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If I could give 10 stars I would If I could give 10 stars I would Such an amazing service so needed during the times when EDD almost never picks up Claimyr gets me on the phone with EDD every time without fail faster. A much needed service without Claimyr I would have never received the payment I needed to support me during my postpartum recovery. Thank you so much Claimyr!
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Just a quick note since people are talking about startup expenses - you might be conflating two different concepts. There are: 1. Business startup costs (organizational costs, market research, etc.) - these have special rules where you can deduct up to $5k immediately and amortize the rest over 15 years 2. Regular business expenses and equipment purchases - these go on Schedule C, with equipment potentially subject to depreciation rules For an LLC filing as a sole prop, everything goes on your personal return via Schedule C. And yes, you can absolutely have losses without income! That's totally normal for a new business.
Thanks for distinguishing between those two types of expenses! Most of my costs were for computer equipment and software subscriptions. Would those count as startup costs or regular business expenses? And does it make a difference for my ability to deduct them in year 1?
Computer equipment and software subscriptions would typically be considered regular business expenses, not startup costs. Startup costs are more about the actual formation of the business itself (legal fees, state filing fees, initial market research, etc.). For the equipment, you have several options. You can use Section 179 to deduct the full cost immediately (up to the annual limit, which is well over a million dollars), you can take bonus depreciation, or you can depreciate over the useful life of the assets. Software subscriptions are generally just deducted as regular expenses in the year you pay them. None of this is affected by whether you had income or not - you can absolutely claim these deductions against zero revenue.
Something nobody has mentioned yet - make sure you have a clear business plan and documentation showing your intent to make a profit! If you claim business losses for too many years, the IRS might reclassify your business as a hobby, which would disallow your deductions. This isn't an issue in your first year at all, but keep good records showing efforts to generate revenue, marketing attempts, business development, etc. The IRS generally looks for profitability in 3 out of 5 years for most businesses (5 out of 7 for horse-related businesses, oddly enough).
I learned this the hard way! Had losses for 4 years with my "business" making custom furniture and got audited. They determined it was a hobby because I had no business plan, no separate business bank account, and no real marketing strategy. Cost me thousands in back taxes when they disallowed all my deductions from previous years.
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Just to clarify something important that people are missing... the pandemic unemployment assistance wasn't $600 weekly for 2021. That was the 2020 CARES Act supplement. In 2021, it was $300 per week through the American Rescue Plan, and it ended in September 2021. Make sure you're calculating your potential tax liability based on the correct amount! And don't forget that some states did provide their own unemployment tax breaks for 2021 even though the federal government didn't.
You're absolutely right - thanks for catching that! I mixed up the amounts. It was definitely the $300 supplemental for 2021, not $600. Do you happen to know which states provided their own unemployment tax breaks for 2021? I'm in Michigan if that helps.
Several states did offer some tax relief for unemployment benefits in 2021. Unfortunately, Michigan wasn't one of them. The states that excluded some unemployment compensation from state taxes in 2021 included Colorado, Delaware, Georgia, Hawaii, Iowa, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Missouri, North Carolina, New Mexico, New York, and Oregon – but the amounts and qualifications varied significantly. For Michigan residents, unemployment compensation was fully taxable for 2021 at both federal and state levels. When you file your back taxes, make sure you have your 1099-G form showing all the unemployment you received. If you don't have it, you can usually retrieve it from your state's unemployment agency website.
Hi, I'm an enrolled agent and want to add something important: even though you'll need to pay taxes on the full 2021 unemployment, you should still file ASAP. The penalties keep growing the longer you wait! If you're worried about paying, you can request an installment agreement with the IRS, which is pretty straightforward. Form 9465 or online payment agreement are your options. Also look into whether you might qualify for Earned Income Credit or other credits for 2021 - these could offset some of the tax liability from your unemployment.
Would filing an offer in compromise be an option for someone in this situation? I've heard that's a way to settle tax debt for less than what's owed if you can prove hardship.
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One thing nobody's mentioned yet - age makes a difference too! If you're 50 or older, you can make catch-up contributions of an extra $1,000, bringing your limit to $7,500 for 2023. Also, remember that you can make 2023 IRA contributions all the way until April 15, 2024 (tax filing deadline). My wife and I always max out the previous year's contributions in January-April of the next year when we have extra cash flow.
I'm turning 50 in November 2023. Can I make the catch-up contribution for the whole year, or just for the months after my birthday?
You can make the full catch-up contribution of $1,000 for the entire 2023 tax year! The IRS bases eligibility on whether you're 50 or older at any point during the calendar year. So even though you're turning 50 in November, you qualify for the full $7,500 contribution limit for 2023. This is actually a nice little bonus for people in your situation - you effectively get to make "catch-up" contributions for the months before you turn 50.
Has anyone used TurboTax for figuring out IRA contributions when one spouse has no income? When I tried entering our info last year it got super confusing and I'm not sure if I did it right.
I used TurboTax last year in this exact situation (I worked, husband didn't). It actually walked me through the spousal IRA contribution pretty well. There's a specific section about retirement contributions, and it asked if my spouse had any earned income. When I entered zero, it explained the spousal IRA rules and confirmed we could still contribute up to the full amount for him. The key is making sure you indicate that you're filing jointly - that's what enables the spousal IRA option.
Thanks for explaining that! I think I must have missed something in the questionnaire because it never gave me that option clearly. I'll look specifically for the retirement contributions section this year and make sure we're filing jointly (which we are). Really appreciate the tip about where to find it.
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FreeTaxUSA is great for simple returns but if you have an HSA, just double check everything carefully. I used them last year and somehow my HSA contribution didn't get properly reported even though I swear I entered it. Ended up having to file an amendment which was annoying. Not saying don't use them, just verify all the numbers on the final PDF before submitting. Their interface for the HSA section is a little confusing with the contribution vs distribution sections.
Do they charge extra for amending returns? I know TurboTax hits you with another fee if you need to correct something after filing.
They do charge for amendments, I think it was about $15 when I did mine. Still cheaper than most other places, but definitely an extra expense I wasn't planning on. The process wasn't too difficult though - you basically just go through their amendment section, fix what was wrong, and they generate the proper 1040-X form. Just make sure to print and mail it rather than e-file, since the IRS still requires paper amendments in most cases.
I'm going against the grain here but I still use H&R Block's software (not their in-person service). Yes it's more expensive but I've had issues with state returns on the cheaper services. H&R had better guidance for my state's weird local tax rules. If ur taxes are super basic FreeTaxUSA is fine but sometimes the extra $40 is worth the peace of mind.
What state are you in? I'm in Pennsylvania and our local taxes are a nightmare with all the different municipality rates.
Zainab Ibrahim
Former tax preparer here. One thing nobody's mentioned is that unemployment compensation can create a "marriage penalty" in certain situations, especially when both spouses have it. There's a calculation where unemployment can push your joint income into a higher tax bracket, but when calculated separately, each spouse stays in a lower bracket. This is especially true when both have similar incomes like in your case. This typically happens with incomes in the $50k-60k range each, which is right where you two fall. It's one of those tax quirks that goes against conventional wisdom!
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Amara Adebayo
•That's super interesting! We're both right around $55k, plus the unemployment. Do you think this is something that will happen every year for us, or is it specifically because of the unemployment income?
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Zainab Ibrahim
•This is primarily happening because of the unemployment income on top of your regular earnings. Without the unemployment income, you'd likely benefit more from filing jointly in most cases. For future years, if neither of you has unemployment income, you'll likely find that joint filing becomes more beneficial again. However, if your incomes continue to be very similar to each other, the benefits of joint filing might be smaller than for couples with disparate incomes.
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Connor O'Neill
Did you check if educational credits might be part of it? My wife and I had a similar situation where she took some classes and qualified for an education credit when filing separately, but when we filed jointly our combined income was too high to qualify. The difference was almost exactly $200 in our favor when filing separately. Check if either of you had any educational expenses!
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LunarEclipse
•This happened to us too! Lifetime Learning Credit has an income limit that we exceeded jointly but my wife qualified filing separately. Saved us around $240.
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