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Just a quick tip from someone who's been filing 1065s for a few years - keep VERY detailed records of your material purchases throughout the year. Makes Form 1125-A so much easier. I set up a simple spreadsheet with: - Date of purchase - Vendor - Materials purchased - Cost - Project/product it's for Then at year end, I just count what's unused and have a clear record of everything. The first year is the hardest, but once you have a system in place, it gets way easier!
Do you include shipping costs for materials in your COGS? I've heard different opinions on whether shipping for raw materials should go on Form 1125-A or just be a regular business expense on Schedule C.
Yes, I include shipping costs for my raw materials as part of COGS on Form 1125-A. The IRS guidance is that any cost directly related to acquiring inventory should be included in the cost of goods sold calculation. Shipping for getting materials to you is part of the cost of acquiring those materials, so it belongs on Form 1125-A. However, shipping costs for sending finished products to customers is different - that's a selling expense and goes on your regular business deductions, not on Form 1125-A.
Does anyone know if I can file a 1065 partnership return myself using regular tax software, or do I need to hire an accountant? I'm also a small manufacturer with a 50/50 partnership, but the quotes I've received from CPAs are outrageous!
I used TaxAct Business last year for our partnership return and it worked pretty well. There's definitely a learning curve but it walks you through all the forms including 1125-A. Saved us about $1,200 compared to what our accountant wanted to charge.
From what I understand, there were actual tax law changes from the Tax Cuts and Jobs Act that are hitting people now. The standard deduction went up, but personal exemptions were eliminated. For families with multiple dependents, this can actually result in owing more. Also many tax credits that people relied on were modified or eliminated. So depending on your specific situation and what deductions or credits you used to claim, you might be seeing a totally different result even with the same income.
But wasn't that tax law passed in 2017? Why would people just now be feeling the effects in the 2025 filing season?
Some provisions of the Tax Cuts and Jobs Act were designed to phase in gradually over several years. While the law passed in 2017, certain aspects are only now taking full effect or interacting with other tax changes in ways that are becoming noticeable. Also, during the pandemic years, there were temporary tax relief measures and credits that masked some of these effects. Now that those pandemic-era benefits have expired, people are experiencing the full impact of the 2017 changes without those offsetting benefits.
Anybody else notice their employer started doing withholding differently? I'm in food service and my company switched payroll systems last summer. My checks got like $30-40 bigger each pay period which was nice at the time, but now I owe $950 when I usually get about $1400 back. Never had this happen before in 12 years of working.
Don't forget to check if your state has any specific rental property tax requirements! Here in Oregon, we have additional forms for rental income. My accountant missed this my first year as a landlord and I had to file an amended return.
Do vacation rentals get taxed differently than long-term rentals? I'm thinking about putting my beach condo on Airbnb but heard the tax situation is way more complicated.
Vacation rentals absolutely have different tax implications! Short-term rentals (typically less than 30 days) are often subject to lodging taxes that long-term rentals aren't. You may need to collect and remit occupancy taxes similar to hotels. The bigger difference comes with how you report income and expenses. With significant personal use, you might need to allocate expenses between personal and rental use based on days. Also, if you actively manage a short-term rental with average stays under 7 days, it might be considered "active" rather than "passive" income, which affects how losses can be deducted. Some short-term rental owners even qualify as "real estate professionals" which opens up additional tax benefits.
I made a mistake on my rental property taxes last year and the IRS sent me a scary letter. Turns out I was depreciating my property over 39 years (commercial property schedule) instead of 27.5 years for residential. Double check everything!
Don't forget that you might be eligible for some tax credits that could boost your refund! Depending on your income level, you might qualify for the Earned Income Tax Credit. Also, if you've paid for any education expenses, look into the American Opportunity Credit or Lifetime Learning Credit. I've found that credits make a much bigger difference in the final refund amount than most deductions do. Last year, I discovered I qualified for a credit I'd been missing and it added over $1,000 to my refund!
Is the Earned Income Tax Credit only for people with kids? I'm single with no dependents but I've heard mixed things about whether I'd qualify.
You can definitely qualify for the Earned Income Tax Credit without children, but the income limits are lower and the credit amount is smaller. For 2023, a single filer with no kids could qualify with income below about $17,640, with a maximum credit around $600. The income limit increases significantly if you have qualifying children. With the income amounts you mentioned ($32,000 + $18,500), you'd likely be over the limit for the childless EITC, but it's always worth checking your specific situation when you file.
Anyone else find that those online refund calculators are basically useless for self-employment income? I tried three different ones last year and got wildly different results... one said I'd owe $3k, another said I'd get $1500 back, and the third was somewhere in between.
Carmen Sanchez
One thing no one mentioned - LICENSES and PERMITS! Your cosmetology license renewal, business licenses, and any local permits are all deductible. Also, don't forget about tax-deductible TIPS to support staff if you're renting a chair at a salon and tipping assistants, shampooers, etc. Also, if you're ever audited, the IRS looks closely at clothing deductions for stylists. You can only deduct clothes that aren't suitable for everyday wear (like specialized aprons, smocks with salon logo, etc.) but not regular clothes even if you only wear them for work.
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Andre Dupont
ā¢I just started doing house calls for elderly clients who can't get to salons anymore. Can I deduct the cost of those portable washing sink things and folding chair I had to buy? They were expensive but I only use them for clients.
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Zoe Papadakis
IMPORTANT ADVICE: Get a separate BUSINESS BANK ACCOUNT and credit card! I learned this the hard way. Mixing personal and business expenses is a NIGHTMARE at tax time. Even if you're just starting, having separate accounts makes tracking expenses SO much easier. I recommend keeping a mileage log in your car too. The IRS is super strict about mileage documentation. I use the MileIQ app - it automatically tracks all my drives and I just swipe left for personal, right for business. Has saved me HOURS of work!
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ThunderBolt7
ā¢The separate bank account is so true. Also, make sure to keep digital copies of all receipts. Paper ones fade and if you get audited years later, you'll have nothing to show. I take pics of all receipts with my phone and store them in folders by month.
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