Top 10 Overlooked Tax Deductions for Shopify Businesses in 2026

Running a Shopify business in Canada can be overwhelming, especially with all its moving parts. One day you can be managing products, services, and inventory. Another day you’re figuring out marketing campaigns and everything in between. Tax planning usually ends up at the bottom of this list. By then, it’s easy to overlook legitimate business expenses which can be used as tax deductions to reduce your tax bill.

The good news is that many of the costs in operating an online Shopify business are tax-deductible. Some of these include inventory purchases, advertising, Shopify description fees, home expenses, and many others. These deductions significantly reduce your taxable income when properly documented. Being able to claim tax deductions also means being able to keep more money in your business so you can invest in growth.

For most Shopify businesses, a common problem is being able to keep the right records in order to deduct the right expenses. Even small monthly expenses can add up over the course of a year. Being able to claim legitimate business expenses helps improve cash flow, strengthens profitability, and ensures you’re not paying more tax than necessary.

In this guide, we discuss the top 10 overlooked tax deductions for Shopify businesses in 2026. We’ll explain what each deduction includes, who claims it, and how to keep the documentation required by CRA.

Let’s get started!

Cost of Goods Sold (COGS)

For most profitable businesses, cost of goods sold, or COGS, is probably going to be your largest tax deduction. If you sell physical products and keep inventory, cost of goods sold represents the direct costs associated with acquiring and producing the products that you sell. Since this is directly connected to your profit, it is one of the most effective ways to maximize tax savings in 2026.

It is important to note that cost of goods sold… It is important to note that cost of goods sold cannot be used as a deduction for every purchase immediately. Inventory that remains unsold, for example, is generally kept as inventory on hand rather than as an expense until it is sold. This means that the cost of goods sold expense or deduction can only be claimed once your product has been sold. If it hasn’t, it cannot be claimed and should be kept as inventory.

What Can be Included in COGS?

Depending on your business model, your Cost of Goods Sold may include:

• Wholesale inventory purchases
• Raw materials used to manufacture products
• Manufacturing or production costs
• Import duties and customs fees
• Freight and shipping costs paid to receive inventory
• Packaging that becomes part of the product sold
• Direct labour costs for businesses that manufacture products

As an example, see purchase supplies for $12 each and sell them for $34. The $12 purchase price forms part of your cost of goods sold at the point of sale. If you also paid any import duties and inbound freight to receive the supplies for your product, those costs can also be included in your cost of goods.

Why COGS Matters

Many Shopify business owners assume that every single cost needs to be deductible. In reality, the deduction is actually only tied to the products you sell. Here’s a simplified example.

• Beginning inventory: $8,000
• Inventory purchased during the year: $45,000
• Ending inventory: $10,000

Your Cost of Goods Sold would generally be:

$8,000 + $45,000 − $10,000 = $43,000

That $43,000 reduces your business income before your taxes are calculated.

Keep Accurate Inventory Records

In order to clean cost of goods, you need to have a strong inventory management system. This system should keep records of the following:

• Supplier invoices
• Purchase receipts
• Import and customs documentation
• Freight bills
• Inventory counts
• Returns and damaged inventory
• Purchase orders

Inventory systems are efficient and modern capable, and doing this and even going as far as automated some of this process for you. Be sure to also record any inventory adjustments such as shrinkage, damaged products, and customer returns… so that your inventory levels reflects what’s actual and accurate.

Common Mistakes to Avoid

Many Shopify store owners make avoidable errors when calculating COGS, including:

• Deducting all inventory purchases instead of only the cost of products sold
• Failing to perform a year-end inventory count
• Mixing personal purchases with business inventory
• Not keeping supplier invoices and shipping documentation
• Forgetting to include import duties and freight costs that are part of acquiring inventory

Since COGS is often the largest deduction available to product-based businesses, getting it right can make a significant difference in your overall e-commerce tax benefits and help ensure your tax return accurately reflects your business’s profitability.

Shopify Home Office Expenses

Many Shopify businesses run their whole operation from the comfort of their home. They usually use a single room in their home to do this. If the room in which you… If you have a room in your home where you manage orders, answer customer emails, create content, or store inventory, you may be able to claim home expenses as your business deductions.

For many businesses, this may be one of the most overlooked tax deductions. Misconception is that businesses assume they cannot claim this because they do not have a separate corporate office. In reality, hardware, sorry, in reality, the IRS allows eligible business owners to deduct a portion of certain household expenses based on the space used to earn their business income.

Do You Know if You Qualify?

According to CRA you may be able to claim home office expenses if your workspace meets one of these conditions:

• It is your principal place of business, meaning you conduct most of your business activities there.
• It is used exclusively to earn business income and is used regularly to meet with clients, customers, or suppliers.

For many Shopify businesses, the first condition is the one that applies. If your home is where you manage your online store, process orders, update products, communicate with suppliers, and handle administrative work, your workspace may qualify.

What Expenses Can You Deduct?

The expenses you can claim depend on whether you rent or own your home, but common deductible costs include:

• Rent
• Electricity
• Heat
• Water
• Home insurance
• Internet service (business-use portion)
• Property taxes (in some situations)
• Mortgage interest (for eligible businesses and depending on your business structure)
• Maintenance and minor repairs related to the workspace

An important thing to note is that these expenses are generally claimed based on the percentage of your home and also the time used for the business. You cannot claim the entire amount, unless you can prove that your entire home is being used for the business.

How to Calculate Your Deduction

CRA allows you to use two different methods to calculate the percentage of home office expenses that can be deducted.

These included:

• using the portion of square footage of your home
• using the portion of rooms used for the business

For example, say you have five rooms in your home and one of them is being used to operate your Shopify business. If that room is only used for Shopify business at all times, you can deduct 20% or one out of five rooms of your business expenses. This means if your total home expense was $1000, you can deduct $200.

If that space was also used for personal activities, you have to take into consideration the portion or time used for personal activities versus business as part of the calculation.

Keep Supporting Documentation

Once you claim the home office expenses, you have to be sure to keep records of them, just like you would for any other business activities. Having your records organized makes it easier to support your claims if CRA requests them.

Don’t Overclaim

Home office deductions are valuable, but they’re also an area where business owners sometimes make mistakes. Claiming your entire internet bill when only part is used for business, estimating your workspace without measuring it, or including personal renovation costs can all create problems.

A reasonable, well-documented claim is far more likely to withstand scrutiny than an aggressive one. When in doubt, work with a tax professional who understands tax filing for Shopify owners and can help ensure you’re claiming every dollar you’re entitled to—without crossing the line.

Advertising and Marketing Costs

Growing your Shopify business means investing in acquiring customers at a rapid and large scale. This typically involves marketing in the form of running Facebook ads, paying influencers, or hiring someone to optimize your website. These costs are generally considered ordinary business expenses and therefore are deductible. For many Shopify businesses, advertising is one of the biggest ongoing expenses and probably one of the most valuable tax deductions.

To claim advertising and marketing costs, the expense must be incurred to promote or generate revenue for the business.

Common Deductible Marketing Expenses

Shopify businesses often spend money across multiple marketing channels. Some of the most common deductible expenses include:

• Facebook and Instagram Ads
• Google Ads
• TikTok Ads
• Pinterest Ads
• YouTube advertising
• Influencer and creator partnerships
• Email marketing platforms
• Search engine optimization (SEO) services
• Graphic design and branding
• Product photography
• Logo design
• Email campaings
• Promotion videos
• Product photography
• Video production
• Content writing and copywriting
• Social media management
• Printing promotional materials
• Business cards and flyers

If you’re paying someone to help grow your Shopify store, whether it’s a freelancer, marketing agency, or consultant, those fees are generally deductible as well.

Shopify Specific Marketing Expenses

Advertising and marketing specific to Shopify stores can also come from digital marketing tools and subscriptions. These can quickly add up over the course of a year and can also be used as deductions. Few examples of these include:

• Klaviyo or Mailchimp email marketing subscriptions
• Canva Pro for marketing materials
• Shopify Email
• Loyalty and referral program apps
• Review management apps
• SMS marketing platforms
• Affiliate marketing software
• Landing page builders

Watch for Personal vs Business Spending

A major source of confusion for most Shopify businesses is mixing personal and business promotions. An example could be posting your business on social media in order to advertise it and gain more clients. This is in contrast to posting a personal vacation on your personal social media profile without any clear business purpose.

While it helps to have separate accounts to distinguish between business and personal activities, it also helps to understand the motive behind activities on these social media platforms. In all cases, this should be clear intention… when the motive is business related.

Software and App Expenses

Shopify businesses rely on a plethora of software applications and online services to manage all parts of their operations. These business-related softwares are generally deductible, making them an important part of tax savings for Shopify businesses in 2026.

While these subscriptions can cost as low as $10 to as high as $200 per month, they do add up very quickly. This is why it’s important to track them and use them as deductions in the future.

What Software Expenses Can You Claim for Shopify Business?

In general, software and subscription fees are deductible if they are purchased to operate or improve your business. If the software is used primarily for running your Shopify business, it’s generally considered a legitimate business expense.

Common examples include:

• Shopify Basic, Grow, Advanced, or Plus subscription fees
• Shopify app subscriptions
• Premium Shopify themes purchased for your store
• Inventory management software
• Accounting software such as QuickBooks Online, Xero, or FreshBooks
• Bookkeeping software
• Customer relationship management (CRM) software
• Email marketing platforms
• Graphic design software
• Video editing software
• Password management software
• Cloud storage services
• Project management tools
• Live chat and customer support software
• AI writing and productivity tools used for business

One-time Purchases vs Ongoing Subscriptions

Something to consider is the difference between a one-time purchase versus an ongoing subscription. These are generally not treated the same for tax purposes.

Current, monthly and ongoing subscriptions are immediately deducted as an expense in the year that they are incurred. Larger one-time software purchases or long-term digital assets on the other hand may need a different treatment.

One-time purchases are generally classified as assets rather than expenses and therefore may not be deducted at once. Instead, what happens is these are deducted over the course of time and usage. Say, for example, you purchase a Zoom subscription for the year for $300. That $300 is recorded as an asset at the time in which it was purchased. As months pass and as the Zoom subscription is used, that is when the expenses are recorded. This means that if you purchase the subscription a month prior to the end of your year-end, you can only claim a month’s worth of Zoom subscriptions and not the entire $300.

Your accounting software can help you track one-time or ongoing subscriptions and also allow you to implement automations that will make it easier for you to record and stay on top of.

Shipping and Delivery Costs

Shipping is one of the biggest costs many Shopify business owners incur. Whether you’re mailing products across Canada or shipping internationally, these costs play a big part in operating your Shopify business. Fortunately, many of these expenses are deductible, making shipping an important category of business expense deductions for 2026. It’s a necessary cost for your business. And tracking these expenses accurately, can help reduce taxable income while giving you a better understanding of your true profit margins.

What Shipping Expenses are Deductible?

In general, shipping and delivery expenses that are directly related to your business operations may be deductible.

Common examples include:

• Canada Post shipping costs
• Courier fees (UPS, FedEx, Purolator, DHL, etc.)
• Shipping labels purchased through Shopify Shipping
• Freight charges for customer deliveries
• Packaging materials
• Shipping insurance
• Customs documentation fees
• Delivery tracking services
• Postage costs
• Packing supplies
• Local courier services

If you’re paying to deliver products to customers, those costs are generally considered ordinary business expenses.

Separate Inbound and Outbound Shipping

Something many Shopify businesses don’t know about is the difference between inbound and outbound shipping.

Inbound shipping refers to costs incurred to bring products to your business location before that product is actually shipped. These types of expenses are actually not deductible and are considered part of inventory costs.

Outbound shipping on the other hand are costs incurred to send products to your customers. These costs are expenses that are typically treated as part of the operations of your business and therefore are deductible. Being able to distinguish between the two can save you a ton of headache down the line.

Professional Services Fees

Handling the financial aspect of your Shopify business can only take you so far. As your business starts to grow, you might be looking for ways in which to outsource financial upkeep to professionals. This can include hiring accountants, lawyers, business strategists, tax planners, and other specialized services to help with your growth. The fees you pay for these services are deductible when they’re related to your business earnings.

At the beginning, many Shopify businesses are reluctant to hire professionals because of the cost. However, in the long run, they can actually save you money and help you make smarter financial decisions.

Professional Fees You Can Typically Deduct

A wide range of professional services may qualify as deductible business expenses, including:

• Accounting and bookkeeping services
• Tax preparation and tax planning
• Legal advice and contract drafting
• Business consulting
• E-commerce consulting
• Financial advisory services
• Payroll services
• Business valuation services
• Trademark and intellectual property advice
• Corporate filing services
• Business licensing assistance

Whether you pay these professionals on a one-time basis or through an ongoing monthly agreement, the fees are generally deductible if they’re incurred for your business.

Why an Accountant or Bookkeeper Can Save You More Than They Cost

As your Shopify business grows, it becomes more complex. Eventually, you will start to have inventory to track, GST sales obligations, multiple sales channels, expanding into foreign countries, point-of-sale, payment processors, or even recurring subscriptions.

An accountant who understands Canadian e-commerce can help you:

• Identify deductions you may have overlooked.
• Ensure your expenses are categorized correctly.
• Keep your financial records CRA-ready.
• Plan for income taxes instead of being surprised by a large tax bill.
• Advise on GST/HST registration and reporting requirements.
• Recommend bookkeeping practices that save time throughout the year.

Instead of treating tax preparation as a once-a-year task, many successful Shopify owners use their accountant as an ongoing advisor to improve the financial health of their business.

Legal services are another overlooked deduction for many Shopify businesses. Your first encounter with legal service is typically when you start to incorporate your business, if your business has high risk or if you’re filing the patents for your products. Regardless of the situation, if you hire a lawyer to help with business-related services, those costs are often deductible.

A few examples of this include:

• Reviewing supplier agreements
• Drafting terms and conditions for your website
• Preparing partnership agreements
• Trademark registration advice
• Contract negotiations
• Business incorporation assistance
• Intellectual property protection

These services help protect your business and are generally considered legitimate operating expenses.

Choose Professionals Who Understand E-commerce

Not every professional is adept at working with Shopify businesses. Shopify businesses come with their own challenges, and therefore, it is important to hire someone who understands those challenges. When choosing a professional, it is best to understand your experience within the industry and reflect on your expectations to help you with your unique problems. An advisor who regularly works with e-commerce clients is more likely to help you find solutions to the problems you face, specifically, as opposed to one who may have a general resolve for the issues that arise with your business.

Utilities and Telecommunications

Communication and utility service are very important part of running a Shopify business. Without these things, you will not be able to answer phones, process orders, respond to customers, update products, manage supplies, or run your Shopify store in general. This is why many utility and communication expenses are deductible when you use them for business purposes.

If you run your Shopify business from your home, home office expenses that include utilities and telecommunications are claimed as part of your home office expenses. If you run your business in a store separate from your home, you can deduct the full amount of expenses related to utilities and telecommunications, rather than the portion that you would deduct if you worked from home.

What Expenses Can You Claim?

Depending on how your business operates, eligible utility and communication expenses may include:

• Electricity
• Natural gas
• Heating costs
• Water and sewer services
• Internet service
• Business telephone line
• Business cell phone plan
• VoIP phone services
• Fax services (if still used)
• Commercial office utilities

These services are considered ordinary business expenses because they help you operate and generate income.

Other Overlooked Communication Costs

Many Shopify businesses also pay for communication services beyond a traditional phone bill. These expenses may also qualify if they’re used for business purposes.

Examples include:

• Virtual phone numbers
• Business texting platforms
• Video conferencing subscriptions
• Team messaging software
• Business email hosting
• Domain email services

Inventory Management Costs

Being able to keep track of your inventory can make or change how well you use your cash flow in your Shopify business. Knowing which products are available to you right now, what has been sold and what products need to be purchased, is an essential part of a healthy Shopify business. Many of the tools used to manage and track these KPIs are legitimate business expenses that can help improve both your operations and your tax position.

Generally, inventory is accounted for through Cost of Goods Sold. However, the cost of managing the inventory itself is a deductible expense. Understanding this is important when making decisions about the types of tools and inventory management systems that are needed to be purchased for your Shopify business.

What Inventory Management Expenses Are Deductible?

Inventory management involves much more than counting products on a shelf. Depending on how your business operates, deductible expenses may include:

• Inventory management software
• Barcode scanners
• Label printers
• Warehouse management software
• Inventory forecasting tools
• Stock counting equipment
• Warehouse shelving used for business operations
• Inventory audit services
• Third-party inventory management services
• Fulfillment management software

These expenses help you accurately track inventory, reduce losses, and improve order fulfillment—all of which support your business’s ability to earn income.

Managing Inventory Write-offs

Not every product you purchase will eventually be sold. There are tax implications on how these types of inventory needs to be accounted for. For example, if the shipment of a product arrives damaged beyond repair or seasonal merchandise can no longer be sold, keeping detailed records of the loss is essential. Photographs, supplier correspondence, disposal records, and inventory adjustment reports can help support your bookkeeping.

Examples of inventory write-offs include:

• Damaged
• Expired
• Obsolete
• Lost
• Unsellable due to defects
• Outdated because of changing trends

Travel Expense

For the majority of Shopify businesses, operations are generally online, and therefore travel may not be necessary. However, there are occasions in which you may need to travel in order to run your Shopify business. This may include visiting trade shows or suppliers, meeting with manufacturers, or traveling to negotiate business deals. When travel is taken for business purposes, it is a deductible expense.

A key component of being able to deduct travel expense is the ability to prove that it was for business income and not for personal enjoyment. CRA closely monitors these type of expenses and so a care must be taken when claiming these.

What Business Travel Expenses Can You Deduct?

So what types of travel expenses can you deduct for your Shopify store? Any business related travel expense. Here are a few examples:

• Airfare
• Train or bus tickets
• Taxi, rideshare, or public transportation
• Hotel accommodations
• Parking fees
• Business-related vehicle expenses
• Meals along your travel (subject to CRA limitations where applicable)
• Conference or trade show registration fees
• Internet charges while traveling
• Baggage fees related to business travel

Common Travel Situations for Shopify Store Owners

Of course, you’re not limited to only client and international business travels. Many routine business activities that involve traveling can also be deductible. These may include:

• Visiting wholesalers or manufacturers
• Attending trade shows and industry expos
• Meeting suppliers
• Visiting fulfillment warehouses
• Product sourcing trips
• Business networking events
• Educational seminars and workshops
• Meetings with accountants, lawyers, or consultants outside your local area

A key distinction between all of these expenses is that they must have a clear business purpose.

Business vs Personal Travel Expense

An important part of being able to accurately claim travel expenses is being able to distinguish between those that are personal versus those that are business related. Here are a few examples to help you clear up the differences.

Business travel:

• You attend a three-day Shopify conference in Vancouver.
• You spend two days visiting suppliers before returning home.

This would generally be considered a business trip.

Personal travel:

• You take a week-long vacation to Banff and spend one hour checking business emails.

That does not make the trip a deductible business expense.

Before claiming a business or travel expense, it’s important to ask one important question: Would I have incurred this expense if I wasn’t operating my Shopify business? If the answer is yes because the trip was necessary to make business income, then there’s a good chance that it is tax deductible. On the other hand, if the answer is no, it is most likely a personal expense. In all cases, proper documentation can help prove the distinction between the two.

Depreciation or Amortization of Assets

One overlooked tax deduction among all businesses, not just those for Shopify ones, are depreciation and amortization of assets. These deductions are only possible if you purchase equipment, furniture, or long-term assets for your business. When this happens, it is not good practice to deduct the costs at once. Instead, you’re expected to deduct the cost over a number of years in the form of depreciation or amortization.

Understanding how depreciation works can help you plan large purchases, maximize your deductions associated with these purchases, and avoid any tax preparation mistakes.

What is a Depreciation/Amortization Asset?

A depreciation asset is something that your business purchases and has a useful life extending beyond a year. To calculate depreciation, you take the cost of your assets, subtract the estimated cost after it’s no longer in use, and divide that by the amount of time in which it would be used for. This is your depreciation, and this amount is to be used as a deductible expense over the time period of that asset being used.

Common depreciable assets for Shopify businesses include:

• Computers and laptops
• Desktop monitors
• Printers and scanners
• Office furniture
• Shelving and storage systems
• Warehouse equipment
• Photography equipment
• Video production equipment
• Business smartphones
• Tablets used for business
• Commercial tools and equipment

These assets support your business operations for several years, so the tax deduction is spread over time.

Bonus: Interest on Business Loans

Financing is used by many businesses to purchase major assets. When cash flow is low, borrowing becomes an important source of income to purchase these assets. The interest that you pay on these loans may be tax-deductible.

This deduction is often overlooked because business owners focus on the loan itself and dismiss the interest portion. It is important to know however that the principal portion of the loan is not deductible, just the interest being charged on the money borrowed.

When is Loan Interest Deductible?

In Canada, interest is generally deductible if the borrowed funds are used to earn business income.

Examples include borrowing money to:

• Purchase inventory
• Buy business equipment
• Expand your Shopify store
• Hire employees
• Purchase computers or office equipment
• Finance warehouse improvements
• Cover operating expenses during slower sales periods
• Invest in business marketing campaigns

The key requirement is that the loan must be used for business purposes. If you borrow money for personal expenses, the interest on that portion is generally not deductible.

Common Sources of Business Financing

Shopify entrepreneurs obtain financing in many different ways. Interest paid on these types of business borrowing may qualify as a deduction:

• Business bank loans
• Business lines of credit
• Small business loans
• Equipment financing
• Inventory financing
• Commercial mortgages for business property
• Business credit cards
• Merchant cash flow financing (subject to the specific terms of the agreement)
• Government-backed business loans

Regardless of where the financing comes from, it’s important to maintain records showing how the borrowed funds were used.

Separate Business and Personal Borrowing

In some cases, a Shopify business may use a personal credit card or personal lines of credit when purchasing assets. While this can happen, it can introduce challenges to the bookkeeping. Here’s an example.

Deductible:

• You use a line of credit to purchase $15,000 worth of inventory for your Shopify store.

The interest relating to that business borrowing is generally deductible.

Not deductible:

• You use the same line of credit to pay for a family vacation.

The interest relating to the personal portion is generally not deductible.

If one loan is used for both business and personal purposes, you’ll need to allocate the interest between the two and claim only the business portion.

Don’t Forget Business Credit Card Interest

If you carry a balance on a business credit card because you’re purchasing inventory, paying suppliers, or covering other business expenses, the interest on those business-related balances may also be deductible.

However, if the card is used for both personal and business purchases, you’ll need to separate the interest accordingly. Using a dedicated business credit card makes this much easier and reduces the risk of claiming expenses that aren’t eligible.

Conclusion to Top 10 Overlook Tax Deduction for Your Shopify Business

Being able to manage a successful Shopify business requires more than just finding great products and generating sales. It involves an entire ecosystem of being able to accurately track and manage your expenses in order to maximize tax deductions.

An important habit you can develop in this process is being able to keep accurate documentation. Having a system to help you save your receipts, organize invoices, reconcile your accounts regularly, and separate personal and business expenses can go a long way. An online bookkeeping service, can help you in these matters.

Whether you’re a sole proprietor or incorporated, having an advisor can help you navigate confusions and challenges associated with claiming the right deductions for your Shopify business. The sooner you start planning and have a strategy around these challenges, the sooner you can be prepared and reap the reward and long-term benefits of these tax deductions.