Summary
Your tax outcome depends on the steps you take now. Reviewing expenses, managing inventory accurately, and keeping your books current can all reduce taxable income and strengthen cash flow.
By leveraging deductions like Section 179, adjusting inventory values, and partnering with a professional bookkeeper, you’ll gain financial clarity and confidence heading into tax season.
Don’t Miss These 3 Year-End Tax Moves for Your eCommerce Business Before 2026
As the year wraps up, eCommerce sellers have one last opportunity to influence how much they’ll owe in taxes. The right steps now can reduce taxable income, improve cash flow, and give you a clean financial start to the new year.
Three areas have the biggest impact: how you record expenses, how you value your inventory, and whether your books are being managed properly. Understanding and acting on these before December 31 can make a measurable difference in what you pay and how prepared you are heading into tax season.
1. Understanding Taxable Income and Section 179 Deductions
When you run a business, the IRS taxes your profit, not your total sales.
Here’s the formula simplified:
Sales (Revenue) – Business Expenses = Taxable Income
You pay income tax on that final number, your taxable income.
That means anything that increases your business expenses or decreases your reported income before December 31 can reduce your tax bill for that year.
Example:
Let’s say your eCommerce store brings in $100,000 in sales this year.
You’ve already spent $60,000 on normal operating costs (inventory, shipping, marketing).
That leaves $40,000 in profit, which is what you’d pay taxes on.
If you decide in December to buy $5,000 in new photography equipment and $2,000 in packaging supplies, those are legitimate business expenses.
Now your expenses rise to $67,000, and your taxable profit drops to $33,000.
You’ve lowered your taxable income by $7,000.
If your total tax rate (federal and state combined) is about 25%, that $7,000 deduction saves you roughly $1,750 in taxes.
How Section 179 Deductions Work
When the expense is for something longer-term, such as equipment or technology, it may also qualify under Section 179. This allows you to deduct the full cost of certain assets (such as computers or cameras) in the year you buy them instead of spreading the deduction out over several years through depreciation.
Some business expenses, such as equipment, computers, or technology, are considered long-term assets. Normally, these items are depreciated; you deduct a portion of their cost each year over the asset’s useful life.
Section 179 changes that rule. It lets small business owners deduct the full purchase price of qualifying assets in the same year they’re purchased.
This immediate deduction helps reduce taxable income right away instead of spreading savings over time.
Example:
You purchase a new computer and camera setup for $8,000 in December. Under Section 179, you can deduct the entire $8,000 this year (as long as the equipment is placed in service before December 31). Without it, you might only deduct $1,600 per year over five years.
What Qualifies for Section 179
- Computers, cameras, and photography gear used to create product listings or marketing content
- Office furniture, printers, or monitors used for business operations
- Warehousing equipment such as barcode scanners or label printers
- Business-use vehicles and delivery vans (subject to limits)
- Software purchased outright, not subscription-based, if it’s used in your operations
The annual deduction limit is generous. For the 2025 tax year, businesses can deduct up to $1.25 million.
These limits mean most eCommerce businesses can expense 100 percent of their qualifying equipment purchases in the year they buy them.
Key takeaway:
Understanding how taxable income works and using deductions like Section 179 strategically helps you lower your tax bill and reinvest savings back into your business.
2. Manage Inventory for Tax Savings
Inventory plays a major role in how much tax you owe. The value of your inventory directly affects your Cost of Goods Sold (COGS), a key number that determines your taxable income.
Here’s how it works:
Beginning Inventory + Purchases – Ending Inventory = Cost of Goods Sold
If your ending inventory is overstated (too high), your COGS looks smaller, which makes your profit and your tax bill larger.
If your ending inventory is lower, your COGS increases, which reduces taxable income.
That’s why reviewing your inventory before December 31 is an important step in year-end tax planning.
Start with a Physical Count
Before closing your books, conduct a full year-end inventory count.
- Count every product, SKU, and variation you have in stock.
- Verify that the quantities match what’s listed in your eCommerce platform and accounting system.
- Update your records for accuracy.
If you use multiple selling channels (Shopify, Amazon, Etsy), make sure your data syncs correctly. Even small discrepancies can cause reporting errors and affect your taxable income.
Identify Unsellable or Damaged Stock
Not all inventory holds its original value. Some items lose value or become unsellable during the year. These include:
- Damaged products that can’t be sold at full price
- Expired or outdated goods
- Slow-moving stock that won’t sell before becoming obsolete
- Customer returns that can’t be resold
When this happens, the IRS allows you to write down or write off those items to reflect their true value.
- A write-down reduces the value of the item but doesn’t remove it completely (for example, discounting 100 units from $20 to $5 each).
- A write-off removes the item entirely if it has no resale value.
These adjustments lower your ending inventory balance and increase your COGS resulting in less taxable income.
Example:
You started December with $50,000 worth of inventory. After reviewing it, you find:
- $3,000 of products are damaged,
- $2,000 of older models will be sold at a heavy discount.
Your adjusted ending inventory becomes $45,000. That $5,000 reduction increases your COGS by $5,000, which lowers your taxable income by the same amount. If your tax rate is 25%, you save about $1,250 in taxes.
3. Work with a Professional Bookkeeper Before Year-End
Even with the best intentions, year-end tax planning gets complicated fast. Between reconciling accounts, valuing inventory, and tracking deductible expenses, small errors can lead to missed savings or incorrect filings.
A professional bookkeeper helps you:
- Keep your books accurate and current so your accountant can file faster
- Catch missing expenses or duplicate income entries that could affect taxes
- Ensure deductions and Section 179 purchases are recorded correctly
- Track inventory values and adjustments so your Cost of Goods Sold is accurate
- Provide clean financial statements your CPA can trust
Example:
If your books are three months behind, your year-end financials may not reflect recent spending. That could cause you to miss deductions like software renewals, prepaid insurance, or late-year equipment purchases. A bookkeeper reviews transactions weekly, ensuring every expense counts before December 31.
When you partner with Xendoo, you get a dedicated bookkeeper and accountant who specialize in eCommerce. Your team handles reconciliations, COGS adjustments, and year-end prep so you can focus on running your business instead of fixing numbers in January.
Pro tip: You can deduct Xendoo’s services under professional fees.
Key takeaway:
Hiring a professional bookkeeper before year-end gives you more control over your taxes, fewer surprises at filing time, and confidence that your numbers are right.
Conclusion
Year-end tax planning is about strategy and preparation. The right actions now help reduce your tax bill, strengthen your financial foundation, and position your business for success.
Record every deductible expense, review your inventory carefully, and keep your books accurate and up to date. Working with a professional bookkeeping team like Xendoo ensures every number is correct and every deduction is captured.
With organized financials and a clear plan, you’ll be ready for tax season and confident in the financial health of your business.
