Year-End Tax Planning for E-Commerce: Inventory Write-Offs, Equipment Purchases, and Retirement Contributions

The single biggest year-end tax mistake an e-commerce seller makes isn’t a missed deduction, it’s timing: waiting until the return is being prepared in March to think about any of this, after every move that actually changes the tax bill had to happen by December 31. A physical inventory count that identifies dead stock, an equipment purchase placed in service before year-end, a retirement contribution decision, all of these either happen inside the calendar year or they don’t happen for this year at all. The good news is that most of these moves take a few hours of focused work in December, not a restructuring of the business, and the dollar impact is often larger than people expect.

Why does a physical inventory count matter for taxes?

Because the IRS only lets you deduct inventory losses you can actually prove, and “I’m pretty sure some of this is unsellable” doesn’t hold up without a documented count. A physical inventory count at year-end does two things at once: it gives you an accurate ending inventory figure for cost of goods sold (which directly drives your taxable profit calculation), and it identifies specific damaged, obsolete, or dead-stock items that you can write down to their actual net realizable value rather than carrying them on the books at full cost.

The mechanics: inventory that’s damaged, out of season, discontinued by the manufacturer, or simply hasn’t moved in a year or more can be written down to its liquidation or scrap value if you can support that lower value, through a documented count, photos of damaged goods, and a reasonable basis for the reduced value (a liquidator’s quote, a clearance sale price, comparable sold listings). The write-down flows through cost of goods sold, lowering taxable income in the year you take it, rather than sitting on the balance sheet at an inflated value indefinitely.

• This only works with a real count. An estimate (“we probably have about $15,000 of dead stock”) without a physical count and specific item-level documentation is exactly the kind of number an IRS examiner disallows on sight.
• If you’re planning to liquidate dead stock anyway (a clearance sale, a bulk sale to a liquidator, simply discarding it), doing that before year-end converts an estimated write-down into an actual, fully documented loss, which is a stronger position than an estimated write-down of inventory you’re still holding.
• For sellers using FIFO or another specific costing method, the write-down needs to be applied consistently with your existing method rather than as an ad hoc adjustment; talk to your preparer about how the write-down interacts with your specific inventory accounting method before booking it.

What’s the deal with equipment purchases before year-end?

Buy the equipment and place it in service (meaning it’s actually ready and available for business use, not just ordered or sitting in a box) before December 31, and you generally get to deduct the full cost in the year of purchase rather than depreciating it over several years, through two overlapping provisions.

• Section 179 expensing, under IRC 179, lets you elect to expense the full cost of qualifying equipment (computers, warehouse shelving, packaging equipment, a company vehicle used predominantly for business) in the year placed in service, up to $2,500,000 for 2025, with the available deduction phasing out dollar-for-dollar once total qualifying purchases for the year exceed $4,000,000. The One Big Beautiful Bill Act raised both figures significantly from their prior levels.
• Bonus depreciation, under IRC 168(k), was restored to 100% permanently for qualifying property both acquired and placed in service after January 19, 2025, after several years of being phased down toward zero under the prior law. Bonus depreciation applies automatically (you can elect out, but it’s on by default) and, unlike Section 179, isn’t limited by your business’s taxable income for the year, which matters if equipment purchases would otherwise push you into a loss.
• For most e-commerce sellers, the practical result of both provisions together is the same outcome either way: the full cost of qualifying equipment purchased and placed in service before year-end is deductible in that year, rather than spread out over five or seven years of depreciation schedules. Which provision you actually use (Section 179 first, then bonus depreciation on any excess, is the typical ordering) matters more for equipment financed with debt or for businesses near the edge of a taxable-income limitation than it does for the average profitable seller with modest equipment needs.

The trap is the placed-in-service deadline. Equipment ordered in December but not delivered and set up until January doesn’t count for the current year, regardless of when you paid for it. If you’re planning a meaningful equipment purchase for tax purposes, order early enough in Q4 that delivery, setup, and actual business use are all realistically complete before December 31.

What are the actual retirement contribution deadlines?

This is where the deadlines genuinely differ by plan type, and mixing them up is the most common year-end retirement mistake.

• SEP IRA: both the plan’s establishment deadline and the contribution deadline run through your tax filing deadline, including extensions. A seller who hasn’t set up a SEP IRA by December 31 can still establish one and make a full contribution for that year as late as the extended filing deadline (October 15 of the following year, if extended), which makes the SEP the most flexible option for a seller who wants to see final year-end numbers before committing to a contribution amount. The 2025 contribution limit is 25% of compensation up to $70,000; no catch-up contribution provision exists for a SEP IRA regardless of age.
• Solo 401(k): the plan itself must be established by December 31 of the year you want the deduction (a change from older rules, but current law still requires the plan to exist by year-end even though certain employer-side contributions can follow later), and critically, your election to make an employee elective deferral has to be made by December 31 as well, even though you can technically fund that elective deferral up until the filing deadline. The 2025 elective deferral limit is $23,500, with an additional $7,500 catch-up for those 50 and older ($31,000 total), or a higher $11,250 catch-up for those aged 60 through 63 specifically ($34,750 total). On top of the elective deferral, an employer-side contribution of up to 25% of compensation is available, with a combined cap of $70,000 for 2025 ($77,500 or $81,250 with the applicable catch-up), subject to a $350,000 compensation cap.
• The practical difference: if you haven’t set up any retirement plan yet and it’s already December, a SEP IRA is your only option for a current-year contribution, since a Solo 401(k) needs to exist and needs the deferral election made before year-end. If you already have a Solo 401(k) in place, it typically allows a larger contribution at the same income level than a SEP IRA, because the elective deferral piece stacks on top of the same 25%-of-compensation employer contribution a SEP IRA offers.

What other timing moves are worth doing before December 31?

A few smaller moves round out the list, each with a real dollar impact and a hard year-end deadline:

• Prepaying deductible expenses. The 12-month rule under Reg. 1.263(a)-4(f) allows a cash-method taxpayer to currently deduct a prepaid expense (insurance, a software subscription, a lease payment) if the benefit doesn’t extend beyond 12 months from the date paid and doesn’t extend past the end of the following tax year. Prepaying a full year of business insurance or a software subscription in December, rather than paying it monthly across the following year, can pull a deduction into the current year that would otherwise land in the next one.
• Timing income by managing shipment cutoffs. For sellers on the accrual method, revenue is generally recognized when the goods ship (or when control passes to the customer), not necessarily when the order is placed or paid for. A seller with discretion over exactly when a large batch order actually ships can, within reason, influence which tax year that revenue lands in, useful if this year is already a high-income year and pushing a shipment into the first days of January defers that income into the following year. This has to reflect real business timing, not an artificial delay purely to manipulate the year; genuine backorders and fulfillment scheduling decisions are fine, holding a ready-to-ship order specifically to move it across the calendar boundary is thinner ground.
• Charitable donation of unsellable inventory. Rather than simply writing off dead stock at cost, donating it to a qualified charity can support an enhanced deduction under IRC 170(e)(3), generally cost basis plus half the difference between cost and fair market value, capped at twice cost basis, for C corporations donating inventory for the care of the ill, needy, or infants. For non-corporate sellers (most e-commerce entities), the deduction is typically limited to the lesser of fair market value or cost basis, which for genuinely obsolete inventory may not exceed the ordinary write-down anyway; run the comparison both ways before assuming the donation route produces a bigger number.
• State-level considerations. Some states allow their own version of accelerated depreciation or have decoupled from federal bonus depreciation and Section 179 changes entirely, meaning your state return may require an addback or a different depreciation schedule than your federal return uses. Check your specific state’s conformity to current federal bonus depreciation and Section 179 rules before assuming the full federal benefit flows through to your state tax bill unchanged.

What should I do next?

Block a few hours in early December for a physical inventory count with documentation, not a guess. If equipment purchases are on the roadmap for early next year anyway, evaluate whether moving the purchase and placed-in-service date into December makes sense given your current-year income. Decide on a retirement plan (SEP IRA if you’re starting late, Solo 401(k) if you want the larger contribution ceiling and can act before December 31) rather than defaulting to no plan simply because the deadlines feel complicated.

• Estimated taxes for e-commerce sellers: quarterly payments, self-employment tax, and how to calculate, how these year-end moves change your Q4 and final estimated payment
• E-commerce tax deductions: home office, shipping, software, and what the IRS actually allows, the deduction categories that feed into your year-end profit number before any of these strategies apply
• E-commerce entity structure: LLC vs S-corp and when to switch, how the entity choice changes which retirement plan options and contribution limits actually apply to you

Related guides:

• Ecommerce Amazon Fba Tax Inventory Nexus
• Ecommerce Dropshipping Tax Sales Tax Income
• Ecommerce Entity Structure Llc Scorp Tax Planning
• Ecommerce International Selling Customs Duties Tax
• Ecommerce Inventory Accounting Cogs Methods

Related guides:

• Year-End Tax Planning Strategies for Small Businesses

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.