What Is Tax Deductible in a Retail Store?
Like any other business, running a store entitles you to write off expenses from your business income. The basic IRS rule is that a deduction has to be "ordinary and necessary" to be legitimate. If other, similar store owners spend money on the same kind of expenses you do, your expenses are ordinary. And any expense that helps you do business is "necessary" -- even if you could get by without it.
Whether your store sells gourmet coffee, shoes or surfboards, the cost of goods sold is a write-off for you. Start by taking the value of your inventory at the beginning of the year. Then add in the cost of all the inventory you bought during the next 12 months. Subtract the value of your end-of-year inventory and you get the deductible cost of goods sold. Subtract that from your gross receipts for the year.
If you rent space, as many retailers do, your rent is a tax-deductible business expense. So are all the other expenses required to keep your store going, such as power, water, cleaning, repairs and maintenance. You may be able to claim some of your overhead as part of the costs of goods sold but you can't then deduct it as a separate business expense as well. Choose whichever way gives you the best tax break.
A successful store requires a sales staff, and their pay is a tax deduction. This includes employee salaries, sick leave and vacation and money you put in their 401(k) accounts. It also covers the money you spend on fringe benefits such as health insurance. Employees' pay must be for work they actually perform, and it must be reasonable. If the IRS decides you're paying your staff an excessive amount compared to the local standard, you may not be able to write it off.
Pretty much everything you buy as equipment for your store is deductible. That includes tables, cash registers, chairs, shelves, office supplies and computers. You can write them off two ways. Most purchases can be written off under section 179 of the tax code so that you can deduct the entire amount the year you spend the money. If you prefer, you can depreciate the items over several years to give you smaller, regular write-offs year after year.