How do you prove something was a personal item vs inventory if you get audited though? I sell a mix of both and don't keep great records.

This is definitely a tricky area. For personal items, having original receipts or some documentation of what you initially paid would be ideal, but I know that's not always realistic. What I do now is keep a simple spreadsheet where I note which items are from my personal collection (with approximate purchase date and estimated original cost) versus items I bought specifically to resell. I also take photos of all personal items before listing them, which shows they were used. For business inventory, I keep all receipts and store them separately. Even basic documentation like this can help support your case if questions ever come up.

My accountant said some payment platforms might still send them at $600 because their systems were already updated for that threshold before the IRS made the change. He said to just keep good records either way.

Thanks for mentioning this! My dad does have a small IRA from a job he had in his 50s. It's not huge (maybe $45K) but this QCD thing sounds interesting. Does it matter which charity he donates to? And how does this actually help with taxes compared to just withdrawing the money and then donating it himself?

Any 501(c)(3) qualified charity works for QCDs. The main advantage is that the distribution never shows up as income on his tax return at all. If he withdrew the money first and then donated, he'd report the withdrawal as income and then take a deduction for the donation, which isn't as advantageous. With a QCD, it doesn't increase his Adjusted Gross Income, which means it won't affect taxation of his Social Security benefits or any income-based Medicare premiums. It also works even if he doesn't itemize deductions (which most retirees don't after the standard deduction increase). The custodian of his IRA can help set this up - it's a pretty common request these days.

I did this last year with my mom! The premiums went up but not as much as paying for a separate policy. Tax-wise, the added premium amount for dependents isn't typically tax-deductible through an employer plan unless you're self-employed. But the overall savings were still worth it for us since my company subsidizes dependent coverage.

I use TaxJar for my online shop (about $60k/year in sales). It's definitely an expense but saves me tons of time. The automated filing feature is worth every penny during tax season. I tried doing it manually for the first year and spent entire weekends just on sales tax returns.

If you're just starting out, might be overkill. I use a spreadsheet to track sales by state, and only file in 3 states currently. Once you hit 5+ states, the software becomes more worth it. A middle ground could be using something like taxr.ai to monitor your nexus thresholds, then switching to automated filing software once you have multiple state obligations.

Ugh, seriously?? I didn't even know there was a difference! My shopping cart on my website just has a flat tax rate setting. Sounds like I need to look into tax calculation plugins. Does anyone know if Shopify handles this automatically or do I need additional apps?

Shopify has basic tax calculation built in, but it's not perfect for complex situations. They automatically calculate rates based on customer address, but if you need more sophisticated rules (like product-specific exemptions or detailed nexus settings), you might want a tax app like TaxJar or Avalara's integration. The basic Shopify tax settings work fine for most small sellers though!

This is really helpful! I definitely have some expenses I could deduct. Do I need receipts for everything? Some of my expenses were paid in cash and I'm not sure if I kept all the receipts.

You should have documentation for everything you deduct, but it doesn't necessarily have to be receipts. Bank/credit card statements can work too. For cash purchases without receipts, keep a detailed log going forward (date, amount, business purpose). The IRS is more likely to scrutinize cash expenses without documentation. For mileage, you need a log of business trips (dates, destinations, purpose, miles). For home office, measure the dedicated space and calculate what percentage of your home it represents. You can use the simplified method ($5 per square foot up to 300 sq ft) which requires less record-keeping.

Business expenses are WAY better because they reduce both income tax AND self-employment tax (15.3%). Traditional IRA only reduces income tax. If you're low income, most of your tax bill is probably self-employment tax anyway.

Thanks for this info! I'm new to the hair business (just got licensed last year). Question - can you deduct the cost of your own haircuts/color since we have to look good for clients? And what about clothes you wear to work?

Unfortunately, you cannot deduct the cost of your own haircuts/color even though we need to look good for clients. The IRS considers these personal expenses, not business expenses, even for hairstylists. It's frustrating but that's how they interpret the tax code. As for work clothes, you can only deduct clothing that is not suitable for everyday wear. For most hairstylists, our work clothes can be worn outside of work, so they're usually not deductible. However, if you have to buy specific uniforms with salon logos or specialized protective clothing that you wouldn't wear elsewhere, those may qualify as deductible expenses.

I got audited 2 years ago and they did question my health insurance deduction! But I had all my premium statements and proof of payment, and I was fine. The key is documentation - keep records showing you paid the premiums and that those payments match what you deducted. Don't be afraid to take legitimate deductions!