Businesses centered on eCommerce are in high demand. As the revenue starts to flow in, be aware of your accounting records. You don’t want to get stuck with a high tax bill at the end of the year because you neglected to take tax-deductible expenses. The next time you are going through your bookkeeping or tax planning, keep these 10 business purchases in mind.
#1: Auto Expenses
Many eCommerce businesses are online-based, meaning they have no brick-and-mortar locations or customers that they travel to. This doesn’t exclude your business from taking auto deductions. Do you travel to pick up inventory? How about driving to scout out your next product? Both of these situations allow you to deduct mileage.
#2: Health Insurance Premiums
Business owners who have health insurance premiums can take these amounts as a tax deduction. The funds should be paid from the company account. Schedule C taxpayers, partnerships, and s corporation structures can all utilize the health insurance premium deduction. For s corporation owners, the shareholder must own more than 2% of the business.
#3: Continuing Education
Technology and consumer demands are constantly changing. This results in the need for continuing education, which is tax deductible. Taking qualifying continuing education classes can be on any topic, from sales tax to inventory accounting. Any webinar, seminar, or course you pay for that provides additional value qualifies as a business deduction.
#4: Parking and Tolls
Parking and toll fees that you incur when conducting business are another tax deduction. Many eCommerce businesses won’t see a significant amount of these expenses since most business is conducted over the internet. Nevertheless, watching out for these expenses in your bookkeeping procedures is necessary to reduce your taxable income.
#5: Phone Bills
Phone bills can either be partially or fully deductible. If you have a separate business phone line, the entire amount is deductible. However, if you are an eCommerce entrepreneur just starting out, you might still be using a personal phone. This doesn’t exclude you from the deduction. Instead, you will be able to write off a percentage based on your business versus personal use. For example, if you use your phone 50% for business, you should record 50% of the costs as a business expense.
#6: Meals
Meals are an important tax deduction to watch out for in 2022. This is because the IRS allows a 100% tax deduction for business meals for 2022 while the percentage reverts back down to 50% in 2023. Any meal that you pay for at a qualifying restaurant while conducting business qualifies. You don’t need to be meeting with another person to take this deduction. Catching a bite to eat while working still counts.
#7: Travel Expenses
Travel expenses give way to another tax deduction, even if it is a personal and business trip. Lodging, airfare, rental cars, cleaning, and other transportation are all qualifying travel expenses. To be fully deductible, the trip must be over 80% for business. Let’s say you plan a week trip, during which you attend a 4-day seminar. Only the 4 days of the lodging would be qualifying while the entire portion of airfare would be deductible. The other 3 days of lodging and expenses are for personal use and are nondeductible.
#8: Home Office
Many eCommerce business owners forget to consider home office expenses when tax planning. If you have a designated space where you carry out business operations, you can write off a portion of your mortgage, rent, utilities, homeowners’ insurance, and property taxes. In addition, you can depreciate that room to further reduce your taxable income.
#9: Business Insurance
Insurance related to your business is deductible. Small business owners often add a business policy to their personal premiums. It’s important to separate out which portion is for the business to take a tax deduction. If you are unsure which portion is for your eCommerce business, reach out to your agent. They should be able to provide you with a detailed breakdown.
#10: Office Furniture
Upgrading your office equipment should be recorded in your bookkeeping software as a business expense. Anything that relates to conducting business qualifies including computers, desks, wall art, and chairs. Keep the receipts for these purchases if they aren’t run through your business accounts.
Summary
Understanding which business purchases are tax deductible is vital to prepare accurate bookkeeping and maximizing tax planning. There are dozens of other qualifying deductions outside of this list. For more information on accounting for your eCommerce business, reach out to BUSINESS today.
