If you run a dropshipping business, you’re likely spending money on product sourcing, marketing, and the tools that keep your store running. The good news? Many of these expenses are tax deductible, meaning they can help reduce your taxable income and save you money.
Common Dropshipping Tax Deductions
Here are the most common business expenses you can deduct as a dropshipper:
- Product Sourcing Costs
Although you don’t hold inventory, you pay suppliers for the products you sell. These costs are part of your cost of goods sold (COGS) and are fully deductible. - Supplier Fees
Some dropshipping suppliers charge membership or platform fees. Whether it’s a monthly fee to access their products or per-order charges, these are legitimate business expenses you can write off. - Advertising and Marketing Spend
Running ads on platforms like Facebook, Instagram, or Google? Ad spend is one of the largest expenses for dropshippers and is 100% deductible. This includes paid ads, influencer marketing, and any promotional materials. - Ecommerce Software and Tools
The tools that help run your business—like Shopify, Oberlo, inventory management software, and analytics tools—are all tax-deductible. This also includes email marketing platforms, website hosting fees, and design tools like Canva or Adobe Creative Cloud. - Transaction Fees and Payment Processing
Fees from Shopify Payments, PayPal, Stripe, or other payment processors are considered operational costs and are fully deductible. - Professional Services
If you hire freelancers or agencies for web design, copywriting, or tax prep, those costs are also deductible.
How to Claim These Deductions
To properly deduct expenses, keep accurate records, including receipts, invoices, and payment confirmations. Categorize each expense and track them throughout the year. These will be reported on your tax return—usually on Schedule C for sole proprietors.
Final Thoughts
Running a dropshipping business comes with a variety of costs, but most of them are deductible if they’re ordinary and necessary for your business. By understanding what qualifies, you can reduce your tax liability and boost your bottom line.
