Ecommerce Tax Strategy: The Big Beautiful Bill Just Changed the Game!

Welcome to the Ecommerce Finance Podcast. I'm Stephen Brown with LedgerGurus. Today I have with me Lauren Maillard. She's our Director of Service Delivery and also leads our income tax practice.

Welcome back to the podcast, Lauren.

0:29 Lauren Maillard

Hey, thanks Stephen.

0:31 Stephen Brown

Now, because we're going to be talking about tax, and there are some real implications of tax, I am going to do a little bit of a disclaimer.

This is not representing official tax, legal or accounting advice for your specific business. We're going to be talking about general principles. Anything specific, you should be talking to your tax accountant or tax advisor or tax lawyer, if you have one of those. Do not use this as authoritative advice, although we are going to be as accurate as possible.

1:05 Stephen Brown

Lauren, there were a lot of changes last year with the big beautiful bill. We just went through a tax season, at least the beginning of the tax season, there are always extensions later. But for 2025 there are a ton of changes.

Let's talk about some of those changes and how they impact ecommerce businesses specifically. First change, what would that be?

1:29 What depreciation is, and book versus tax

Lauren Maillard

Well, the first and biggest is accelerated depreciation.

1:29 Stephen Brown

Let me pause you there, because depreciation is a word that very few people understand unless you've taken some accounting courses. What is depreciation?

1:38 Lauren Maillard

Depreciation is essentially smoothing expenses.

So when you buy something that's really expensive, what you do is you are actually going to spread that expense over a period of time. Even if the cash has all gone out, you're going to use that over a period of time, and so you're going to take the expense over a period of time.

2:05 Stephen Brown

And historically the IRS has said, so for example a warehouse, a warehouse is something we see some ecommerce businesses buy. Let's say I had a big bundle of cash and I bought that warehouse all at once. I could not reduce the cost of my tax burden using normal depreciation.

2:27 Lauren Maillard

Well, no. And to kind of make it clear, there's depreciation that's for your books, and then there's the IRS depreciation, which is going to be different.

2:44 Stephen Brown

Let's talk about those differences real quick. So the IRS has very specific rules about how you can apply these large asset purchases onto your profit and loss.

2:50 Lauren Maillard

Correct. So talking about your warehouse, a warehouse is going to normally be depreciated over 27 and a half years. So even if you paid all that cash all at once, you're not going to be able to actually reduce your taxable income all at once. It's going to be over 27 and a half years that you're actually going to be able to take that expense.

3:23 Stephen Brown

Now let's talk about book depreciation. There are very specific rules about how you apply expenses for tax purposes, but for accounting purposes, basically for running your business, how does depreciation work?

3:37 Lauren Maillard

So essentially it's going to follow GAAP rules. So GAAP is Generally Accepted Accounting Principles. And so there are just going to be different rules for different categories.

3:55 Stephen Brown

So you're telling me that GAAP and the IRS are not aligned.

3:58 Lauren Maillard

No, they are definitely not aligned.

And we see that with what the IRS has done with the big beautiful bill, that they have essentially said that there's a whole amount of assets that you can buy and you can accelerate the depreciation on them and take all of that depreciation upfront. Where on your books, so the financials that you would normally be giving a lender or a buyer, you're still going to have to spread that depreciation out over a period of years.

4:37 Stephen Brown

So I'm the dumb MBA. Let me translate this.

I go buy a warehouse and I'm thinking, oh, it's going to reduce my taxes. But not necessarily. But the big beautiful bill added some accelerated depreciation, so I can apply those expenses sooner and potentially reduce my taxable income that I owe to the IRS.

5:02 Where bonus depreciation helps

Lauren Maillard

Yeah. So bonus depreciation, it's not going to actually help you with the warehouse example.

5:08 Stephen Brown

Bummer. So where would it help me?

5:15 Lauren Maillard

Well, just to caveat, if you do real estate you can do a cost segregation study, which actually does allow you to accelerate some of the depreciation. It's a little bit more complicated.

But let's say you buy a tractor or a forklift for your warehouse. You're going to be able to expense all of that cost in year one. So that's an immediate decrease of your taxable income.

5:37 Stephen Brown

Okay. So accelerated depreciation is awesome if you're like, hey, I had a good year, I'm going to owe a lot of taxes, I want to make some investments in the business. It'd be nice if I could reduce the profits through those investments. And accelerated depreciation says yes you can, I'm going to reduce those taxes for that asset, I don't have to spread them out over multiple years.

Which is, I think, really confusing for a business owner. Because it's like, I spent all this money, why do I still owe taxes? And it's because there are these tax rules around how you spread out the costs for these large assets.

6:19 Lauren Maillard

Yeah, absolutely. And it can be really confusing too, because as a taxpayer, in an ecommerce business, it could be a cash or accrual basis business.

And so if you are a cash basis business, what you expense is basically what you have paid, what you've bought, for the most part. If you're accrual, then yeah, you're going to have to put those big assets on your balance sheet and then take the expense over a period of time. But what this bonus depreciation allows you to do is to accelerate that. And so that's pretty exciting as a taxpayer.

7:02 Cash versus accrual for taxes

Stephen Brown

Now I want to ask you a question. This comes up because the US is interesting in that companies can elect how they do their accounting up to a certain point.

I learned from an earlier episode that, for example in Canada, businesses have to do accrual accounting. But in the US we don't have to until we get to a certain size. What is that revenue size where a business needs to be thinking, I've got to switch to accrual?

7:30 Lauren Maillard

It's actually quite large. It's 28 million. And I think it's an average over three years.

7:38 Stephen Brown

But we at LedgerGurus would recommend that people go to accrual accounting much, much sooner for these ecommerce businesses, because you don't know what the heck is going on with cash-based accounting, due to revenue, due to inventory, due to all these other things.

7:56 Lauren Maillard

Well, that's the beauty of it. For books, we can do it all accrual. So we can do your books accrual and you can really understand how your business is doing, what your business health is, because we're matching your expenses with your revenues. So you can actually see how you're doing. And then we can actually file your taxes cash basis.

8:20 Lauren Maillard

So you can have essentially two sets of books. And we don't actually have two sets of books, we just take your accrual books and we make adjustments and adjust it to cash, and then we would file cash basis.

And it's usually preferable, because you're able to manage timing. So timing of expenses, and then also timing of income. So it's a lot better to be cash basis.

8:53 Stephen Brown

From a tax perspective. Got you.

8:53 R&D and qualified business income

Stephen Brown

Okay, let's talk about another big change. I understand that there were some things around research and development that might apply to ecommerce.

8:56 Lauren Maillard

Yeah, absolutely.

So with the big beautiful bill you're now able to fully expense research and development. So it's essentially accelerated depreciation kind of, but for research and development. You're able to take that all at once. Before it was five or 10 years, depending if it was domestic or foreign research and development.

So at LedgerGurus we've got quite a few supplement brands. And so when they're doing some research, they're developing their product, they're able to immediately take all of that expense.

9:39 Stephen Brown

Awesome. And again, that allows you to reduce your tax burden against expenses that you're experiencing anyway, and do it upfront. Which I think these are great changes, because it's a huge pain if you had to spend all this money and still have to pay taxes because that had to be spread out over a longer period of time. So I love these changes a lot.

10:10 Stephen Brown

All right, let's talk about another change. There's this thing called qualified business income. What the?

10:10 Lauren Maillard

Qualified business income, that's going to be the normal income from operating your business.

And qualified businesses, so that's usually an S-corp, a partnership, a sole proprietor, they're allowed to take a 20% deduction on net income. So it gets pretty complicated, because you do have some limitations based on W-2 income. So it's something that you're going to want to talk to your accountant about.

10:38 Stephen Brown

But this is like a wholesale reduction of taxable net income, which is awesome. As a business owner I'm just like, cool, there's that 20%, if I qualify. And again, there's a whole lot that goes into who qualifies, we don't want to get into that here, but that's something you definitely want to talk to your tax accountant about.

11:10 Tips, overtime, and car interest

Stephen Brown

What other things came up in the big beautiful bill that you felt were worth mentioning from this last tax season?

11:10 Lauren Maillard

Yeah. So depreciation definitely is the biggest one, but there are two other smaller things that might help out employees of ecommerce businesses.

One is no tax on tips or overtime. So there are some limitations. Tips, that's not going to really affect ecommerce sellers for the most part, that's not going to be interesting. Overtime, if you have employees who are working, that's kind of interesting, to have some limitations on overtime.

11:50 Stephen Brown

And is that both employee and employer tax? Because one of the things with payroll tax is there are two sides. There's the tax that the employee has to pay, and there's the tax that the employer has to pay. Did that apply to both sets of taxes?

12:06 Lauren Maillard

That's going to apply to whatever's on the W-2.

12:12 Stephen Brown

Okay, so the employee's taxes. Got you. So they get a huge benefit by not having to pay taxes on overtime.

12:16 Lauren Maillard

And it's not the full amount. It really is the amount between what they would normally make hourly and what their overtime pay is hourly. So it's not on the total amount, they're still paying some.

12:32 Stephen Brown

So they're still paying some tax, it's just not on all of it. And that's the nuance of a lot of these bills.

What else is there that you feel is meaningful?

12:42 Lauren Maillard

So another thing, this is more for individuals, but you also have a deduction for your car interest. So car loan interest, that was something that was added back.

Now, if you have a company car, that's not going to be the same thing. But if you do have a personal car, that is a personal use car, that is going to be a benefit.

13:10 Stephen Brown

Now you just talked about a very important nuance, because I do see a lot of people that like to put their cars through the company, it's a company car.

So you're saying if I were to finance a car and I'm paying personal interest, I could write it off. But if I were to run that through the business, that wouldn't work.

13:31 Lauren Maillard

Well, this is where tax gets super complicated.

So cars actually qualify for bonus depreciation if they're over a certain weight limit. So if you're going to buy a business car, go buy a big heavy business truck or SUV, and you'll be able to write it all off immediately. So personal use, you are still able to take that interest deduction.

13:56 Why not to take tax advice from TikTok

Stephen Brown

Now obviously, as we said at the beginning, there are a lot of nuances to taxes. Do not take what you hear from a podcast, and heavens, don't take anything you hear from TikTok, as authoritative tax advice.

Our recommendation is, we want people to be aware of these things so that you can have conversations with your tax accountant and say, are we using this tax strategy? Does this apply to me? Can you tell me how to use this?

What's your general guidance for tax law changes and how to apply them? Should people be using TikTok as tax advice?

14:39 Lauren Maillard

Oh, please no. No, no, no.

I would say that when it comes to tax strategy, the last thing that you want to do is go to social media for any kind of advice. I've seen a lot of people who have come and they want to take deductions that just would not pass IRS muster at all. And I've had to really explain to people what are the underlying principles behind what you can deduct.

15:20 Lauren Maillard

One of the TikTok videos that I saw, it talked about how here's how you can deduct your Valentine's Day dinner, talk business with your spouse. Or here's how you can deduct your Birkin bag.

We've had clients who have come in and they've been really disappointed, because they really want to not have to pay any taxes at all.

15:45 Lauren Maillard

And what I've had to explain to people is that there are really two underlying principles that I think are really important for people to understand.

One is that if something is a personal expense, it is not a deduction. And the IRS treats certain things as inherently personal.

And then the second thing is, it has to be ordinary and necessary to your business.

16:06 Stephen Brown

I think the biggest thing I want to take away from what you just said, Lauren.

I see crap on social media, and I'm not a tax accountant, but I know it's wrong. Lauren is a CPA and a tax accountant, and she absolutely knows it's wrong. And people come and they see these idiots on TikTok who sound very responsible giving tax advice, and then they go back to their tax accountant and are saying, well, this person said it was fine.

16:32 Stephen Brown

You need to put a little bit of a filter. I know we all want tax deductions, but I feel like you should put a huge filter on the accuracy of what you read and see on social media.

And I get it, we're going to publish this stuff on social media. But who is the source? Are they an accountant? Are they part of an accounting firm? Can you find them? Do they have a CPA license? There's a huge difference between an influencer talking about tax and a CPA talking about tax.

17:00 Stephen Brown

And if I were to say one key piece of guidance from what we just talked about, it's you really need to be working with people who are qualified to read the tax code and apply it, so that you don't get into trouble should you get audited.

17:16 Lauren Maillard

Yeah, absolutely. That's some really good advice.

And it causes a lot of frustration when people realize that the advice that they are hearing on TikTok or on social media isn't actually, well, it's too good to be true, right? And we know what happens when something is too good to be true.

17:34 Stephen Brown

I think that's a great place to wrap. Lauren, if somebody wanted to connect with you about taxes, what's the best way to do that?

17:40 Lauren Maillard

The easiest way is to go through our website, ledgergurus.com.

17:45 Stephen Brown

Awesome. Thanks for joining us today.

17:47 Lauren Maillard

Thanks, Stephen.