Ecommerce Tax Deductions DTC Brands Miss (2026 Guide After the OBBBA)

Cost of goods sold (COGS) is the largest deduction for most product brands, and you take it when inventory is sold, not when you pay the supplier. Prepaying a big holiday order in December does not create a December deduction if the units are still in the warehouse on December 31.

Small businesses get simpler rules. If average annual gross receipts for the prior three years stay at or under the §448(c) limit ($31 million for tax years beginning in 2025 and $32 million for 2026 under Rev. Proc. 2025-32), you are exempt from the uniform capitalization rules of IRC §263A, and §471(c) lets you treat inventory as non-incidental materials and supplies or follow the method used in your books. Above that limit, UNICAP pulls a share of warehousing, purchasing and handling costs into inventory.

What belongs in COGS for a DTC brand:

• Product cost from the manufacturer, including raw materials and factory labor if you produce it yourself
• Inbound freight, customs duties and tariffs on imported goods
• Product packaging that ships as part of the item (the printed box, not the outer mailer)
• Assembly, kitting or customization done before the item is finished goods

Tariffs deserve a note for 2026. Duties paid on imported inventory are part of inventory cost, so they reduce taxable income only as those units sell. If you are carrying a lot of tariffed stock into year-end, your tax bill can look higher than your cash position suggests.

Outbound shipping and fulfillment costs are deductible business expenses under IRC §162 in the year you incur them. That covers postage and carrier charges (including the cost of free shipping you offer), prepaid return labels, shipping boxes and mailers, and third-party logistics fees from providers like ShipBob or Amazon FBA.

Inbound freight is different. It is part of inventory cost and flows through COGS as the goods sell, as described above.

Amazon fees are all deductible, but book them in separate accounts. Fulfillment fees are fulfillment expense, monthly and long-term storage fees are warehousing, and referral fees are selling commissions. Clean categories make your gross margin meaningful and make an exam easier to support, because the IRS can trace each line back to the settlement reports.

If you run fulfillment in-house, the deductible costs include warehouse rent, utilities, packing supplies, and wages for warehouse staff. Shelving, label printers, scanners and forklifts are equipment, covered in the next section.

Equipment you buy for the business can usually be written off in the first year. The One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025, and the IRS issued interim guidance in Notice 2026-11. Property acquired earlier under a binding contract stays on the old phase-down schedule (40% for 2025 placed-in-service property).

Section 179 is the other route. The OBBBA raised the limit to $2,500,000 with a phase-out starting at $4,000,000 of qualifying purchases for tax years beginning in 2025. For 2026, Rev. Proc. 2025-32 sets the figures at $2,560,000 and $4,090,000. Section 179 cannot create a loss (it is limited to taxable income from the business), while bonus depreciation can, which matters for a brand still burning cash.

A practical point: state rules differ. California does not follow federal bonus depreciation, so $60,000 of warehouse racking and equipment written off federally in year one is still depreciated over several years on the California return. Track federal and state basis separately from the start.

Monthly software subscriptions and ad spend are ordinary §162 expenses, deducted in the year incurred. That includes your store platform (Shopify, BigCommerce), email and SMS tools (Klaviyo), attribution and analytics tools, customer support software (Gorgias, Zendesk), inventory systems, accounting software, sales tax automation, and design tools. Meta, Google and TikTok ad spend, influencer fees and affiliate commissions are deductible when incurred, even if the sales they drive land next year.

Website and app development is where the OBBBA changed the answer. Under new IRC §174A, domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024 are deductible currently, and amounts paid in connection with developing software are treated as R&E. Custom development work on your storefront, app or internal tools done in the US therefore qualifies for current deduction again, or you can elect to amortize it over at least 60 months. Development done by foreign contractors stays under §174: capitalized and amortized over 15 years.

If you capitalized domestic development costs in 2022 through 2024, the unamortized balance can be deducted in full on the 2025 return or spread over 2025 and 2026. The separate retroactive election for small businesses (average gross receipts of $31 million or less) required amended returns filed by July 6, 2026 under Rev. Proc. 2025-28. That deadline has passed, so the 2025 or 2025–2026 catch-up is the remaining route.

How you claim a home office depends on your entity. A sole proprietor or single-member LLC deducts it on Schedule C under IRC §280A. If you operate through a corporation, the deduction belongs to the company: have the corporation reimburse you under an accountable plan, because unreimbursed employee expenses are not deductible on your personal return.

For Schedule C filers, the simplified method allows $5 per square foot up to 300 square feet ($1,500 maximum). The actual-expense method applies your business-use percentage to rent or mortgage interest, utilities, insurance and repairs. It usually produces a larger number and needs better records.

Inventory storage gets a specific exception under §280A(c)(2). Space used regularly to store inventory or product samples qualifies even if it is not used exclusively for business, provided your home is the only fixed location of the business.

Business driving (post office runs, supplier visits, trips to your 3PL) can use the IRS standard mileage rate: 70 cents per mile for 2025, 72.5 cents for January through June 2026, and 76 cents for July through December 2026. Keep a log with date, destination, purpose and miles.

Trade show and supplier travel is deductible, including airfare, lodging and registration. Business meals are 50% deductible under §274(n).

Product photography, video production, copywriting and UGC contracts are deductible advertising costs. Product sent free to influencers or press is a promotional expense at your cost. Units consumed in a photoshoot and not resold should come out of inventory and into marketing expense, so the deduction lands in the year you used them.

Returns that cannot be resold are another frequent miss. If a returned item is damaged, opened or otherwise unsellable and you dispose of it, its cost comes off inventory and is deducted (Treas. Reg. §1.471-2(c) covers valuing unsalable goods). Keep a disposal log with date, SKU, quantity, cost and reason. Without it, the write-off is hard to defend.

Two information-return rules changed under the OBBBA:

• 1099-NEC and 1099-MISC: the reporting threshold rises from $600 to $2,000 for payments made after December 31, 2025, indexed for inflation after 2026. For 2025 payments (forms due January 31, 2026) the $600 threshold still applied. Collect a W-9 from every freelancer and creator before the first payment either way.
• 1099-K: the federal threshold for payment platforms is back to more than $20,000 and more than 200 transactions, retroactively. Some states set lower state-level thresholds. Whatever forms you receive, reconcile the gross amount to your books, since it includes refunds, fees and sales tax you later back out.

The money in ecommerce tax work is usually in timing and classification, not exotic deductions. For a typical seed-stage DTC brand we start with three checks: inventory and COGS tie to an actual year-end count, equipment purchases are tagged with acquisition dates so the 100% bonus rules apply correctly, and development spend is split between domestic and foreign work for §174A.

From there, we map marketplace settlement reports to separate fee accounts, review contractor payments against the new 1099 thresholds, and model federal versus state depreciation where the states you file in do not conform.

Figures in this post were checked against IRS guidance in October 2026, and several OBBBA provisions still have open regulatory questions. This is general information, not tax advice for your specific facts; talk to your CPA before filing.