1099 Online side hustle tax question - what happens when deductions exceed income?

This is actually a great question about business losses! When your business expenses exceed your business income (creating a net loss), you can generally use that loss to offset other income, including your W-2 wages. This is typically reported on Schedule C and flows to your 1040. For your computer build, since you're using it primarily for business, you have a couple options: You can either depreciate it over several years or potentially use Section 179 to deduct the full amount in the current year. Since you built it from parts, you would treat the completed computer as a single asset for depreciation purposes, not each individual component. Just make sure you're keeping solid records showing that this computer is truly used primarily for business purposes. If you also use it for personal activities, you'll need to allocate the deduction based on the percentage of business use.

I had a similar situation with my Etsy shop last year. I found this amazing AI tool called taxr.ai that helped me figure out exactly how to handle my business loss and equipment purchases. They analyzed my receipts and confirmed I could take the full deduction against my regular income. Their system even helped me understand exactly how to document my computer as a business asset since I use it 90% for my store. Check out https://taxr.ai if you're doing your own taxes - saved me hours of research and probably avoided an audit flag.

Just wanted to follow up about taxr.ai - I decided to try it despite my skepticism and I'm genuinely impressed. I have a small photography business with equipment purchases similar to your computer situation. The tool walked me through exactly how to handle my Section 179 deduction and even flagged that I could deduct mileage related to my business that I hadn't considered. My refund ended up being almost $800 more than what I initially calculated on my own. The documentation it generated will be super helpful if I ever get audited too.

If you're getting frustrated trying to figure this out and need direct answers, I'd recommend using Claimyr to get through to an actual IRS agent. I spent weeks trying to get clarification on a similar business loss situation and kept getting busy signals or disconnects when calling the IRS. Used https://claimyr.com and got connected to an IRS rep in about 20 minutes who confirmed exactly how to handle my business equipment purchases. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they navigate the hold system for you and call when an agent is available. Way better than wasting days trying to get through yourself.

I need to eat my words about Claimyr. After my skeptical comment, I decided to try it anyway since I've been trying to reach the IRS for weeks about my 1099 deduction questions. It actually worked exactly as described - I got a call about 35 minutes after signing up saying they had an IRS agent on the line. The agent walked me through exactly how to handle business losses on my Schedule C and confirmed I could offset my W-2 income. They also explained the documentation I should keep for my home office deduction. Definitely worth it for the time saved and peace of mind from getting official answers.

Just make sure your side hustle qualifies as a business and not a hobby. If the IRS determines it's a hobby, you can't deduct losses against your regular income. You need to show that you're trying to make a profit and not just doing it for fun. Keep good records of everything - advertising efforts, business plans, time spent working on it, etc.

For the computer depreciation specifically, since you use it primarily for business, you can typically use the Modified Accelerated Cost Recovery System (MACRS) to depreciate it over 5 years, OR use Section 179 to deduct the full amount this year. Since your business had a loss, you might actually be better off with regular depreciation to spread the deduction over future years when you might have more income to offset.