As a small business consultant, I want to emphasize something that several people touched on but is crucial - the IRS has specific rules about what qualifies for COGS versus regular business expenses, and getting this wrong can trigger audits. The fundamental test is whether an expense is "directly attributable" to the production of goods you sell. For authors like Ella, this means: - Books you buy to resell: Purchases (COGS) - Paper, ink, binding materials for books you create: Materials & Supplies (COGS) - Your computer, printer, or writing software: Business equipment/expenses (NOT COGS) - Website hosting, marketing, office rent: Operating expenses (NOT COGS) One red flag I see with small businesses is putting too many expenses into COGS. The IRS knows that service-based aspects of businesses (like your time writing, marketing efforts, administrative costs) shouldn't be in COGS even if they're necessary for your business. Keep detailed records showing the direct connection between any COGS items and specific products. If you can't trace an expense directly to creating a physical product you sell, it probably doesn't belong in COGS. Also remember that COGS reduces your gross income dollar-for-dollar, while other business expenses are deducted later. The IRS pays attention to businesses with unusually high COGS relative to their industry.

I've been following this thread as a small business owner who went through this exact confusion last year. One thing that really helped me was creating a simple "test" for each expense: Can I physically point to this item in my finished product? If yes, it's likely Materials & Supplies. If I bought the finished product from someone else to resell, that's Purchases. For example, as a candle maker: - Wax, wicks, fragrance oils → Materials & Supplies (they become the candle) - Pre-made candles I buy wholesale → Purchases (reselling finished goods) - Molds, thermometers, melting pots → Equipment (used repeatedly, not consumed) The inventory tracking point Sara mentioned is crucial too. I learned the hard way that you need to do a physical count of remaining inventory at year-end and adjust your COGS accordingly. Don't just assume you used everything you bought! One more tip: Take photos of your workspace and inventory periodically throughout the year. If you ever get audited, having visual documentation of your production process and inventory levels can be incredibly helpful in justifying your COGS classifications.

Just a heads up - if you're trading in a retirement account like an IRA or 401k, none of this applies. You don't report capital gains or losses for trades inside those accounts. Only matters for taxable brokerage accounts.

Great question and really helpful discussion here! I went through something similar my first year trading. One thing I'd add is to make sure you keep detailed records of all your trades throughout the year, not just rely on your brokerage statements at tax time. Sometimes there are discrepancies or missing information that's easier to resolve when the trades are fresh in your memory. Also, since you mentioned this is your first year with significant gains/losses, you might want to consider making quarterly estimated tax payments if your net gains end up being substantial. The IRS can hit you with penalties if you owe too much at filing time and haven't been making estimated payments throughout the year. The general rule is if you'll owe more than $1,000, you should be making quarterly payments. Good luck with your trading and taxes!

Anyone know if rental income qualifies for QBI? I have a small design business but also rent out a property, and I'm not sure if the rental income can be included in my QBI calculation.

I'm also a freelance graphic designer and went through this same confusion last year! TurboTax's calculation sounds correct based on your income level. At $78,500, you're well below the $170,050 threshold where the "specified service business" restrictions would kick in for single filers. The key thing to understand is that graphic design IS technically a specified service business, but those limitations only matter once you exceed the income thresholds. Below that threshold, you get the full 20% deduction regardless of your business type. I claimed my QBI deduction last year with similar income and had no issues. Just make sure you're reporting everything accurately on Schedule C and that your business expenses are properly documented. The $15,700 deduction (20% of $78,500) is exactly what I'd expect TurboTax to calculate for your situation. One tip: double-check that TurboTax is using your net profit from Schedule C (after business expenses) rather than your gross income for the QBI calculation. That's the most common mistake I see people make.

Has anyone else noticed that these tax relief commercials are ALWAYS on during daytime TV? They specifically target people who are home during work hours (often because of unemployment or disability) and who might be financially vulnerable. It's predatory marketing at its finest.

I'm sorry you're going through this with Optima Tax Relief. What you're describing sounds exactly like what happened to my neighbor last year. She paid them over $4,000 and after 8 months of runaround, she ended up resolving her tax issues herself in about 3 weeks by calling the IRS directly. For getting your refund, document everything - save all emails, call logs, and your original contract. Send them a certified letter demanding a refund based on failure to provide services. If they ignore it, file complaints with your state attorney general, BBB, and FTC. Also check if you can do a chargeback with your bank or credit card company. The harsh truth is that most of what these companies promise to do, you can do yourself for free. The IRS actually has taxpayer advocates who will help you navigate their system at no cost. Don't let them take advantage of you any longer - you have options and you're not powerless in this situation.

Is there any expiration on capital loss carryovers? I've been carrying some for almost 4 years now.

One thing I'd add to the great advice already shared - make sure you're applying your capital loss carryover in the correct order! The IRS requires you to use the oldest carryover losses first (FIFO - first in, first out). Since you had a $20,000 loss in 2022, that entire amount should be applied against your 2023 gains before you can use any losses from 2023 itself. This shouldn't affect your calculation (you'll still net $30,000), but it's important for record-keeping purposes. Also, double-check that you actually filed your 2022 return and properly reported that $20,000 loss. If for some reason it wasn't properly documented on your 2022 Schedule D, you might run into issues when the IRS processes your 2023 return. The carryover amount needs to have a paper trail from your previous filing.