Top 9 E-commerce Tax Deductions in 2026

Online store owners, dropshippers, and marketplace sellers on platforms such as Shopify, Amazon, and Etsy can claim specific tax deductions related to their operations. While you should take every deduction that applies to your e-commerce business, eligibility can be murky, so owners play it safe and leave money on the table. This guide ensures you claim every e-commerce deduction in 2026.

Use this article to learn the top nine deductions available to e-commerce businesses, plus how cost of goods sold (COGS), the home office deduction, and the qualified business income (QBI) deduction fit into an overall tax strategy.

What is a tax deduction for e-commerce businesses?

Tax deductions for online businesses are similar to those in other realms: they offer monetary incentives by lowering business owners' tax bills and taxable income. E-commerce tax deductions are specific to the operations and methods of online businesses, which can help with your e-commerce company’s startup costs.

Keep reading to learn more about each e-commerce tax deduction and how you can save.

9 Tax Deductions for E-commerce Businesses

1. COGS

COGS recovers the cost of inventory (purchase price, manufacturing costs, freight-in, and import duties) rather than deducting it as a standard expense. That inventory isn’t deductible until you sell the related product.

Accurate inventory recordkeeping throughout the year makes this calculation far easier at tax time.

2. Advertising and Marketing

Advertising and marketing are necessary expenses that help spread the word about your e-commerce business. It’s an added benefit that some of these expenses are tax-deductible.

Deductible expenses include product ads, software costs, subscriptions (Canva, Hootsuite), printing materials, influencer partnerships, affiliate marketing fees, and paid social and search advertising. Costs related to hiring writers, designers, photographers, and other communications professionals can also be claimed.

3. Employee and Contractor Costs

If your e-commerce business uses 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 the cost of business insurance.

Make sure you classify your employees properly, as the IRS penalizes business owners who misclassify workers as 1099 independent contractors to avoid payroll taxes. Many e-commerce sellers rely on 1099 professionals, such as virtual assistants, freelance designers, or fulfillment help, and these contractor payments are deductible. If you paid a single contractor $2,000 or more in 2026, you must send a copy of IRS Form 1099-NEC, Nonemployee Compensation, to them and the IRS by January 31, 2027. Make sure you collect a completed IRS Form W-9, Request for Taxpayer Identification Number and Certification, from each freelancer before issuing their first payment.

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

4. Shipping and Packaging Supplies

If most of your business involves shipping products to customers, you may wonder whether shipping costs are deductible. Because shipping and packaging costs are ordinary and necessary parts of doing business, you can deduct them.

Keep track of your company’s postage, envelopes, packaging materials, labels, and other shipping-related charges. You can also deduct paper, ink, boxes, tape, pens, and markers. Third-party logistics (3PL) fees and marketplace fulfillment charges, such as Amazon FBA fees, are also eligible.

5. Payment Processing and Platform Fees

Payment processing and platform fees are deductible business expenses many sellers overlook. Your business's card processing fees (Stripe, PayPal, Shopify Payments), marketplace referral and selling fees (Amazon, Etsy, eBay), and monthly platform or subscription fees all qualify.

6. Website and Business Technology

Maintaining your website is crucial to an e-commerce business's success. If you’re wondering whether you can 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.

Larger technology and equipment purchases, such as computers, point-of-sale systems, or warehouse equipment, may qualify for full first-year expensing under Section 179 or 100% bonus depreciation rather than being depreciated over several years.

7. Business Travel and Mileage

Traveling for everything from work errands to picking up products can be tax-deductible. If you use your own vehicle for these duties, you must separate the costs and mileage incurred while you drive for your company versus during your personal time. Business costs are deductible, while personal costs generally are not. 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.

The 2026 standard mileage rate through June is 72.5 cents per mile, and 76 cents per mile for the rest of the year. This is up from 70 cents in 2025. These rates are adjusted at least annually for inflation.

8. Home Office and Workspace

If you work from home, you can write off a portion of your day-to-day bills as business expenses through the home office deduction. For internet, phone, and utility bills like water, heat, and electricity, calculate the percentage of your home you use as your home office (relative to the rest of it). Then, you can deduct that percentage of those bills. Phone and internet bills are deductible whether you work from home or an office or warehouse. There's also a simplified method you can use, with a $1,500 cap.

You can write off your home office on your taxes if it meets IRS criteria. It must be the principal place where you do business, and that space must be used regularly and exclusively for business purposes.

If you work from somewhere outside of 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 eligible. You can also deduct maintenance, repairs, and even improvements you make to your workspace, so keep receipts and track these costs throughout the year. You can also deduct costs for installing energy-efficient equipment or making renovations for medical purposes.

Home Office Deduction: Simplified vs. Regular Method Comparison

9. Retirement Contributions

Your contributions to a SEP IRA or Solo 401(k) reduce taxable income while building retirement savings, an option many self-employed e-commerce owners overlook when tallying deductions.

If you're about to hire an employee or already have some, you cannot use a Solo 401(k). SEP IRAs are still available to employers, but you must match the percentage you contribute to your plan for your employees.

The QBI Deduction

Sole proprietors, single-member LLCs, and other pass-through e-commerce businessesmay deduct up to 20% of qualified business income under Section 199A, a provision made a permanent part of the tax code under 2025 federal legislation.

The 20% QBI deduction applies on top of, not instead of, the specific deductions covered in this article.

Deductions vs. Sales Tax: Don’t Confuse the Two

The sales tax collected from your customers is not your income and is not deductible. You collect and hold it for the state, even if it passes through your business bank account at some point. E-commerce sellers have separate sales tax collection obligations that vary by state economic nexus thresholds.

Use this dedicated e-commerce sales tax guide for more in-depth information about the rules.

Turning E-commerce Deductions Into Real Tax Savings

Now that you understand how COGS, QBI, and other e-commerce deductions affect your bottom line, it's time to take action. Track deductible expenses throughout the year, and make sure you target all that apply. When the time and complexity of reducing your tax liability distracts from your e-commerce business, consider professional services and support.

If you're ready for an accounting solution built for online retailers, consider 1-800Accountant's full-service e-commerce accounting solution. Learn how strategic year-round financial management saves time and increases profitability.

FAQs About E-commerce Tax Deductions

Can I deduct inventory that hasn’t sold yet?
No, you generally cannot deduct the cost of inventory until it actually sells. Under IRS rules, inventory is treated as an asset rather than an immediate expense, and its cost is recovered through COGS when a transaction occurs. Certain small businesses using the cash method of accounting may qualify for simplified rules that allow them to treat inventory as non-incidental materials and supplies.

What’s the difference between the simplified and regular home office deduction methods?
The simplified method offers a standardized rate of $5 per square foot up to 300 square feet, whereas the regular method requires tracking actual household expenses. The regular method calculates your deduction based on the exact percentage of your home used for business, factoring in actual costs like rent, utilities, and mortgage interest. While the simplified option saves time and reduces paperwork, the regular method often yields a larger deduction if your actual operating expenses are high.

Do I need to issue a 1099 to a freelance virtual assistant or designer?
Yes, you must issue IRS Form 1099-NEC if you pay an unincorporated freelancer $2,000 or more in 2026 for business services. This requirement applies to independent contractors operating as sole proprietors, partnerships, or LLCs that are not taxed as corporations. However, if you pay them by credit card or through a third-party processor like PayPal, the processor handles reporting via IRS Form 1099-K, Payment Card and Third Party Network Transactions, freeing you from the reporting obligation.

Are Amazon, Etsy, or Shopify fees tax-deductible?
Yes, ordinary and necessary fees charged by e-commerce platforms are fully tax-deductible. These expenses include transaction fees, listing fees, monthly subscription costs, and advertising fees directly related to running your online store. You should deduct these as business expenses on your tax return, and keep clear records or reports from the platforms to support your claims.

Can I deduct the cost of a new computer or warehouse equipment right away?
Yes, you can often deduct the full cost of equipment immediately using Section 179 or bonus depreciation rules. Alternatively, small businesses can use the de minimis safe harbor election to write off individual items that cost under $2,500 each in the year of purchase. If you do not qualify for or choose these immediate write-offs, you must depreciate the asset's cost over its useful life spanning several years.

Do I still owe self-employment tax if I qualify for the QBI deduction?
Yes, the QBI deduction reduces your income tax but does not lower your self-employment tax. Self-employment tax is calculated separately on your net earnings to cover your Social Security and Medicare obligations. So even if the QBI deduction eliminates part of your income tax liability, you still owe the full self-employment tax.

How do I know if I need to collect sales tax in a state where my business has no physical location?
You must collect sales tax if your sales or transaction volume in that state exceeds its specific economic nexus threshold. These thresholds vary by state, often starting at $100,000 in sales or 200 separate transactions within a calendar year. Once your e-commerce business crosses a state's economic threshold, you must register and collect sales tax from customers in that state.

What records should I keep to support my e-commerce tax deductions?
You should maintain detailed digital copies of all receipts, bank statements, and platform fee summaries associated with your business. Also keep accurate inventory logs, shipping manifests, and documentation for home office or vehicle use. Holding onto these financial records for at least three to seven years in a secure, centralized location will help defend your business in the event of an IRS audit.