Every E-Commerce store owner has one thing in common: the responsibility to file and pay taxes. Are they a hassle each year? Sure, but you need to pay your dues; otherwise, you risk the IRS getting on your tail. At the same time, it’s also an excellent opportunity to examine best practices and find new ways to save money.

There are many tax-saving strategies that you can try for your business, but you want the best picks out of dozens of tips. Here are 7 of the best tax-saving tips that every e-commerce company would want to use.

1. Know Your Deductibles and Exemptions

Tax deductions for small businesses are among the best advantages that an entrepreneur would want to get. However, most business owners are unaware of many deductions that can apply to their business. Many don’t keep detailed records, itemize expenses, or crunch the numbers to justify the deductions.

If you’re a business owner, you want to know all the deductions you can use to boost your finances. This not only applies to deductions that apply to your e-commerce business but also your other investments if you have some.

For example, social media marketing and advertising related to your company will be refunded if you can prove they were made for the sake of your company. Since the profits generated from the ads are for your business growth, your entire ad cost is tax-deductible.

2. Utilize Other Tax Strategies Like QSBS Stacking

Outside your business, there are exemptions like QSBS that can help give you an extra boost in cash flow. You would want to take advantage of these exemptions wherever you can. 

Also known as Qualified Small Business Stock, this tax exemption allows avoiding up to 100% of capital gains tax when you sell a part of your business as stock. This tax exemption has several requirements that you need to fulfill.

QSBS can save you up to 10 times of the value of the initial investment or $10 million, whichever is greater. It’s important to check with wealth management experts to understand how you can qualify for it.

3. Deductible Expenses vs. Non-Deductible Expenses

A lot of e-commerce business owners get confused when filing their W-2. They end up deducting non-eligible expenses, which costs them money. So, it’s essential to know the differences between deductible and non-deductible expenses. 

When filling out tax forms, expenses can be deducted from an individual’s adjusted gross income. Deductible expenses reduce taxable income and, as a result, cut down your dues too. For example, some business owners use their personal vehicles for business purposes. The IRS will classify that as nondeductible and charge you more on taxes if they do so. 

However, if you use the company’s vehicle or other assets for business operations, the IRS will classify such an asset as deductible. It’s essential to keep track of work-related expenses your company covers, such as work mileage or travel/meals, which all fall under the deductible category.

You would also need to maximize what are called context-specific deductions. These are non-deductibles that become deductibles with business-specific activities, like gas for business meetings and events.

4. Deduct Your Shipping Fees

Tax time is the perfect time to deduct postage, shipping meter subscriptions, and delivery charges. Even so, it’s better to pay less for shipping in the first place. This detail is due to the IRS’s Small Business tax guidelines, looking to help small businesses like e-commerce companies succeed.

IRS guidelines state that deductible business expenses must be “both ordinary and necessary.” It is accepted as “ordinary and necessary” for most businesses to charge shipping charges, including postage, freight, and packaging. 

Consequently, shipping charges qualify as a tax-deductible business expense under IRS regulations since they are considered a necessary and ordinary expense. It is also possible to include shipping costs in calculating the cost of goods sold.

Take advantage of your shipping expenses, especially as an e-commerce business. Much of your packaging will likely use materials and even have delivery charges. Make sure you itemize and remember these expenses upon tax time to log more savings down the line.

5. Save On Your Website and Web Development Expenses

The right business website can grow your audience, improve your conversion rate, and strengthen your brand. Despite the costs associated with professional web development, you can deduct several of them from your taxes.

Websites purchased from third parties are amortized (spread out) over three years, with the costs being treated much like software costs. A single exception occurs when the total cost of any website and other equipment purchased is less than $25,000. In this case, you may expense 100% of the price in the year it was incurred.

Two different methods of deduction are available to you if you choose to develop your website in-house. In the year the website was paid or accrued, you can deduct the total cost. If your website is treated like software, the deductions can also be amortized over three years. This is fantastic for e-commerce companies, as many rely on online assets like websites to do their business.

6. Save More On Salaries and Wages

For e-commerce companies, every person employed adds many benefits, but it also adds more to their expenses. Even then, properly qualified salaries and wages should help you get proper savings on your taxes.

Paying your employees’ salaries, wages, commissions, and bonuses can be considered tax-deductible if they fit IRS guidelines, including these payments being:

• Ordinary and necessary
• Reasonable in value
• Paid for services rendered
• Paid or charged within the year

As long as your salaries and wages follow these guidelines, there should be no problem-saving tax money on these expenses. An important consideration is the second guideline too, which means you have to ensure that the salary’s value is reasonable for the industry.

7. Lower Your Tax Bill With Your Business Insurance

Insurance is a fundamental investment for many businesses, including e-commerce companies. It helps protect your company’s assets, employees, and customers. While insurance might seem like a cost, it can actually help you save on your business taxes.

The cost of business insurance is tax-deductible and, in most cases, the premiums are fully deductible too. There are also several types of business insurance that you can use to get tax breaks, including general liability insurance and workers’ compensation insurance.

There are more available, so you need to pick apart with insurance you can use to help save on taxes. You may be able to deduct the premiums for any of these insurance policies that help protect your business. You can write off the full amount if the insurance policies are common and necessary.

8. Hire Tax Professionals

There are a lot of tax-related pitfalls that an e-commerce company can fall into. There are loopholes and deductions that you may not know about. Or, you may have a long list of deductions but don’t know how to legally and adequately justify them to avoid an audit. 

This is perhaps one of the most critical tips that an e-commerce business would follow. The tax code can get complicated. It’s legal jargon that requires a lot of expertise, so if you don’t understand most of it, you can hire tax professionals to help you. 

Many business owners hire tax professionals to do the job for them. These experts can help with your taxes and save you money in the long run. These experts know the tax code and know how to manipulate it to save you money. 

The Bottom Line

Tax time can be a hassle for an e-commerce business. However, you can minimize your tax burden and even get a return with the right strategy and planning. There are many tax-saving tips out there, mostly taking advantage of exemptions that the IRS allows for companies like yours. 

Consider the exemptions we laid out here for you, and you’ll immediately find out how good they stack up. These savings can save you thousands of dollars down the line.