Schedule C - Deciding How to Categorize Expenses for E-Commerce Business?

[Michael in ABQ]

I know we have several CPAs here and I'm wondering how you determine where to categorize different expenses on the Schedule C?

Is there any sort of guide or reference based on different industries or business types? I'm sure the IRS has some internal guidelines where if they see certain expense categories out of line for that type of business it raises a red flag. I'm looking to get bank financing in the next year or so and maybe eventually sell my business. So I want my tax return to match my Income Statement as closely as possible and be reasonable.


I have a small e-commerce business where I buy products wholesale from manufacturers in the US and resell them on Amazon. Some of my expenses are fairly straightforward like advertising or marketing. But there's also some expenses that are somewhat unique. For instance if I sell a $15 product, Amazon takes an 8-15% commission and then charges me $3-7 for the pick, pack, and ship fee (fulfillment). They also charge me monthly storage fees based on how much inventory I have in their warehouses. Then there's a monthly $40 charge for the privilege of using their platform.

What about SaaS (Software as a Service) subscriptions? Is the monthly fee for my cloud accounting software Line 17: Legal and Professional Services or Line 18: Office Expenses?

The Amazon sales commission I could put in Line 10: Commissions and Fees. What about the other fees for fulfillment, storage of inventory, and using their platform? I don't want to just throw everything into line 27a: Other Expenses which is mostly what I did last year when my expenses were only a few thousand dollars.

I appreciate any insight or links to other resources.

[Michael in ABQ]

Bump. Hoping to get some input on this. 157 views so far.

I know that there's not necessarily a "right" answer, just looking for any other thoughts or opinions.

[jpdx]

It sounds reasonable to put all your commission and Amazon fee expenses on Line 10: Commissions and Fees.

I'd put software and cloud services under Office Expenses.

If you wish to delineate further, you can always add your own categories. I'm not a CPA, but I suspect it makes no difference how you choose to categorize these expenses. I've read that the IRS may scrutinize certain categories like meals, travel, and entertainment more than others, but that doesn't seem to apply here.