How to categorize shipping expense?

What are shipping expenses?

Shipping expenses include all costs associated with transporting goods or materials for business purposes. This can range from postage and courier fees to freight charges and packaging supplies. Whether your business sells products, ships equipment, or sends documents, these expenses are part of your regular operating costs and affect your cost structure depending on their purpose.

How to categorize shipping expenses

• Record as Operating Expenses in your income statement.
• Use a dedicated “Shipping and Delivery” or “Postage and Freight” account in your chart of accounts.
• If shipping goods to customers, classify the cost as Cost of Goods Sold (COGS) rather than a general expense.
• If shipping supplies, samples, or office mail, categorize under Operating Expenses or Office Expenses.
• Track inbound (to your business) and outbound (to customers) shipping separately for clearer cost analysis.
• Include packaging materials and carrier insurance as part of shipping expenses.

Examples of shipping expenses

• Courier and delivery services (UPS, FedEx, DHL).
• Postage for mailed documents or small packages.
• Freight or cargo shipping for inventory or equipment.
• Packaging materials such as boxes, tape, and labels.
• Customs duties or import/export fees.
• Drop-shipping or third-party logistics provider (3PL) costs.

Tax implications for shipping expenses

• Shipping expenses directly related to business operations are generally 100% tax-deductible.
• Outbound shipping costs (to customers) can be deducted as COGS if tied to product sales.
• Inbound shipping (for materials or supplies) should be included in the total cost of those goods or inventory.
• Shipping costs for non-business or personal use are not deductible.
• Keep receipts, carrier invoices, and shipping logs to substantiate deductions.
• If you charge customers for shipping, that income should be recorded as revenue, with the related shipping cost still deductible.