Are you ready to itemize your 2019 e-commerce tax deductions and file your business taxes? Tax filing typically isn’t the most enjoyable activity for e-commerce retailers, but after learning all the e-commerce tax deductions you can take, chances are you’ll feel much more positive about the whole thing.
Have you filed business taxes lately? If not, keep in mind that much of the tax code has been radically changed thanks to the Tax Cuts and Jobs Act of 2017. The new tax law passed late in 2017 right before the 2018 tax season.
Let’s review the 2019 e-commerce tax deductions that international e-commerce businesses operating in the U.S. can claim. And yes, there are tax deductions for international shipping!
Disclaimer: This is intended as a guide, not financial or legal advice. Speak with a certified CPA to determine your company’s tax deductions.
2019 E-Commerce Tax Deductions
Tax deductions are a critical lifeline for many small e-commerce businesses where profit margins can be razor-thin. Here are some of the most important deductions for international e-commerce retailers to consider.
One of the biggest changes in the tax code pertains to the pass-through entity. A pass-through entity, according to Investing Answers, is “a special business structure that is used to reduce the effects of double taxation. Pass-through entities don’t pay income taxes at the corporate level. Instead corporate income is allocated among the owners, and income taxes are only levied at the individual owners’ level.”
For many small e-commerce retailers, the pass-through entity changes will have a big impact on their tax return. With the new tax laws, pass-through business owners can deduct 20% of their business income before filing. If you have a sole proprietorship, LLC, S-Corporation, or Partnership, your business may be eligible for this deduction.
Home Office Deductions
If you run your e-commerce company from your home office, you may be eligible to deduct your office space and office utilities. As long as your office is exclusively used for business, the percentage of your home that makes up your home office can be deducted. In other words, you can deduct a part of your “mortgage interest, property taxes, home insurance, security expenses, homeowners association fees, home repairs, and maintenance expenses.” You can also include utilities like electricity and internet as part of your home office deductions.
It’s important to note that home offices for salaried employees, or for people whose home address is not the primary place of business, can no longer be deducted due to changes under the Tax Cuts and Jobs Act of 2017.
Trade Shows and Conventions
If you attend a trade show or convention that’s directly related to your business, including international trade shows, you may be eligible to deduct the associated expenses. You can deduct the “ordinary and necessary” expenses related to travelling to and from the convention, including transportation, shipping and baggage, lodging, and meals. For meals, only 50% of expenses can be deducted. You may also be able to deduct the costs of the registration fees.
International Shipping and Fulfillment
In most cases, e-commerce companies can deduct domestic and international shipping, handling, and other costs associated with shipping products to customers as a standard and ordinary business expense. As with other 2019 e-commerce tax deductions, the rule of thumb is that the expenses are 100% related to conducting business. Shipping products internationally that are sold directly to consumers falls under this category.
It’s important to note that certain types of domestic and international shipping costs may not be eligible, particularly if the costs incurred were to obtain or produce inventory, not to ship to customers. These exceptions apply most frequently to product manufacturers. In these cases, shipping costs associated with manufacturing may be factored into the costs of goods sold (COGS).
Costs of Goods Sold (COGS)
Costs of goods sold is not a tax deduction, but rather a calculation that is performed as part of determining annual expenses. Shipping and fulfillment costs that the business incurred as part of the manufacturing or sourcing process (i.e., to obtain and/or produce the inventory) may be factored into the end-of-year business profits. This determination is called the “costs of goods sold” (COGS), or the costs of producing/buying the item plus certain operational costs associated with this process.
By factoring these costs into your overall profit and loss, you’ll have a better idea of your company’s actual taxable revenue--or losses. So, while it may not be a deduction, understanding the COGS will help ensure “that you will only pay taxes on the net income from the business, or the income that’s left after all expenses have been covered.”
Credit Card Fees
In certain scenarios, the costs of credit card transactions may be deductible. According to Investopedia, “when your business accepts purchases through a charged credit card[...] the IRS lets you deduct those fees from your business taxes.” You may also be able to discount the interest and fees on your business credit card.
Always make sure to consult with a certified CPA for assistance with filing your business taxes.
Partner with SkyPostal
International shipping is a necessary part of doing business as an e-commerce retailer, just like filing taxes is. SkyPostal has decades of experience handling the door-to-door logistics of shipping goods to Latin America, from mail distribution to parcel delivery. Contact us today to see how our expertise can help support your business growth in Latin America.