One thing nobody has mentioned yet is that you can request the auditor's workpapers through a Freedom of Information Act (FOIA) request. These documents show exactly how they evaluated your case and can reveal weaknesses in their analysis. I did this after my audit when I felt the auditor wasn't being fair, and the workpapers showed they had completely misunderstood the nature of my business. They had classified my consulting business as a different industry with different expense patterns. When I appealed and pointed this out with clear documentation about my actual business operations, I was able to get many of the denied expenses reinstated. The FOIA request takes time (sometimes months), but it gives you incredible insight into exactly why they denied specific items, which makes your appeal much more targeted and effective.

I'm so sorry you're going through this - it sounds absolutely devastating, especially after putting in all that effort to organize everything properly. The fact that they rejected 90-100% of your legitimate business expenses seems extreme, even for a typical audit. One thing that really stands out to me is that you mentioned having two different Schedule C businesses with losses. The IRS has been cracking down hard on what they perceive as "serial loss" situations, especially when taxpayers have multiple business activities. They're quick to apply the hobby loss rules even when you've been profitable in previous years. The timing of your audit also seems suspicious - you mentioned clients pushed payments into next year, which created an unusual loss situation. This kind of temporary cash flow issue shouldn't disqualify legitimate business expenses, but auditors sometimes don't understand the nuances of how different businesses operate. Have you received the formal Notice of Proposed Adjustment yet? You typically have 30 days from that notice to request an appeals conference, which gives you another chance to present your case to a different IRS employee who wasn't involved in the original audit. The appeals officers are generally more experienced and willing to consider the broader context of your situation. Don't give up just because your current CPA is recommending you pay. You have legitimate rights in this process, and paying an unfair assessment just encourages more aggressive audit practices.

In addition to what others have said, make sure you're tracking ALL your expenses, not just mileage! I do all these delivery apps too and was leaving money on the table my first year. Deductible expenses: - Phone bill (% used for gig work) - Phone holder/mount for car - Hot bags (if you bought your own) - Portion of car insurance - Parking fees while waiting for orders - Dashcams (safety equipment) - Cleaning supplies for your car - Masks, hand sanitizer, etc. If you use the actual expense method instead of standard mileage rate, you can also deduct gas, maintenance, repairs, etc., but usually the standard mileage rate is better.

Great thread! I went through this exact same confusion last year with DoorDash, Uber Eats, and Postmates. One thing I learned the hard way is to make sure you reconcile your bank deposits with what the platforms report. DoorDash's 1099-NEC was straightforward, but Uber's tax summary sometimes includes tips and other payments that might not match exactly with your bank records due to timing differences. I had to go through my statements month by month to make sure I wasn't missing any income or double-counting anything. Also, even though you can combine everything on one Schedule C, I'd suggest keeping a simple spreadsheet that breaks down your income by platform just for your own records. It helps you see which apps are actually worth your time and makes it easier if you ever need to answer questions about your income sources. The business code 492000 that Anastasia mentioned is spot on - that's what I used and had no issues with the IRS.

Based on my experience helping clients with similar situations, I can confirm what others have mentioned - you're permanently locked into the actual expense method once you've chosen it in year one. However, this isn't necessarily a bad thing for your Toyota SUV! I've seen many business owners in years 6-15 of vehicle ownership continue to get substantial deductions from actual expenses. For a reliable Toyota like yours, you can expect to deduct gas, insurance (50% business portion), registration fees, maintenance, and repairs indefinitely. As your vehicle ages, repair costs often increase, which can actually make your deductions more valuable than they were during the depreciation years. My recommendation: Start tracking EVERY vehicle expense now, no matter how small. This includes car washes (business portion), inspection fees, AAA membership (business portion), parking fees for business trips, and even small items like air fresheners if you meet clients in your vehicle. I've seen these "minor" expenses add up to $800-1,200 annually for business owners who track them properly. Also consider that your business usage might change over time. If your graphic design business grows and you travel more for client meetings, your business percentage could increase from 50%, which would boost all your deductions accordingly. Your Toyota will likely serve you well for 10+ more years with solid deduction potential throughout!

Just to add another perspective here - I'm an enrolled agent and I see this question come up frequently with business owners. You're absolutely correct that once you elect actual expenses (including depreciation), you cannot switch to standard mileage for that vehicle. However, I wanted to highlight something that might help with your long-term planning: consider tracking your hypothetical standard mileage deduction each year alongside your actual expenses. This will help you understand the true "opportunity cost" of your decision and might inform future vehicle purchase decisions. For example, if you're driving 5,000 business miles annually, that would be about $3,250 under the current standard mileage rate (65.5 cents per mile for 2023). Compare that against your actual expenses in years 6+ to see how you're doing. Also, don't forget that if you eventually replace your Toyota with a new business vehicle, you can choose either method for the new vehicle - you're only locked into actual expenses for this specific Toyota. Many of my clients plan ahead by keeping their fully-depreciated vehicles for mostly personal use and purchasing new vehicles primarily for business when they want to restart the depreciation cycle. Your Toyota should give you many more years of reliable service with continuing expense deductions!

5 One more thing to consider is the new reporting requirements from payment processors. Starting in 2023, platforms like PayPal, Venmo, and eBay are required to send 1099-K forms for anyone with more than $600 in annual transactions. This doesn't change what's taxable (selling personal items at a loss still isn't taxable income), but it does mean you might receive a 1099-K that includes BOTH your business sales AND personal item sales if you use the same account. When you get that form, you'll need to reconcile it on your tax return - reporting your business income on Schedule C while explaining that a portion of the 1099-K amount was from non-taxable personal item sales.

Just to add another perspective - I've been dealing with this exact situation for three years now. One thing that really helped me was setting up completely separate PayPal/eBay accounts for business vs personal sales from the start. My business account handles all the inventory I buy specifically to resell, and my personal account is just for clearing out stuff around the house. When tax time comes, I get separate 1099-K forms and it makes everything so much cleaner to track. If you're already mixing them on the same account, it's not too late to separate going forward. The documentation headache of proving what was personal vs business gets much easier when you can just point to different accounts. Plus it makes your bookkeeping way simpler throughout the year. Also, for those vintage collectibles that might have appreciated - take photos and do a little research on sold listings before you price them. You might be surprised what some of that old stuff is worth, and it's better to know upfront if you're looking at a potential capital gain situation.

This is exactly the kind of S-Corp confusion I had when I first started my consulting business! The key insight that helped me was understanding that S-Corp taxation is completely separate from your cash flow decisions. Your $28k in profits will be taxed on your personal return whether you spend it, distribute it to yourself, or leave it in the business account. The IRS doesn't care about your year-end account balance - they only care about your net business income for the tax year. Instead of forcing unnecessary purchases, consider these options: 1. Take a distribution to yourself (not subject to FICA taxes unlike salary) 2. Keep cash reserves for future business opportunities or emergencies 3. Only buy equipment/supplies you actually need for business growth The most important thing is making sure you're paying yourself that reasonable salary throughout the year as others mentioned. Beyond that, cash management should be based on business needs, not tax optimization attempts.

Great question! I went through this exact same confusion with my S-Corp last year. The short answer is NO - you don't need to spend all your money before year-end, and doing so could actually hurt you financially. As others have mentioned, S-Corps are pass-through entities, so you're taxed on profits regardless of where the cash sits. But here's what I wish someone had told me earlier: keeping cash in your business account is actually SMART for several reasons: 1. **Cash flow cushion** - Having reserves helps with irregular income months 2. **Business opportunities** - You can jump on good deals or investments when they come up 3. **Equipment replacement** - When something breaks, you have funds ready 4. **Quarterly tax payments** - Having business cash available for estimated taxes is super helpful The only thing you MUST do is pay yourself that reasonable salary throughout the year (sounds like you're on top of that). Beyond that, your cash management should be driven by business strategy, not tax avoidance. I used to stress about this every December and would buy random office supplies I didn't need. Now I keep healthy cash reserves and my business runs much smoother. Your $28k profit will be taxed the same whether it's in your business account or spent on unnecessary equipment!