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Navigating Tax-Deductible Shipping Expenses For Your Business
In the world of business, every dollar counts, and savvy entrepreneurs know that even the costs of shipping can be transformed into valuable tax deductions. The often-overlooked realm of shipping expenses offers deductions for those who know where to look. Imagine recovering a portion of those delivery bills, postage fees and courier charges as legitimate tax deductions – it's like getting a discount on your shipping costs. Whether you're a small e-commerce business shipping products to customers across the country, a growing enterprise restocking inventory or a solopreneur mailing important documents, understanding the nuances of tax-deductible shipping expenses can make a significant difference come tax season. In this guide, we'll cover everything related to tax-deductible shipping expenses and answer questions like can you write off shipping costs, how much does shipping cost for a small business and do you pay taxes on shipping. Get ready to discover how to ship your business products and materials while simultaneously lightening the load on your tax bill.
Table of contents
Key takeaways...Read more
What are business shipping costs?...Read more
What shipping materials are tax deductible?...Read more
When are business shipping expenses tax-deductible?...Read more
Do you pay tax on shipping costs?...Read more
When can you include the shipping costs in COGS?...Read more
What if I sell and ship items through Poshmark?...Read more
Poshmark and taxes...Read more
When does Poshmark send 1099 tax forms?...Read more
Key takeaways
- Shipping expenses are tax-deductible for businesses as long as they’re related to your business activities.
- Some states charge sales tax on shipping and handling costs.
- If you're a seller on Poshmark, there are certain regulations when it comes to shipping.
What are business shipping costs?
From packages crisscrossing the nation to international shipments spanning continents, the shipping costs you incur in the course of business operations can often be reclaimed as a part of your overall 1099 tax strategy. Business shipping costs typically include any costs related to transporting your company's products, materials or documents to various destinations. The specific elements of these costs can vary significantly based on your company's size, industry and operational requirements, but all contribute to the overall expenses of getting your goods from one place to another efficiently and securely.
You have the freedom to choose how and when to ship your business goods. With many different courier services available, it’s best to choose the one that fits your specific needs. Some things to consider when choosing a courier service include:
- Shipping costs
- Speed of service
- Insurance coverage
- Signature upon delivery
- Reliability
- Tracking and communication
- Special services
- Coverage area
- Ease of use
When you consider these factors, you’ll be sure to choose a courier service that aligns with your business needs.
What shipping materials are tax deductible?
Shipping materials that are necessary for your business operations are generally tax-deductible. These materials help you pack, protect and efficiently ship products or documents to customers or clients. Common tax-deductible shipping materials include:
- Boxes: Any boxes you purchase to package and ship products are typically deductible.
- Envelopes: Envelopes of various sizes used for mailing documents or smaller items.
- Packaging tape: The tape used to seal boxes and envelopes securely.
- Bubble wrap and packing peanuts: Materials used for cushioning and protecting fragile items during shipping.
- Packing paper: Used for wrapping and protecting items within shipping boxes.
- Shipping labels: Labels used to address and identify packages being sent.
- Markers and pens: Writing instruments used for labeling or addressing packages.
- Custom branded packaging: If you have custom packaging with your company's branding, the costs may be deductible.
- Shipping software: The cost of shipping software that helps manage and streamline shipping processes can be deductible.
- Postage stamps: The cost of postage stamps used for mailing documents or small parcels.
- Label printers and supplies: If you use specialized label printers, the equipment and associated supplies may be deductible.
Let’s say you’re a social media influencer and created your own clothing brand. To send the clothing to your followers, you need to purchase packing tape, shipping labels, boxes and packing paper. Since these shipping costs are related to your business, you can write off the shipping costs. Or, you run a cupcake business out of your kitchen. You need to ship the cupcakes to your customer and ensure they arrive without getting smushed or stale. The special cupcake shipping boxes, overnight courier shipping costs, labels and tape are all deductible under the tax on shipping deduction. Regardless of how you ship your business items, it's important to keep detailed records of your shipping material expenses, including receipts and invoices, in case of an IRS audit.
When are business shipping expenses tax-deductible?
Anytime you need to send or ship something business-related, the costs are tax-deductible. If you sell physical products and need to ship them to customers, the cost of shipping these products is typically tax-deductible. For instance, if you run an online store and ship products to customers, the shipping fees can be deducted. Shipping costs associated with mailing business documents, contracts, or invoices can be deductible. For example, if you send out contracts to clients via mail or courier, the shipping expenses are part of your business expenses. Shipping expenses for acquiring office supplies, such as ordering paper, ink cartridges or other materials online and having them shipped to your business location, can often be deducted. If you send out product samples or marketing materials to potential clients or partners, the shipping costs for these items are generally tax-deductible. Or, if you need to return items for your business, the shipping fees for those returns can be considered a business expense and, thus, are deductible.
Remember, the key to deducting shipping expenses is to ensure they are directly related to your business activities.
Do you pay tax on shipping costs?
The answer to this question depends on where you live in the US. Some states say shipping costs are taxable, while others don’t. Some things to keep in mind are:
- You need to be an eCommerce business without a physical store.
- Your items are delivered to customers by a common courier service.
- You don’t deliver the items yourself through a delivery service, including Doordash or Instacart.
- You're shipping to customers who live in the same state you live in and are shipping from.
If you live in Charleston, South Carolina and are shipping chocolates and fudge from your online sweets business to a customer in Seabrook Island, you’ll need to pay the shipping taxes since in South Carolina shipping charges are taxable.
When can you include the shipping costs in COGS?
You can include shipping costs in your Cost of Goods Sold (COGS) only if they are related to getting your products ready for sale. This means you can include inbound freight. Inbound freight: The cost of shipping raw materials, supplies, or merchandise you purchase for resale from a supplier to your location (e.g., your warehouse). You cannot include shipping costs in COGS if they are related to delivering products to your customers. This means you cannot include Outbound shipping. Outbound shipping: The cost of shipping products to your customers after a sale. Regardless of where you include shipping costs (COGS or expenses), you should check your state's regulations to see if you need to collect sales tax on them. Shipping costs for personal items are never deductible as a business expense.
What if I sell and ship items through Poshmark?
Poshmark is a popular site for selling new and gently used clothing, electronics and accessories. It’s like a virtual garage sale and online marketplace all in one where you can earn cash without leaving your couch. Once you’ve gathered all the items you want to sell, you’ll create a profile and then snap and upload photos to the site. Customers can purchase your items, and you have the liberty to charge shipping costs or include it in the price. You’ll need to ship the items to the seller. So, do you have to pay taxes on your Poshmark sales? That depends on whether you’re selling as a hobby or a business. This distinction makes a huge difference in the eyes of the IRS.
If you’re cleaning out your closet and selling some old clothes that don’t fit anymore, you’re probably just a hobby seller. But maybe you’re an avid thrifter and have a regular customer following for your thrift finds. In this case, your Poshmark account is acting more like a business.
Poshmark and taxes
The good news is that Poshmark sellers don’t have to pay sales tax. The buyer pays sales tax unless they live in a state that doesn't charge sales tax, including:
- Oregon
- New Hampshire
- Montana
- Delaware
The sales tax feature is built right into the website, and Poshmark automatically collects the sales tax from the seller during checkout, so you don’t have to worry about a single thing! The not-so-good news is that if you make $400 or more in sales, you’re required to pay self-employment taxes. The self-employment tax rate is 15.3%, with 12.4% for Social Security and 2.9% for Medicare. Typically, your employer covers half of the costs, but when you’re self-employed, it’s up to you to pay the full amount. You’ll also need to pay your taxes quarterly instead of one lump sum once a year. A quarterly tax calculator is just the tool to help ensure you make accurate payments to avoid IRS penalties.
When does Poshmark send 1099 tax forms?
Your clients send you tax forms called 1099s when you work as a 1099 employee. Poshmark sends 1099s to anyone using that platform with $20,000 or more in sales and 200 or more transactions. The Poshmark 1099-K is typically sent in January at the beginning of the year. The Poshmark tax forms can be found in your online Poshmark profile. They will also send the Poshmark 1099-K via mail if you opt for the paper copy. Once you receive your Poshmark 1099-K, FlyFin can help you with everything tax-related. A.I. will find every possible deduction, helping you save the most possible. Then the CPA team will review and file your taxes and are available to answer any questions. They can also help you with your tax on shipping supplies or anything else relating to shipping for your business. With FlyFin, taxes are sure to be a breeze.
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