Top 12 E-commerce Tax Deductions in 2026

E-commerce sellers have a broad range of deductible expenses, but many miss the biggest ones simply because they don't map to a traditional storefront. Tax deductions reduce taxable income, and special deductions are available to e-commerce businesses. Claim all that your e-commerce business is legally eligible for.

Shopify, Amazon, Etsy, and independent online store owners should use this article to understand the top tax deductions they can claim to minimize their tax bills, along with cost of goods sold (COGS) and sales tax considerations.

What is a tax deduction for e-commerce businesses?

E-commerce tax deductions for online businesses are similar to those for other small businesses, as they lower taxable income. E-commerce tax deductions are specific to the operations and methods of online businesses. Several deductions are available to help with your e-commerce company’s start-up costs.

COGS and Inventory

COGS refers to the direct costs required to produce or acquire the products a business sells, and is typically the single largest deduction for product-based e-commerce businesses.

Your inventory is deducted when it's sold, not when it's purchased. Any unsold inventory at year-end is considered an asset, not an expense. The IRS requires a consistent inventory valuation method, including FIFO (First-In, First-Out), LIFO (Last-In, First-Out), or a weighted average.

Your COGS should include:

• Wholesale or manufacturing costs

• Inbound freight

• Packaging tied directly to a product

Top Tax Deductions for E-commerce Businesses

1. Advertising and Marketing

Advertising and marketing are necessary to help spread the word about your e-commerce business. It’s an added benefit that some of these expenses are tax-deductible. This includes product ads, software, subscriptions (Canva, Hootsuite), ads on specific platforms (Meta, Google Ads), printing materials, and hiring writers, designers, photographers, affiliate and influencer marketing, and other communications professionals.

Gifting product to influencers above the $2,000 fair-market-value threshold triggers a 2026 Form 1099-NEC reporting obligation.

2. Platform and Marketplace Fees

Platform and marketplace fees are fully deductible for e-commerce sellers. This includes selling fees from Amazon, Shopify, Etsy, and eBay, and processing fees from Stripe, PayPal, and similar processors.

Track platform and payment processing fees throughout the year to ensure no deduction opportunities are missed.

3. Employee and Contractor Costs

If your e-commerce business has employees, you’re in luck. Employee pay and benefits are tax-deductible. The benefits covered are wide-ranging and include everything from health and life insurance to education assistance and retirement plans. You can even deduct business insurance costs. Make sure you classify your employees properly; the IRS penalizes business owners who try to classify workers as 1099 independent contractors to avoid taxes. If you also use contractors, you must send them IRS Form 1099-NEC if you paid them $2,000 or more in 2026.

Another deduction available to both you and your staff applies to training sessions and other professional development opportunities. Whether it's a seminar on leadership or courses for e-commerce to improve SEO or copywriting skills, you may be able to deduct these expenses. You need to justify that the professional development opportunity directly contributes to performance improvement.

4. Shipping and Office Supplies

If most of your business involves shipping products to customers, you might be wondering if shipping costs are tax-deductible. Fortunately, shipping and packaging expenses are. Keep track of your company’s postage, envelopes, packaging materials, labels, and other shipping-related charges to maximize your tax savings. You can also deduct paper, ink, boxes, tape, pens, and markers.

5. Software and Technology Subscriptions

The software and technology subscriptions you use for your e-commerce business are also deductible. This includes e-commerce platform fees (Shopify, WooCommerce), accounting software subscriptions (QuickBooks Online, Xero, ClientBooks), and inventory management tool costs (Finale Inventory, Linnworks).

6. Travel and Vehicle Use

Traveling for everything from work errands to picking up products can be tax-deductible. If you use your own car for these duties, it's important to separate vehicle expenses and mileage incurred while you drive for a business purpose versus something personal. Costs for fuel, maintenance, parking, and even cab fares can be deducted as long as those costs are incurred in a context related to your business.

There are two standard mileage rates in 2026 for operating a vehicle, which includes cars, vans, pickup trucks, or panel trucks. The rate for business-related travel for the first half of 2026 (up to and including June 30th) is 72.5 cents. After that, the business mileage rate increases to 76 cents per business mile.

7. Utilities

You can write off utility bills, including for water, heat, electricity, internet, and phone. Much like the workspace deduction, a proportion of your day-to-day bills can be written off as business expenses if you work from home. With your water, heat, and electricity bills, calculate what percentage of your home you claim as your home office (relative to the rest of your home). Then, that percentage is deductible from your total utility bills. Phone and internet bills are both deductible whether you work from home, an office, or a warehouse.

8. Website

Maintaining a strong website is crucial to the success of many e-commerce businesses. If you’re wondering, “Can you write off web hosting on your taxes?” The answer is yes! Keep track of the costs for your domain and web hosting, stock images, technical management, optimization tools, and other web-associated costs because these can lower your taxable income.

9. Workspace / Home Office

Your home office space can be written off on your taxes if it meets the IRS home office deduction criteria. To qualify, it must be the principal place where you do business, and that space must be used regularly and exclusively for business purposes. If your space qualifies, you’ll want to keep track of its square footage, as that will be an important metric to include on your tax return. $5 per square foot up to 300 square feet ($1,500 maximum) qualifies under the simplified calculation method. E-commerce sellers who store inventory at home may deduct that space without meeting the strict exclusive-use test that applies to a standard home office.

If you work from somewhere besides your home, such as a coworking space or a warehouse for inventory storage, you may be eligible for certain deductions. The rent you pay to use a space is typically an eligible deduction. You can also deduct maintenance, repairs, and even improvements you make to your workspace, so keep receipts and track these costs throughout the tax year. Deductions are also available for installing energy-efficient equipment or renovations made for medical purposes.

10. Professional and Legal Fees

Virtual accounting, full-service bookkeeping, and legal fees tied to your e-commerce business are fully deductible. Like other deductions, as long as these professional fee expenses are "ordinary and necessary" parts of your business, they can be claimed.

Personal and business expenses are treated differently. Personal accounting, bookkeeping, and legal fees are ineligible. To qualify, they must be professional services for your business.

11. Business Insurance

Business insurance premiums are typically deductible, including for commercial property, general liability, and cyber and data breach insurance. Because online e-commerce sellers handle sensitive customer payment data, obtaining the right coverage is essential.

Health insurance premiums are also deductible for self-employed small business owners.

12. Retirement Contributions

Contributing to a SEP IRA or Solo 401(k) reduces your Adjusted Gross Income (AGI). Your pre-tax contributions are treated as an above-the-line deduction, lowering both your income tax and self-employment tax liabilities.

The 15.3% self-employment tax funds Social Security and Medicare, and is paid on top of regular income tax.

Sales Tax Isn't a Deduction, But It Still Matters

The sales tax you collect from your customers is not income and can't be deducted. It's held in a trust and remitted to the state.

Physical and economic nexus determine where your business must register, collect, and remit state sales taxes. Physical nexus is established through a tangible presence like offices, inventory, or remote employees. Economic nexus is triggered by state sales volume or revenue thresholds, such as the common standard of $100,000 in sales or 200 transactions. Learn more about nexus obligations in this guide.

Work With E-commerce Tax Professionals to Maximize Your Deductions

It's important to claim every deduction that applies to your e-commerce business. This guide is a great starting point and outlines how to reduce your taxable income, but other deductions may apply. While you may be able to select them yourself, expert support is the most efficient way to minimize your tax liability throughout the year.

If you're ready to focus on your next sales milestone, explore 1-800Accountant's services for e-commerce sellers to see what we can do for your long-term growth and profitability.

FAQs about E-commerce Tax Deductions

Is inventory a tax deduction?

Inventory is only deductible as COGS when the items are actually sold, not when you first purchase them. Unsold wholesale goods or raw materials remaining at the end of the year are considered an asset. You cannot claim them as a standard business expense until the sale occurs.

Can I deduct Amazon or Shopify seller fees?

Yes, all platform fees, including Amazon referral and storage fees, as well as Shopify subscription and transaction fees, are fully deductible business expenses. You claim these operational costs as ordinary and necessary expenses on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship). Keeping itemized records of your monthly statements will ensure you maximize this deduction.

Do I need to collect sales tax on online sales?

You are required to collect sales tax in states where your e-commerce business establishes a physical or economic nexus. Platforms like Amazon calculate and collect this tax for you, but you may still need to register for permits and file zero-dollar returns. Since Shopify does not remit sales taxes on your behalf, you remain responsible for tracking thresholds and remitting the funds to state authorities.

What is the 2026 standard mileage rate for business use of a vehicle?

The 2026 standard mileage rate for business driving is 72.5 cents per mile for the first half of the year and 76 cents for the second half. This flat rate replaces the need to track and calculate actual vehicle operating costs like gas, insurance, and maintenance. You can claim this deduction by logging your mileage for tasks such as visiting suppliers, scouting locations, or dropping off packages at the post office.

Can I deduct my home office if I use it to store inventory?

Yes, you can deduct home office expenses even if the space is solely used to store inventory and not strictly as a workspace. The IRS provides a specific safe harbor rule for inventory storage that allows this write-off without requiring the space to meet the standard "exclusive use" test. You can calculate the deduction by using the simplified method or by deducting the actual portion of housing expenses associated with the storage area.

What's the difference between Section 179 and bonus depreciation?

Section 179 allows you to instantly deduct the full purchase price of qualifying business equipment and software up to a specified annual limit. In contrast, bonus depreciation generally covers a larger, uncapped percentage of the cost of eligible property in the first year. Both options let e-commerce sellers write off significant purchases like packaging machines or photography equipment immediately rather than spreading the deduction over several years.

Do I need to issue a 1099 to contractors or influencers?

You must issue a 1099-NEC to independent contractors or influencers if you pay them $2,000 or more for their services in 2026. This reporting requirement applies whenever you hire individuals who are not traditional employees. Failure to collect IRS Form W-9, Request for Taxpayer Identification Number and Certification, and file these information returns can result in IRS penalties.

How does the QBI deduction work for e-commerce sellers?

The QBI deduction allows eligible pass-through entities and sole proprietors to deduct up to 20% of their net business income. Most small e-commerce founders automatically qualify for this deduction as long as their taxable income falls below specific, annually adjusted thresholds. If your business income exceeds these thresholds, the deduction may be subject to limitations based on employee wages paid or the original cost of your depreciable business property.