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Key Takeaways
- The OBBBA brings significant changes to the treatment of R&E expenses and business interest deductions, which will benefit e-commerce companies.
- Good documentation and expert CPA guidance are essential for maximizing deductions and ensuring compliance with evolving tax laws.
Enter the first criterion an Omnisend study This summer, the ranking of states in terms of attractiveness when it comes to operating an e-commerce store was telling. It was taxes.
There’s no doubt that taxes can make or break you as an entrepreneur.
When I launched my first ecommerce store in 2016, I had to learn this the hard way. My approach to taxes was mostly trial and error. I didn’t have a mentor yet and I was still figuring out the basics, like reading financial documents, analyzing them properly, and building my own spreadsheets. I was getting better with software and tracking systems, but after a year I realized something important: this wasn’t my strength. I needed a CPA who specialized in online businesses, someone who could guide me, especially when it came to deductions.
At the time, no one had ever explained to me how to maximize the business deduction. I was only 21 or 22, still brand new to entrepreneurship, and in that first year I quickly learned about all the expenses, especially those deemed “ordinary and necessary” by the IRS, that really added up. Even with a partner, e-commerce operators face costs such as software tools, subscription fees and travel.
I want to delve a little deeper into the latest developments regarding the interpretation of ordinary and necessary business expenses, which are now primarily governed by the provisions of the One Big Beautiful Bill Act (OBBBA) of 2025. The law extends and permanently modifies several relevant tax provisions of the Tax Cuts and Jobs Act (TCJA) of 2017, changing the treatment of specific expenses such as research and experimentation (R&E) and business interests.
Related: Tax season is finally over. Or is it that? Here are 5 things you should do throughout the year to reduce tax season stress.
Tackling these new developments individually:
- R&E expenses: Beginning in 2025, domestic R&E expenses can be fully deducted in the year they are paid or incurred, eliminating the TCJA’s requirement to depreciate them over five years. The fifteen-year depreciation period for foreign R&E expenditure remains in effect. The law provides special transition relief for small businesses with average gross revenues of less than $31 million, allowing them to retroactively apply the new expense rules for tax years beginning after December 31, 2021.
- Deduction of business interest: The OBBBA permanently allows companies to include depreciation, amortization, and depletion deductions when calculating their adjusted taxable income for the corporate interest limitation under Section 163(j) of the Internal Revenue Code. This provides for a broader interest expense deduction and is retroactive to early 2025.
In addition, there have been recent legal developments that entrepreneurs must take into account, with the legal interpretation of ‘ordinary and necessary’, with this category having been strengthened by recent court decisions that emphasize the importance of good documentation. These rulings emphasize that taxpayers must substantiate their business expenses with adequate records beyond just a credit card statement or bank account statement.
Specifically:
- Substantiation is crucial: A tax court ruling in February 2025 prohibited deductions for a self-employed person who could not provide supporting documentation for her declared expenses. The court emphasized that bank and credit card statements alone do not provide sufficient detail about the business purpose of an expense.
- Purpose and reasonCourt decisions continue to uphold the principle that expenditure must be ‘appropriate and useful’ to a business to be considered ‘necessary’, and that an ‘excessive’ expenditure should not be considered ‘ordinary’ even if it is necessary.
The changing landscape is a key reason why having a good CPA on your side is invaluable. They ensure that everything is properly documented so that you don’t leave money on the table.
A good operating partner has recommended accounting partners, who ensure that a customer has access to their own customer portal. Such partners understand the e-commerce space. Good advice can yield significant savings.
To get started, here are some common e-commerce deductions that I’ve used over the years:
- Amazon Seller Central fees (monthly subscription fee)
- FBA (Fulfillment by Amazon) fees. (pick, pack and shipping costs)
- Referral Fees (Amazon commission per sale)
- Advertising costs (Amazon PPC campaigns, non-Amazon ads such as Facebook/Google ads)
- Inventory storage costs (monthly and long-term storage in Amazon warehouses)
- Removal or Disposal Fees (when picking up inventory from FBA)
- Refund administration costs (when Amazon withholds part of the refund)
- Software subscriptions (product research software such as Helium 10, Jungle Scout, Keepa, InventoryLab, repricers, accounting software, etc.)
- Costs for product photography and video
- Freelancers/VA costs (Upwork, Fiverr, brokerage fees, virtual assistants)
- Prep center or 3PL fees (inspection, labelling, preparation for shipment)
- Postage costs (to Amazon warehouses or directly to customers as FBM)
- Office supplies (labels, boxes, tape, scales, etc.)
- Computer and equipment (laptop (80% business 20% personal for example like me), printer, camera, monitors, etc.)
- Home office deduction (If you use part of your home exclusively and regularly for your business, you can claim this deduction)
- Internet and telephone bills (part used for business)
- Education and training (Amazon courses, books, webinars)
- Travel expenses (fairs, supplier meetings, kilometers – kilometers by car during business trips, accommodation)
- Bank and payment processing fees (Payoneer, Transferwise, transfer fees)
- Professional services (CPA, tax strategist, corporate attorney)
Related: Make tax season as painless as possible by taking these 6 steps
In summary, strategic tax planning for an e-commerce store involves minimizing tax liability through careful selection of business structure, maximizing deductions, meticulous record keeping, and carefully managing sales and international taxes.
Selecting an effective accounting partner means looking for someone who will manage your accounts and keep you informed throughout the year, not just on taxes.