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Freight and Shipping Costs

Regardless of what type of business you operate, the freight, shipping and postage costs you incur to receive supplies and send products to customers will likely be deductible. Overall, the treatment of these costs is straightforward but there are a few things you should keep in mind when it comes to freight and shipping costs including: If shipping costs should be deducted immediately or added to the basis of the asset you purchased, if your shipping costs should be considered cost of goods sold, and if you are responsible for paying sales tax on shipping and freight.

AUTHOR / SPEAKER

Ed is an author who just finished writing his third book. He pays shipping to have his books delivered from a printer in Indonesia. He then sells his books to bookstores across the country and through his website. The money Ed spends to have his books shipped to him from Indonesia, and the costs he incurs to send his books to retailers and his online customers are deductible as part of Cost of Goods Sold on line 39 of his Schedule C (since these costs are directly related to the production and sale of his books). Depending on what state Ed lives in and where he is sending his books, he may also need to collect sales tax on shipping and handling for his online orders (wholesale orders generally are not assessed sales tax).

ARTIST

Cassy is a painter from Cleveland, Ohio who prepared a number of new works for an important exhibition in Chicago, Illinois. Three days before the exhibition, she paid a courier service to bring her paintings from Cleveland to Chicago. Cassy would be able to deduct these shipping costs on line 27a of her Schedule C. Note that in this example, since the courier was not delivering sold artwork to a customer the shipping costs would not be classified as Cost of Goods Sold.

ENTREPRENEUR

Mr. Maxwell runs a small photography business in San Francisco, California. Yesterday, Mr. Maxwell ordered miscellaneous office supplies from Amazon for $99.00, shipping and sales tax included. When Mr. Maxwell classifies this expense in Hurdlr (and subsequently on his Schedule C), he could assign the entire $99 to Office Expenses (line 18).

LANDLORD

Sally is a landlord who owns and manages multiple rentals. Last summer, Sally had to replace the air conditioning unit at one of her rental properties. She paid $3,000 for the HVAC unit, $400 for delivery and $600 for installation. Rather than deduct the $400 of shipping on her Schedule E, Sally would add the shipping and installation cost to the basis of the air conditioning unit and depreciate the $4,000 ($3,000 + $400 + $600) capital improvement.

ENTREPRENEUR

Xavier is a famous freelance event planner who organizes extravagant parties for the biggest celebrities. Last month, he traveled from his home in Los Angeles to New York for his most important client. Upon landing, Xavier realized he had his wife's passport in his bag, which was an exceptional problem since she was set to leave for Hong Kong the next day. Xavier charged $125 on his business FedEx account to overnight the passport back to her. Even though this charge was on his business account, it will not be deductible when he prepares his Schedule C since he had no business reason for the expense.

HOW HURDLR WORKS FOR
ENTREPRENEURS

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WHAT TO KNOW ABOUT DEDUCTING YOUR SHIPPING COSTS

Shipping costs you incur for general and administrative purposes should be recorded on line 27a of your Schedule C, costs you incur sending finished products to customers on line 39 (Cost of Goods Sold), miscellaneous postage on line 18, and amounts related to capital improvements should be added to the basis of the asset your purchased.
Regardless of whether or not you charge your customers shipping on the items you send them, you should deduct your shipping expenses as a Cost of Goods Sold.
You should check with your state and your accountant to determine if you should be collecting sales tax from your customers on shipping and handling.
If you pay shipping to have miscellaneous items delivered to you, you should include the shipping cost as part of the goods you ordered. For example, a landlord who orders a $110 part to make a repair at a rental property and pays $10 shipping could simply record $120 as a repair deduction on line 14 of his Schedule E.
If you paid shipping costs from your business account to send personal items to friends and family these costs would not be deductible even though you used your business's courier account.

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