Shipping, Postage and Delivery Costs on Schedule C: Freight-In vs. Outbound, Packaging and Platform Labels (2026 Guide)

Published: October 30, 2026 · Reading time: 10 min

TL;DR: If you ship anything, from a product to a print proof to a client deliverable, the tax treatment depends on which direction the box is going. Shipping a customer pays you is part of gross receipts (line 1). Outbound postage goes on line 18, and packaging you use up on line 22. Courier charges and carrier insurance that no named line covers are commonly Part V other expenses, which the 2025 Schedule C instructions carry to line 27b. Freight-in on inventory you buy is different: Publication 334 puts it in cost of goods sold (Part III). Sales tax collected for the state is generally not income. The worked example has $30,210 of receipts, $6,810 of cost of goods sold, $4,041 of expenses and $19,359 of net profit.

Shipping is the expense that hides in plain sight. A $9 label here and a $14 box there never feel like a tax topic, yet a seller who ships a few thousand dollars of packages a year has a real line of costs, a real line of income (what customers paid for delivery) and a few places to put each one wrong.

This guide is for freelancers and small sellers who send things out: makers and resellers, illustrators who sell prints, photographers who mail proofs, consultants who courier signed documents. It covers federal income tax on Schedule C only. Sales tax is a state matter, and this guide only says how collected sales tax interacts with your federal return.

If you also drive to the post office, that is a mileage question rather than a shipping one, and our post office and errand mileage guide covers it. For the inventory side, see the Part III cost of goods sold guide and the reseller inventory guide.

A note on sources: where this guide cites the Schedule C instructions it means the 2025 instructions, the current ones when this was written. Check the 2026 form and instructions when they are released, because line numbers on the form have moved before.

The One Question That Sorts Everything: Which Way Is the Box Going?

The two rows that trip people up are the first (it is income, not a reduction of your postage bill) and the fifth (inbound freight is part of what the inventory cost you, so it is deducted as the goods sell, not the year you pay the carrier).

Shipping Customers Pay You Is Gross Receipts

Line 1 of the Schedule C instructions says: "Enter gross receipts from your trade or business." When a buyer pays you $6 for shipping on a $30 order, you received $36 from your business. This guide reads that as $36 of gross receipts, with the postage you actually pay deducted separately, which is how the worked example below treats it.

Sellers get this wrong in two ways:

• Netting. Reporting only the sale price and treating the shipping charge as a wash against the label. You end up with receipts that no longer tie to the platform's records.
• Hiding it inside "fees." A payout that arrives net of shipping labels, fees and refunds is not your gross receipts. Rebuild the gross from your order records. Our gross receipts guide and the 1099-K guide walk through the reconciliation.

Refunds and returns are their own category. The Schedule C instructions treat sales returns and allowances separately, so a refunded order is not simply a smaller sale (returns and allowances guide).

If a client reimburses a courier or print-proof shipment you paid for, treat it the same way: the reimbursement is a receipt and your cost is an expense. Whether a particular reimbursement arrangement changes that is something to ask a CPA or EA.

Outbound Postage, Delivery and Packaging

Postage: line 18

The Schedule C instructions for line 18 say: "Include on this line your expenses for office supplies and postage." Stamps, postage labels bought through a shipping tool and counter postage for a client proof all fit that sentence.

Carrier charges and delivery insurance: Part V

The instructions do not name courier fees, freight bills or the price of declared-value coverage on a package. The catch-all is Part V, which the 2025 instructions describe this way: "Include all ordinary and necessary business expenses not deducted elsewhere on Schedule C." They add: "Enter the total on lines 48 and 27b." That is a change from older forms, where the catch-all total was reported on line 27a, and why older guides (including our other expenses guide, whose URL keeps the old number) say 27a.

Insurance on a package is part of the delivery charge. A separate business liability policy is a different item. Publication 334 says that to be deductible a business expense must be ordinary and necessary, that an ordinary expense is one that is common and accepted in your field of business, and that a necessary expense is one that is helpful and appropriate for your business. Declared-value coverage on a fragile or high-value shipment is a normal, common cost for sellers, but ask a CPA or EA if you want the line confirmed.

Packaging: line 22

The line 22 instructions say that in most cases you can deduct the cost of materials and supplies only to the extent you actually consumed and used them in your business during the tax year. Mailers, tape and boxes are consumed when you ship, so they are a natural fit; see the supplies guide. Boxes still on the shelf at year end are generally not yet consumed.

The exception is packaging that is part of the product itself. Publication 334 says containers and packages that are an integral part of the product manufactured are a part of cost of goods sold, and that if they are not an integral part of the manufactured product, their costs are shipping or selling expenses. A candle's retail jar is the product. The padded mailer around it is not. See COGS vs. supplies for the dividing line, and pick one treatment so the same box is not deducted twice.

Samples and display pieces on a business trip

If you ship samples or display material to a trade show or temporary work location, Publication 334's travel section says you can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. That sentence sits in the travel and meals discussion, so the trip itself has to qualify as business travel.

Freight-In Belongs in Cost of Goods Sold

Inbound freight is the opposite direction, and Publication 334 handles it in its cost of goods sold chapter under line 39, other costs: "Freight-in, express-in, and cartage-in on raw materials, supplies you use in production, and merchandise you purchase for sale are all part of cost of goods sold."

In practice:

• The supplier's freight bill for a pallet of blank apparel, a spool of wire or a case of inventory is added to the cost of that inventory.
• You deduct it as part of cost of goods sold when the goods are sold, because it is part of the cost of the goods available for sale (lines 35 through 40) minus what remains at year end (line 41).
• Freight on goods still on the shelf at year end is part of ending inventory, not a current expense.

Putting outbound postage into cost of goods sold, or freight-in on line 18, misstates gross profit even when net profit is unaffected. If you keep inventory, our Part III guide walks through the full formula.

One wrinkle: the Schedule C instructions say a small business taxpayer can choose not to keep an inventory, provided its method of accounting for inventory clearly reflects income. If you account for inventory as non-incidental materials and supplies, the timing of the deduction differs. Ask a CPA or EA which method applies to you.

Marketplace Labels, Fees and Platform Statements

Platforms complicate the picture because they bundle several things into one payout: the sale price, the shipping the buyer paid, sales tax, the platform's fee, the cost of a label bought inside the platform and any refund.

• Labels bought through the platform are postage you paid. Keep the label record, because the bank deposit usually shows only the net.
• Platform and listing fees are commissions and fees. The line 10 instructions say to enter the total commissions and fees for the tax year, and they add that commissions and fees paid to facilitate the sale of property are generally capitalized, with a separate treatment for a dealer in property. Our commissions and fees guide and the payment processing guide cover the usual placements, and the Etsy and online seller guide covers the full seller picture. Because the capitalization rule can apply, ask a CPA or EA how your fees are treated.
• The 1099-K is a report of payments, not your income. Publication 334 says that it may not be the amount you should report as income, because it may not include all the receipts and it may include items that are not included in your receipts, such as sales tax.

Sales Tax: Not Income, Usually

Publication 334 draws a line that matters for shippers. It says: "If you collect state and local sales taxes imposed on you as the seller of goods or services from the buyer, you must include the amount collected in gross receipts. If you are required to collect state and local taxes imposed on the buyer and turn them over to state or local governments, you generally do not include these amounts in income."

If you do include seller-imposed tax in gross receipts, the 2025 Schedule C instructions list state and local sales taxes imposed on you as the seller under line 23, so you then deduct the tax you remit there (line 23 guide). Skipping that deduction overstates your net profit by the full amount of tax collected.

Most state sales taxes are imposed on the buyer, which is the second sentence. Whether a state taxes shipping, and whether a marketplace collects the tax for you, are state-law questions. Our sales tax guide covers them, and your state revenue department decides the answer for you. The federal point is simple: do not let tax you hold for the state inflate your profit.

Worked Example: A Year of Print Sales and Client Proofs

Maya is a sole proprietor illustrator. She sells prints through a marketplace and her own site, and she mails printed proofs to clients. She keeps inventory, and she has no W-2 wages.

Gross receipts (line 1)

On her own site she also collected $640 of sales tax imposed on the buyer and remitted it to her state. That $640 is kept out of receipts.

Cost of goods sold (Part III)

Goods available for sale are $1,200 + $6,800 + $310 = $8,310, less $1,500 of ending inventory, which gives $6,810.

Expenses

Gross profit is $30,210 minus $6,810, or $23,400. Net profit is $23,400 minus $4,041, which is $19,359.

Self-employment tax at 15.3% on 92.35% of that is about $2,735, with half of it, about $1,368, deductible. The example makes no income-tax estimate, because that depends on household income and several separate limits.

Three points the example is built to show:

• The $2,310 of shipping charged is income and the $1,180 of marketplace labels is a separate expense. Reporting only the difference would leave her receipts $1,180 off from the platform's gross.
• The $310 of freight-in is in cost of goods sold, not on line 18. If some of those prints were unsold at year end, part of that freight is carried in the $1,500 of ending inventory.
• Her mileage to the post office is not in the table. It is a vehicle expense, covered in the errand mileage guide.

Common Mistakes

1. Netting customer-paid shipping against labels. Report the gross and deduct the cost.
2. Putting freight-in on line 18. Inbound freight on goods you buy to resell is part of cost of goods sold.
3. Putting outbound postage in cost of goods sold. It distorts gross profit.
4. Deducting boxes you have not used. Supplies are deducted as consumed, unless your method treats incidental supplies differently.
5. Getting collected sales tax wrong in either direction. Tax imposed on the buyer and passed to the state generally is not income. Tax imposed on you as the seller goes into gross receipts, and the tax you remit is then deducted on line 23.
6. Reporting the payout instead of the sales. A platform deposit is net of fees, labels and refunds.
7. Double-counting a box. A box that is an integral part of the product is cost of goods sold, not also a supply.
8. Keeping only bank statements. A card charge from a carrier does not say whether it was outbound, a client proof or freight-in.
9. Forgetting shipping on returns. Return labels and refunds have their own treatment; ask a CPA or EA.

For receipt habits that hold up, see how to organize receipts for taxes.

How CentSense Helps

CentSense keeps shipping receipts and the rest of a seller's paperwork in one place:

• Scan postage, carrier, packaging and supplier receipts with AI the day you pay, so the vendor, date and total are captured. The free tier includes 10 AI scans a month
• Log miles by date on the Solo plan ($5/month) with a destination and business purpose for each trip, such as a post office run
• On the Solo and Team plans, export your categorized expenses as CSV so your preparer can map them to Schedule C lines

CentSense tracks expenses and mileage. It does not decide whether a charge is freight-in or an outbound expense, whether your state taxes shipping, or which inventory method you use. Those are judgment calls for you and your CPA or EA.

Frequently Asked Questions

Is the shipping my customer pays me taxable income?

Generally yes. Shipping a customer pays you as part of an order is money received from your business, so it belongs in gross receipts on Schedule C, line 1, which the Schedule C instructions describe as gross receipts from your trade or business. You then deduct what you actually pay the carrier as a separate expense. In the worked example in this guide, $2,310 of shipping charged to customers is included in $30,210 of gross receipts, and the postage and delivery costs are deducted separately. Sales tax is different and is covered in its own question. This is general education, so ask a CPA or EA how your particular sales are reported.

Where does outbound postage go on Schedule C?

The Schedule C instructions for line 18 say to include on that line your expenses for office supplies and postage, so stamps and postage labels are commonly reported there. The instructions do not name other carrier charges such as a courier fee or a freight bill, and many preparers report those as other expenses in Part V, which the 2025 instructions carry to line 27b. Publication 334 treats freight-in on inventory differently from outbound delivery, because freight-in is part of cost of goods sold. In the worked example, $1,640 of postage is on line 18 and $516 of courier charges and carrier insurance is in Part V. Confirm the line you use with a CPA or EA.

Is shipping part of cost of goods sold?

Only the inbound part. Publication 334 says freight-in, express-in and cartage-in on raw materials, supplies you use in production and merchandise you purchase for sale are all part of cost of goods sold, which is reported in Part III of Schedule C. Publication 334 also says that packages that are not an integral part of a manufactured product are shipping or selling expenses rather than cost of goods sold. So what you pay to receive goods is inventory cost, and what you pay to send a sale to a customer is generally a business expense. The rules can differ if you qualify as a small business taxpayer and use a method that treats inventory as materials and supplies, so ask a CPA or EA which method you are on.

Are boxes, mailers and tape deductible?

Generally yes, in the year you use them. The Schedule C instructions for line 22 say that in most cases you can deduct the cost of materials and supplies only to the extent you actually consumed and used them in your business during the tax year, and that incidental supplies for which you kept no inventories or records of use can be deducted in the year you buy them, provided that method clearly reflects income. Packaging that is an integral part of a product you manufacture is a cost of goods sold item instead, and you should not deduct the same box twice. In the worked example, $735 of mailers, tubes and boxes is reported on line 22. Ask a CPA or EA if you are unsure which treatment fits.

Do I include sales tax I collect in my income?

Usually not, but check which tax it is. Publication 334 says that if you collect state and local sales taxes imposed on you as the seller of goods or services from the buyer, you must include the amount collected in gross receipts, and that if you are required to collect state and local taxes imposed on the buyer and turn them over to state or local governments, you generally do not include these amounts in income. If the tax is imposed on you as the seller and you include it in gross receipts, the 2025 Schedule C instructions list state and local sales taxes imposed on you as the seller under line 23 (taxes and licenses), so the tax you remit is then deductible and the two roughly net out. The worked example treats its $640 of collected sales tax as imposed on the buyer, which is why it stays out of receipts. Which category your state's tax falls into, and whether shipping is taxable, are state questions, so confirm with your state revenue department and a CPA or EA.

What if a marketplace or payment platform reports more than I received?

Report your actual gross receipts, then deduct the platform's cut separately. Publication 334 says a Form 1099-K may not be the amount you should report as income, because it may not include all the receipts and may include items that are not in your receipts, such as sales tax. A 1099-K can also include the shipping a buyer paid before a label purchase or fee was taken out. Reconcile the form to your own sales records, deduct fees and labels as expenses, and keep the reconciliation. Which line platform fees belong on depends on your facts, so ask a CPA or EA.

What shipping records should I keep?

Keep the carrier receipt or label record, the date, the order or client it belongs to and whether it was an outbound sale, a client proof or a freight-in charge. Freight-in belongs with the purchase invoice for the goods it delivered, because it adds to inventory cost rather than being a stand-alone expense. A customer-paid shipping charge should be traceable to the same order. Bank and card statements alone often cannot show which of these a charge was, so the receipt is the better proof. The records you need to support a deduction depend on your facts, so ask a CPA or EA what to keep for your business.

Authoritative References

• IRS: Publication 334, Tax Guide for Small Business (2025)
• IRS: Instructions for Schedule C (Form 1040) (2025)

Stop losing shipping receipts in a stack of bank statements. Start a free CentSense account, scan each postage, packaging and supplier receipt with AI the day you pay, and export a CPA-ready breakdown at tax time. The free tier includes 10 AI receipt scans a month, and the Solo plan ($5/month) adds unlimited scans, mileage tracking and CSV export.

This guide is general education for U.S. self-employed freelancers and small sellers filing a Schedule C in 2026. It is not personalized tax advice. Where shipping costs go, how freight-in and packaging are treated, how platform fees are reported, whether you keep inventory and how sales tax applies depend on your facts and your state, so confirm them with a CPA or EA before you file.