Paying taxes is annoying enough without overpaying. But that is exactly what a lot of small business owners do — not because they are trying to be noble, but because they don't realize certain expenses are deductible. Every dollar you can legitimately deduct is a dollar that lowers your taxable income, which means you keep more of what you earned.
This is not tax advice (talk to a CPA for your specific situation), but here are 12 deductions that small product businesses frequently overlook.
1. Home Office Deduction
If you use part of your home exclusively and regularly for business, you can deduct a portion of your housing costs. This applies whether you rent or own.
There are two methods:
- Simplified method: $5 per square foot, up to 300 square feet. Maximum deduction: $1,500. No receipts needed — just measure your workspace.
- Regular method: Calculate the percentage of your home used for business (workspace square footage / total home square footage), then apply that percentage to your mortgage or rent, utilities, insurance, repairs, and depreciation.
The key requirement is "exclusive use." Your dining table where you also eat dinner does not count. A dedicated spare bedroom, a converted garage corner, or a basement workshop does. The space does not need a door, but it needs to be clearly designated for business.
If you are a product seller who makes, packs, or stores inventory at home, your workspace almost certainly qualifies. Many people skip this deduction because they think it triggers audits. The IRS has stated that the home office deduction by itself does not increase audit risk.
2. Mileage
Every time you drive for business purposes, those miles are deductible. The 2026 standard mileage rate is 67 cents per mile. That adds up fast.
Deductible business miles include:
- Driving to the post office to ship orders
- Trips to craft fairs, markets, and pop-up events
- Runs to the supply store for packaging materials
- Meeting with a wholesale buyer or retailer
- Driving to the bank to deposit business income
Your daily commute to a separate workplace is not deductible. But if you work from home (see #1), every business-related trip from your house counts.
Track it: Use a mileage tracking app like MileIQ or Everlance, or keep a log in your car. Record the date, destination, business purpose, and miles driven. Without documentation, you cannot claim the deduction. A shoebox full of gas receipts is not the same as a mileage log.
3. Shipping and Postage
Every stamp, label, and package you ship to a customer is deductible. This includes:
- Postage and shipping labels (USPS, UPS, FedEx)
- Packaging materials — boxes, poly mailers, bubble wrap, packing peanuts, tape
- Shipping software subscriptions (Pirate Ship is free, but ShipStation, Shippo, etc. are deductible)
- Shipping insurance
If you buy packaging supplies in bulk from Uline or Amazon, save those receipts. A $200 order of boxes and mailers is a business expense. These costs are easy to track if you use a dedicated business credit card for all supply purchases.
4. Cost of Goods Sold (COGS)
This is the big one that most sellers already know about, but some do not track thoroughly. COGS includes everything that goes directly into making your product:
- Raw materials (fabric, wax, soap base, wood, beads, ingredients)
- Packaging that is part of the product (labels, tags, branded boxes)
- Direct labor if you pay someone to help make products
COGS reduces your gross income before other deductions are applied. If you sell $40,000 worth of product and your COGS is $12,000, your gross profit is $28,000 — and you pay taxes on the $28,000 (minus other deductions), not the $40,000.
The mistake people make: forgetting to include everything. The ribbon on your gift wrap? COGS. The tissue paper inside the box? COGS. The thank-you card you print for every order? COGS. Track every component.
5. Software and Online Tools
Any software you pay for that supports your business is deductible:
- Order management and invoicing tools
- Accounting software (QuickBooks, Wave, FreshBooks)
- E-commerce platform fees (Etsy Plus, Shopify subscription)
- Email marketing (Mailchimp, ConvertKit)
- Design tools (Canva Pro, Adobe Creative Suite)
- Cloud storage (Google Workspace, Dropbox)
- Website hosting and domain registration
Even the free tools that charge for premium features count — Canva Pro at $13/month is $156/year in deductions.
6. Platform and Payment Processing Fees
Etsy charges listing fees ($0.20 per listing), transaction fees (6.5%), and payment processing fees (3% + $0.25). These are all deductible. So are:
- Square processing fees (2.6% + $0.10)
- PayPal and Venmo business fees
- Stripe fees
- Shopify transaction fees
If you sold $20,000 on Etsy, you probably paid $1,500-$2,000 in combined fees. That is a significant deduction. Etsy provides a summary of all fees in your Shop Dashboard under Finances. Download your annual statement in January.
7. Craft Fair and Market Fees
Every booth fee, table rental, and market application fee is deductible. If you do 15 markets a year at an average of $75 per booth, that is $1,125 in deductions. Also deductible:
- Tent and display equipment purchases
- Signage and banner printing
- Tablecloths and display fixtures
- Event parking fees
Keep every receipt and note which event it was for. A simple spreadsheet tracking each market's fees, costs, and revenue also helps you figure out which events are actually profitable.
8. Business Insurance
If you carry liability insurance for your business (required by many craft fairs and retail partners), the premiums are deductible. Product liability insurance typically costs $200-$500/year for small makers. General liability runs similar.
If you have a rider on your homeowner's or renter's insurance that covers business equipment or inventory, that additional premium amount is also deductible.
9. Education and Professional Development
Courses, workshops, and books that improve your business skills are deductible. Examples:
- An online course on Etsy SEO optimization
- A workshop on soap making techniques (if soap is your product)
- Business books and audiobooks
- Conference or trade show admission fees (plus travel to get there)
- Membership in a professional organization or trade group
The education needs to relate to your current business. A pottery class is deductible if you sell ceramics. A scuba diving certification is not — unless you sell underwater photography, in which case it might be.
10. Internet and Phone
If you use your personal phone and internet connection for business, you can deduct the business-use percentage. Most small business owners estimate 25-50% business use, but the actual percentage depends on your situation.
If your monthly internet bill is $80 and you use it 40% for business (processing orders, managing your online shop, responding to customers, marketing), that is $32/month or $384/year in deductions. Same logic applies to your cell phone bill.
The simplest approach: look at your usage honestly, pick a reasonable percentage, and apply it consistently. If the IRS ever asks, "I use my phone for customer communication, order management, social media marketing, and payment processing" is a defensible answer.
11. Advertising and Marketing
Any money spent promoting your business is deductible:
- Etsy Ads and social media advertising (Facebook, Instagram, Pinterest)
- Business cards and flyers
- Product samples given away for marketing purposes
- Promotional discounts (the cost of the discount, not the lost revenue)
- Website costs related to marketing (SEO tools, landing pages)
- Branded stickers, packaging tape, or thank-you cards with your shop info
That $50 you spent on Instagram ads in November? Deductible. The 200 business cards you ordered from Vistaprint? Deductible. The free samples you handed out at a farmers market? Deductible (at your cost to make them, not retail value).
12. Bank Fees and Interest
If you have a dedicated business bank account (and you should), the monthly fees are deductible. Also deductible:
- Business credit card annual fees
- Interest on business loans or business credit card balances
- Wire transfer fees
- Overdraft fees on your business account (though ideally you are avoiding those)
How to Actually Track All of This
Knowing about deductions is useless if you cannot prove them. The IRS requires documentation. Here is the minimum you need:
- Separate bank account. Run all business income and expenses through one account. This alone makes tax time dramatically easier.
- Save receipts. Physical or digital. Take a photo of paper receipts the day you get them — thermal paper fades. Apps like Dext or even a dedicated Google Photos album work.
- Mileage log. Date, destination, purpose, miles. No log, no deduction.
- Annual summaries. Download your Etsy, Square, PayPal, and Stripe annual statements in January. They pre-calculate your fees and revenue.
Set a monthly calendar reminder to categorize expenses. Fifteen minutes a month is way better than eight hours of panic in April. Your future self — and your accountant — will thank you.