Delivery expenses for tax purposes are the costs of moving goods to or from your business: postage, carrier fees, freight, packaging materials, shipping insurance, and, if you run your own vehicles, fuel, maintenance, insurance, and driver pay. Every one of these is deductible if it is ordinary and necessary to your business. The catch is where the deduction lands. Freight you pay to bring inventory in gets folded into the cost of that inventory and only reduces income when the goods sell. Shipping you pay to send finished products out is a period expense you deduct right away. Getting that split wrong distorts your gross margin and gives an auditor an easy thread to pull.
What Qualifies as a Delivery Expense
The obvious costs are postage, carrier charges from services like FedEx or UPS, and freight bills for heavy shipments. Packaging counts too: boxes, protective padding, tape, and custom inserts meant to prevent damage in transit. Premiums for insuring shipments against loss or breakage fall in the same category.
If you deliver with your own vehicles, the category widens. Fuel, vehicle maintenance, commercial auto insurance, and the wages and payroll taxes for drivers all belong here. So do fleet management software, GPS subscriptions, and commercial registration fees on delivery vehicles. Whether each line is deducted now or capitalized depends on what the cost is moving and where.
Inbound Freight vs. Outbound Shipping
This is the split that trips up the most businesses, and it drives both where the expense appears on your return and when it reduces your income.
Inbound Freight Gets Capitalized
When you pay to ship raw materials or merchandise into your warehouse, that cost becomes part of the inventory’s value. The IRS treats freight-in, express-in, and cartage-in on materials and merchandise purchased for sale as components of cost of goods sold.1Internal Revenue Service. Publication 334 – Tax Guide for Small Business The rule sits in Section 263A of the tax code, which requires businesses to include both direct costs and a share of indirect costs in inventory valuation.2Office of the Law Revision Counsel. 26 USC 263A – Capitalization and Inclusion in Inventory Costs of Certain Expenses The freight cost sits in your inventory account until the goods sell, then flows through cost of goods sold and reduces gross profit.
Small businesses that meet the Section 448(c) gross receipts test are exempt from Section 263A.2Office of the Law Revision Counsel. 26 USC 263A – Capitalization and Inclusion in Inventory Costs of Certain Expenses If your average annual gross receipts over the prior three tax years are below the inflation-adjusted threshold (roughly $30 million), you have more flexibility in how you account for these costs. Most local retailers and small e-commerce sellers qualify.
Outbound Shipping Is Expensed Immediately
Costs to ship finished products to customers are period expenses, typically classified as selling expenses within your operating costs. They hit your income statement in the period you incur them, below the gross profit line. That placement matters for anyone reading your margins, because pushing outbound shipping up into cost of goods sold would deflate gross margin without a good reason.
How to Deduct Delivery Expenses on Your Tax Return
Every delivery cost is deductible if it clears the IRS standard of being ordinary and necessary.3Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses Ordinary means common and accepted in your industry. Necessary means helpful and appropriate; it does not have to be indispensable.4Internal Revenue Service. Ordinary and Necessary Shipping products to customers clears both tests for any business that sells physical goods.
Where the deduction shows up depends on the classification. Inbound freight capitalized into inventory reduces gross receipts through cost of goods sold. Outbound shipping shows up as its own line in operating expenses. Over time the total benefit is the same, but the timing differs whenever you carry unsold inventory across a year-end.
The form depends on your entity. Sole proprietors and single-member LLCs use Schedule C. Partnerships and multi-member LLCs file Form 1065, C corporations file Form 1120, and S corporations file Form 1120-S.5Internal Revenue Service. Filing Requirements for Partnerships and Corporations
Deducting Delivery Vehicle Costs
If you deliver with your own vehicles, a separate set of rules applies, and the choice you make in the first year a vehicle enters service can lock you in.
Standard Mileage Rate or Actual Expenses
The IRS offers two methods. The standard mileage rate for 2026 is 72.5 cents per mile, and it covers depreciation, fuel, insurance, and maintenance in a single per-mile figure. The rate applies equally to gasoline, diesel, hybrid, and fully electric vehicles. If you own the vehicle, you must elect the standard mileage rate in the first year the vehicle is available for business use; after that, you can switch to actual expenses in later years. For a leased vehicle, whichever method you pick applies for the entire lease, including renewals.6Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile, Up 2.5 Cents
The actual expense method means tracking everything: fuel, oil changes, tires, insurance, registration, and depreciation. It usually produces a larger deduction for newer, more expensive vehicles with high operating costs.
Two hard restrictions. You cannot use the standard mileage rate if you operate five or more vehicles simultaneously; a fleet that size is stuck with actual expenses. And you cannot use the standard mileage rate on any vehicle for which you have already claimed Section 179 or bonus depreciation.7Internal Revenue Service. Topic No. 510, Business Use of Car
Section 179 and Bonus Depreciation
Instead of spreading a vehicle’s cost across several years, you can often deduct a large portion in year one. For tax years beginning in 2026, the maximum Section 179 deduction is $2,560,000 across all qualifying property, with a phase-out beginning when total qualifying property placed in service exceeds $4,090,000. Heavy SUVs with a gross vehicle weight rating above 6,000 pounds but no more than 14,000 pounds have a separate cap of $32,000.8Internal Revenue Service. Instructions for Form 4562 – Depreciation and Amortization Vehicles over 14,000 pounds GVWR, like large box trucks and cargo vans, are not subject to the SUV cap and can be expensed up to the full Section 179 limit.
Bonus depreciation is back at 100% for qualifying property acquired and placed in service after January 19, 2025, under the One Big Beautiful Bill Act.9Internal Revenue Service. One, Big, Beautiful Bill Provisions Before that law, bonus depreciation had been phasing down; it was only 40% for property placed in service in 2025 that was acquired before January 20, 2025.8Internal Revenue Service. Instructions for Form 4562 – Depreciation and Amortization A business buying a qualifying delivery truck in 2026 can deduct the whole cost in the first year. The vehicle has to be used more than 50% for business to qualify for either Section 179 or bonus depreciation.
De Minimis Safe Harbor for Smaller Purchases
Delivery gear that doesn’t reach capital-asset territory can still be expensed at once under the de minimis safe harbor election. Businesses without an audited financial statement can expense items costing $2,500 or less per invoice. Businesses with an applicable financial statement can use a $5,000 threshold.10Internal Revenue Service. Tangible Property Final Regulations – De Minimis Safe Harbor Election Hand trucks, insulated delivery bags, vehicle-mounted shelving, and GPS units all fit here.
Records the IRS Expects
The IRS can disallow delivery deductions outright if you cannot produce adequate records. For vehicle expenses, Section 274(d) of the tax code requires substantiation of the amount, the time and place, and the business purpose of each expense.11Office of the Law Revision Counsel. 26 USC 274 – Disallowance of Certain Entertainment, Etc., Expenses Without those records, the deduction is gone regardless of whether you actually spent the money.
A valid mileage log entry has to show the date of the trip, the starting and ending points or address visited, the miles driven, a specific business purpose (“delivered order #4521 to Johnson Landscaping,” not “delivery”), and odometer readings at the start and end of the year plus whenever a vehicle enters or leaves business service. Entries need to be made at or near the time of the trip. Reconstructing a year of mileage the week before you file is exactly what causes deductions to fall apart on audit. Round-number entries, identical patterns week after week, vague purposes, and a claim of 100% business use on a car that’s also driven personally are all patterns auditors are trained to spot.
Keep delivery-related records for at least three years from your filing date. Many tax professionals suggest seven years to cover extended audit windows. App logs, spreadsheets, CSV exports, and PDF reports are all acceptable as long as every entry contains the required elements. For third-party shipping, hold onto carrier invoices, electronic receipts, and tracking confirmations. When a vehicle serves both personal and business use, only the business-use portion of expenses qualifies, and your log has to support the allocation.
Customs Duties and Imported Goods
Importing adds a wrinkle. The treatment of duties, tariffs, and international shipping fees depends on what you do with the goods.
If you import products for resale, duties and tariffs become part of the landed cost of your inventory, just like inbound freight. Customs duties, international shipping fees, and transit insurance can be included in inventory valuation and flow through cost of goods sold when the inventory sells.
If the imported goods are used in your operations rather than resold, such as specialized packaging equipment from overseas, the duty is treated as an ordinary business expense and deducted in the year you pay it.3Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses If the imported item is a capital asset like a large piece of machinery, the tariff gets added to the asset’s depreciable basis and deducted over time through depreciation.
Classifying Your Delivery Workers
How you classify the people making deliveries has real tax consequences, because it determines whether driver costs come out as wages with payroll taxes attached or as contract labor. The IRS looks at three categories to separate employees from independent contractors: behavioral control (do you dictate how and when they work?), financial control (do you set pay, reimburse expenses, and provide equipment?), and the nature of the relationship (is the work ongoing, and do you provide benefits?).12Internal Revenue Service. Independent Contractor (Self-Employed) or Employee? No single factor decides it; the IRS weighs the full picture.
If you hire drivers, set their routes, provide the vehicle, and pay them hourly, the IRS will almost certainly view them as employees regardless of what the contract says. Misclassifying employees as independent contractors triggers back-tax liability under Section 3509: 1.5% of the worker’s wages for the withholding tax shortfall plus 20% of the employee’s share of Social Security and Medicare taxes. Those rates double to 3% and 40% if you also failed to file the required 1099 forms for the worker.13Office of the Law Revision Counsel. 26 USC 3509 – Determination of Employer’s Liability for Certain Employment Taxes
A Note on Sales Tax
Sales tax on delivery charges is a separate question from income tax deductibility, and it catches many businesses off guard. Whether the shipping fee you charge a customer is subject to sales tax depends on the state, and the rules vary. Some states tax delivery charges regardless of how they appear on the invoice. Others exempt them if they’re stated separately from the product price. A few tax the shipping proportionally when a shipment contains both taxable and exempt items. If you ship to multiple states, verify the treatment in each destination state or use sales tax software that applies the correct rules automatically. Delivery activity can also create sales tax nexus, whether physical (through a warehouse, driver, or stored inventory) or economic (through sales volume into a state), and shipping charges generally count toward those dollar thresholds.