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- March 1, 2025
Maximizing Tax Deductions and Credits for Retail Stores
Retail stores mean multiple taxes and expenses. It’s not an easy job to operate and scale a retail store, right? But what if you could find some ways to bring down your retail business tax? It could improve your bottom right quite significantly.
In this blog, we will share some tips to maximize your tax deductions and tax credits. So let’s get started. But first, let’s understand what tax deductions and credits mean.
What are Tax Deductions and Credits?
A tax deduction is an option that reduces your taxable income. This means you’ll have to pay less tax. For example, if you earned $100,000 but had $20,000 in deductions, you’d only pay tax on $80,000. But Tax credits are different. You can use them directly to reduce your tax. For example, if you owe $10,000 and have a $1,000 tax credit, you’ll only have to pay $9,000.
In short, tax deductions and tax credits are different, but they both reduce your tax. So, let’s take a look at both of these options.
Top Tax Deductions for Retail Stores
1. Cost of Goods Sold (COGS)
This is a major cost deduction option. All retail stores purchase their inventory regularly. With COGS, they can get a major tax deduction. COGS includes the cost of purchasing or acquiring products. This could be anything like raw materials, shipping fees, or even storage costs. You can claim tax deductions on all these expenses in a year.
2. Advertising and Marketing
Advertising and marketing have become almost mandatory in today’s competitive environment. So, almost every business has to spend money on it. Thankfully, retail store owners can claim tax deduction on these expenses entirely. Let’s say you are spending $8500 on newspaper ads, billboards, and digital marketing. Then, you can reduce your taxable income by $8500 in that year. In fact, you can also claim deductions on the expenses for hiring a marketing agency or a consultant.
3. Rent and Utilities
If you lease your retail space, then you can fully deduct your rent from your taxable income. Similarly, you can deduct utility bills like electricity, water, internet, and phone services.
4. Employee Wages and Benefits
This is another major deduction. You can deduct Salaries, wages, bonuses, and commissions you pay to your employees. But you will have to keep all the same documents. On top of that, you can also deduct additional benefits like health insurance and retirement plans.
5. Insurance Premiums
As a retail store owner, you’ll need various types of insurance. This includes property insurance, liability insurance, and more. But you can claim deductions on all these insurance premiums. Just keep receipts and policy information handy when filing taxes.
6. Depreciation
Another way to reduce your taxable income is by claiming depreciation. It applies to your assets, like equipment, furniture, and tools. You can spread your depreciation over these assets’ useful lifecycles. The IRS allows businesses to use the Modified Accelerated Cost Recovery System (MACRS) for depreciation.
On the contrary, you can take advantage of Section 179. Under this rule, you can deduct the full cost of certain assets, like new equipment, in the same year you purchase it. For 2024, the deduction limit under section 179 is $1,220,000.
7. Business Vehicle Expenses
A lot of retail businesses use vehicles. For example, some use it to deliver products, while some use it for business-related trips. In all cases, you can claim deductions for vehicle expenses. IRS offers two methods to calculate these deductions:
●The standard mileage rate: Deduct 65.5 cents per mile driven for business purposes (IRS rate for 2024).
●The actual expense method: Deduct vehicle-related costs, such as gas, repairs, insurance, and depreciation.
8. Office Supplies and Equipment
Retail businesses use a lot of consumable office supplies and some equipment, too. For example, paper, pens, and cash registers. These expenses are fully deductible. All you need is the records of purchases for the entire year.
9. Professional Services
Let’s say you hire a tax accountant expert like CROWNGLOBE to manage your taxation. Or you are hiring a lawyer or a marketing consultant. You can claim deductions on all the payments you make to these professionals.
10. Licenses and Permits
You’ll obviously need licenses and permits related to your retail store. For example, you might need business licenses, health permits, or some other industry-specific licenses. It will cost you a bit. But the good thing is you can claim deductions on these licensing fees.
11. Interest on Business Loans
If you have got some business loan EMIs to pay, you can claim a deduction of the interest paid in these repayments. But remember, this applies only to business loans and not personal loans. You can claim deductions on any loans that you might have used for store expansion, capacity expansion, or new equipment.
12. Education and Training Expenses
This is another (yet commonly ignored) tax deduction for retail store owners. Store owners regularly attend seminars, workshops, and online courses that can enhance their business knowledge. IRS allows to claim deductions on the fees paid for these courses.
Tax Credits Available for Retail Stores
Tax credits are another option to ease your tax burden. Here are some common retail store tax credits that you should know:
1. Work Opportunity Tax Credit (WOTC)
Sometimes, certain individuals or groups struggle to find proper employment. For example, veterans or individuals living on government assistance. If you employ such individuals or groups, you get tax credits for them. But these tax credits are generally available only if you are hiring for entry-level positions or part-time jobs. Still, if you do so, it could benefit you a lot.
2. Disabled Access Credit
A lot of store owners spent some good money to make their retail stores accessible to disabled individuals. These store owners are eligible for Disabled Access Credit. This can help small businesses cover these expenses. The maximum credit is $5,000 every year.
3. Employer Credit for Paid Family and Medical Leave
Your employees take paid family and medical leave. In some cases, the employers might be eligible for tax credit. This credit is valid If you offer at least two weeks of paid leave to your employees for either family reasons or medical reasons. The credit is around 12.5% to 25% of the wages you pay during these leaves.
4. Energy Efficient Commercial Buildings Deduction
This is a tax credit that’s available for store owners who make energy-efficient changes to their retail stores. For example, if you install energy-saving lights or insulation, you might get this tax deduction.
5. Small Business Health Care Tax Credit
If you offer health insurance to your employees, you may be eligible for this tax credit. It’s available to businesses with fewer than 25 full-time employees. The credit can cover up to 50% of premiums paid for employee health insurance.
6. Research and Development Tax Credit
Although primarily available to tech or manufacturing companies, retail businesses that develop new products, processes, or systems may also qualify for the Research and Development (R&D) tax credit. If your business is investing in innovations to improve operations, explore this credit.
How to Get Maximum Tax Deductions and Credit?
The first thing you have to do is maintain accurate records. Keep your receipts, invoices, and employee payroll documents easily available. Then consult a tax accountant expert like CROWNGLOBE. Our tax advisors and accountants can help you identify the most beneficial tax credits and tax deductions.
Most importantly, do it fast. You cannot afford to wait till the last minute to get your tax planning sorted. The more time you give to your tax expert, the better tax optimization they can do.
We hope this blog will help you bring down your overall tax burden. If you need any further assistance, our experts are here to help. So feel free to reach out. Our tax experts will answer all your queries.
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