For federal tax purposes, a delivery expense is any ordinary and necessary cost of getting goods from a supplier to your business or from your business to a customer: postage, carrier fees, packaging materials, shipping insurance, fuel, vehicle costs, and driver pay all qualify. The deduction itself is rarely in question. What trips businesses up is where the cost shows up on the return. Inbound freight gets built into the value of your inventory and comes out through cost of goods sold when the item sells. Outbound shipping is a current operating expense you deduct in the period you pay it. Classify it wrong and your gross margin, your taxable income, and your audit exposure all shift.
The Costs That Qualify
Start with the obvious line items. Postage, charges from FedEx, UPS, and similar carriers, and freight bills for heavy or palletized shipments are delivery expenses. So are packaging materials: boxes, protective padding, tape, and custom inserts meant to keep goods intact in transit. Premiums you pay to insure shipments against loss or breakage belong in the same category.
If you run your own delivery vehicles, the category widens. Fuel, maintenance, commercial auto insurance, and the wages and payroll taxes of drivers are delivery costs. Fleet management software, GPS subscriptions, and commercial registration fees on the vehicles themselves qualify too. Smaller pieces of equipment that make delivery possible — hand trucks, insulated bags, vehicle shelving — are deductible as well, and often expensed immediately rather than depreciated.
All of these pass the basic deductibility test in Section 162 of the tax code, which allows any expense that is ordinary (common in your industry) and necessary (helpful and appropriate, not indispensable) in carrying on a trade or business.1Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses2Internal Revenue Service. Ordinary and Necessary Shipping products to customers clears both bars easily for any business that sells physical goods.
Inbound Freight vs. Outbound Shipping
This is the classification that determines where your delivery costs land on the return.
Inbound Freight Gets Capitalized Into Inventory
When you pay to bring 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.3Internal Revenue Service. Publication 334 – Tax Guide for Small Business The statutory basis is Section 263A, which requires businesses to include both direct and a share of indirect costs in inventory valuation.4Office of the Law Revision Counsel. 26 USC 263A – Capitalization and Inclusion in Inventory Costs of Certain Expenses
Practically, the freight cost sits on your balance sheet inside the inventory account until the goods sell. When they do, it flows through cost of goods sold and reduces gross profit. You get the deduction, but only in the period the sale actually happens.
There’s a meaningful carve-out for smaller businesses. If your average annual gross receipts over the prior three tax years fall below the inflation-adjusted threshold under Section 448(c) (roughly $30 million), you’re exempt from Section 263A capitalization and have more flexibility in how you account for these costs.4Office of the Law Revision Counsel. 26 USC 263A – Capitalization and Inclusion in Inventory Costs of Certain Expenses Most small e-commerce sellers and local retailers qualify.
Outbound Shipping Is Deducted Right Away
Costs to ship finished products to customers are period expenses. They typically appear as selling expenses within operating costs and hit the income statement in the period you incur them, below the gross profit line. Keeping outbound freight out of cost of goods sold matters because folding it in would deflate your gross margin — a figure lenders and investors watch closely.
The total deduction over time is the same either way. The difference is timing. If you’re sitting on unsold inventory at year end, the inbound freight tied to those goods stays capitalized and doesn’t reduce this year’s taxable income; outbound shipping on everything you did sell this year is deducted now.
Where the deduction appears on the return depends on your entity. Sole proprietors and single-member LLCs use Schedule C. Partnerships and multi-member LLCs file Form 1065, C corporations use Form 1120, and S corporations use Form 1120-S.5Internal Revenue Service. Filing Requirements for Partnerships and Corporations
If You Deliver With Your Own Vehicles
Running your own delivery vehicles opens a separate set of rules. First-year choices tend to lock you in, so the setup matters.
Standard Mileage or Actual Expenses
The IRS gives you two options. The standard mileage rate for 2026 is 72.5 cents per mile and covers depreciation, fuel, insurance, and maintenance in one per-mile figure. It applies equally to gasoline, diesel, hybrid, and fully electric vehicles.6Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile, Up 2.5 Cents If you own the vehicle, you have to elect the standard mileage rate in the first year it’s available for business use; after that, you can switch to actual expenses in later years. For a leased vehicle, whichever method you choose has to stay in place for the entire lease, including renewals.
The actual expense method means tracking every real cost: fuel, oil changes, tires, insurance, registration, and depreciation. Businesses with newer, more expensive vans and trucks usually come out ahead using actuals.
Two restrictions on the standard mileage rate are easy to overlook. You cannot use it if you operate five or more vehicles simultaneously; a fleet of that size is on actuals only. You also cannot use it on any vehicle for which you’ve 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 delivery vehicle’s cost over several years, you can often deduct most or all of it in the year you place it in service. For tax years beginning in 2026, the maximum Section 179 deduction is $2,560,000 across all qualifying property, with the deduction phasing out once 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. Vehicles over 14,000 pounds GVWR — large box trucks and cargo vans, for example — aren’t subject to that SUV cap and can be expensed up to the full Section 179 limit.8Internal Revenue Service. Instructions for Form 4562 – Depreciation and Amortization
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 and 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 full cost in year one. The vehicle must be used more than 50% for business to qualify for either Section 179 or bonus depreciation.
Smaller Equipment Under the De Minimis Safe Harbor
Delivery equipment that doesn’t rise to the level of a capital asset can still be expensed immediately 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 typically fit comfortably under either threshold.
The Records the IRS Expects
The IRS can disallow delivery deductions outright if you can’t produce adequate records. For vehicle expenses, Section 274(d) 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 even if you actually incurred the cost.
If you use the standard mileage rate, every trip entry needs the date, the starting and ending points, the number of miles driven, a specific business purpose (not just “delivery” — something like “delivered order #4521 to Johnson Landscaping”), and odometer readings at the beginning and end of the year plus whenever a vehicle enters or leaves business service.
Records have to be created at or near the time of the trip. Rebuilding a year’s worth of mileage at tax time is one of the fastest routes to a disallowed deduction on audit. Round-number entries, identical weekly patterns, and vague business purposes are flags auditors look for. Claiming 100% business use on a vehicle that’s also driven personally is another quick way to lose the entire deduction.
Keep delivery-related records for at least three years from your filing date; many tax professionals recommend seven to cover extended audit windows. App-generated logs, spreadsheets, CSV exports, and PDFs are all acceptable as long as every entry has the required elements. For third-party shipping, hold on to carrier invoices, electronic receipts, and tracking confirmations. When a vehicle serves both personal and business purposes, only the business-use portion qualifies, and your log has to support the allocation.
Customs Duties and Imports
If you import, there’s an extra classification question, and the answer depends on what the imported goods are for.
Goods imported for resale: duties, tariffs, international shipping fees, and transit insurance become part of the landed cost of inventory, just like domestic inbound freight. Those costs flow through cost of goods sold when the inventory sells.
Imported goods used in your own operations rather than resold — specialized packaging equipment from overseas, for example — are treated differently. The duty is an ordinary business expense deducted in the year you pay it.1Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses If the imported item is itself a capital asset like a large piece of machinery, the tariff gets added to the asset’s depreciable basis and comes out over time through depreciation.
How You Classify Your Drivers Changes the Deduction
Driver pay is deductible either way, but how you deduct it — as wages with payroll tax obligations attached, or as contract labor — depends on whether the person is an employee or an independent contractor. The IRS weighs three categories: behavioral control (do you dictate how and when they work?), financial control (do you set the pay rate, reimburse expenses, provide equipment?), and the nature of the relationship (is the work ongoing, do you provide benefits?). No single factor decides it.12Internal Revenue Service. Independent Contractor (Self-Employed) or Employee?
If you hire drivers, set their routes, provide the vehicle, and pay them hourly, the IRS will almost certainly treat them as employees regardless of what your contract says. Misclassifying employees as contractors triggers back-tax liability under Section 3509: you owe 1.5% of the worker’s wages for the withholding 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 required 1099 forms for the worker.13Office of the Law Revision Counsel. 26 USC 3509 – Determination of Employer’s Liability for Certain Employment Taxes If you’re genuinely unsure, either party can file Form SS-8 for an official determination, though the process takes at least six months.
Sales Tax on the Shipping You Charge Customers
One boundary worth flagging: whether you can deduct a delivery cost on your federal return is separate from whether you have to collect sales tax on the shipping fee you charge the customer. The second question is governed by state law and varies widely. Some states tax delivery charges regardless of how they appear on the invoice. Others exempt them when they’re listed separately from the product price. A handful tax the shipping proportionally when a shipment contains both taxable and exempt items.
Two factors tend to drive the answer in most states: whether the delivery charge is separately stated on the invoice and whether the underlying product is taxable. In states that exempt separately stated shipping, breaking out the charge on the invoice is usually a prerequisite. In states that tax all shipping, invoice presentation makes no difference. Businesses shipping to multiple states need to verify the rule in each destination or use sales tax software that applies the correct treatment automatically.
Delivery activity can also create sales tax nexus. Keeping a warehouse, employing drivers, or storing inventory in a state can establish physical nexus and require you to collect that state’s sales tax. Economic nexus thresholds based on annual sales volume into a state apply even without any physical presence, and shipping charges generally count toward those dollar thresholds.