on the date received. The IRS issued new broker reporting rules effective in 2025, so expect to receive 1099 forms from exchanges and processors. Later sales or conversions of crypto can also create taxable gains or losses.

Documentation: Your Audit Insurance Policy

The IRS doesn't care how legitimate your expenses are if you can't prove them.To back up your deductions, maintain:

Essential Records

• Receipts and invoices

• Bank and credit card statements

• Contracts and agreements

• Mileage logs for business vehicles

• Photos of your home office setup

• Notes showing the business purpose of expenses

Digital Tools That Help

• Receipt scanning apps (Expensify, Dext)

• Mileage tracking apps (MileIQ, Everlance)

• Accounting software with expense categorization

• Cloud storage for backups

Retention Timeline

• 3 years: General business records

• 7 years: Records tied to major deductions or claims

• Permanently: Asset purchases, depreciation schedules, and corporate records

Update on 1099-K Reporting

The OBBBA restored the $20,000 and 200 transactions threshold for third-party settlement reporting (PayPal, Venmo, Stripe, etc.). Fewer small sellers will receive Form 1099-K, but businesses must still track all gross receipts to ensure totals reconcile with IRS records.

Common Mistakes That Cost Money

• Mixing personal and business expenses → Always keep separate accounts and credit cards for business use.
  
  

• Missing the documentation deadline → Waiting until tax season means lost or disallowed deductions.
  
  

• Overlooking small expenses → Bank fees, software subscriptions, and supplies add up. Track them.
  
  

• Misunderstanding inventory rules → You deduct COGS, not the full cost of inventory purchased.
  
  

• Ignoring state-specific rules → Some states don’t follow federal Section 179 or bonus depreciation.
  
  

• Misclassifying contractors vs. employees → IRS reclassification can trigger payroll tax liability and penalties.
  
  

• Overlooking digital assets → Crypto payments must be reported at fair market value; exchanges issue 1099s.
  
  

• Forgetting about 1099-Ks → Even with the restored $20,000 + 200 transactions threshold, processors like PayPal and Stripe still report sales to the IRS.

Planning for 2026 and Beyond

Tax planning doesn’t stop at year-end. While the OBBBA made many popular provisions permanent, there are still a few moving pieces to watch:

• QBI Deduction → Made permanent under OBBBA. No need to accelerate income just to “use it before it disappears.”

• 100% Bonus Depreciation → Also permanent under OBBBA. Future Congresses could change it, but as of now it’s locked in.

• Section 179 Expensing → Limits are indexed annually for inflation (projected around $2.5M for 2025). Expect gradual increases each year.

• Meals for convenience of employer → Remain deductible through 2025, but scheduled to become nondeductible after 2025 unless extended.

• State conformity → Many states don’t follow federal bonus depreciation or Section 179 limits. Large equipment purchases may create big differences between federal and state taxable income.

Strategy for e-commerce sellers:

• Don’t rush deductions that are now permanent (like QBI or bonus depreciation).

• Instead, focus planning on items that do change after 2025 — such as employer-provided meals and state-level depreciation differences.

• Revisit your entity structure and retirement plan contributions annually to optimize the balance between QBI, payroll tax savings, and retirement deductions.

The Bottom Line

These deductions can make a meaningful difference in how much cash stays in your business. Many e-commerce owners miss out simply because they don’t have systems in place or aren’t working with advisors who understand the nuances of online selling. The real advantage comes from consistently tracking every deductible expense, staying ahead of tax law changes like those in the OBBBA, and partnering with professionals who understand e-commerce — from marketplace fees to multi-state nexus to crypto payments. The tax code rewards entrepreneurship, but only if you know how to use it. Every dollar you keep in your business is a dollar that can be reinvested into inventory, advertising, or growth instead of sent to Washington.

Take Action Now

Review your current expense tracking and see how many of these deductions you’re already capturing. If you’re missing more than a few, it’s time to get proactive with your tax planning.

Next steps to consider:

• Audit your current year expenses against this list

• Put systems in place to track deductions year-round

• Work with a CPA who specializes in e-commerce taxation

• Revisit your business entity structure to make sure it’s still the best fit

Don’t let another year go by leaving money on the table. Your business works too hard for every dollar — make sure the tax code works just as hard for you. Town connects you with CPAs who understand the realities of e-commerce, from marketplace fees to multi-state nexus to crypto reporting, so you can keep more of what you earn and reinvest it where it matters most. Learn more about e-commerce tax deductions and discover how much you could be saving.

Disclaimer: This content is for educational purposes only and should not be considered personalized tax, legal, or financial advice. Tax laws are complex and subject to change. Individual circumstances vary, and strategies that work for one business or taxpayer may not be appropriate for another. Always consult with a qualified tax professional before making decisions.