Can we deduct side business expenses without forming an LLC? What expenses are deductible for our online sewing business?
Title: Can we deduct side business expenses without forming an LLC? What expenses are deductible for our online sewing business? 1 My wife has been running a small sewing business selling handmade items online. While she hasn't generated huge income this year, she's invested quite a bit in fabric, materials, and has travel expenses for picking up supplies. We're planning to expand next year by participating in local craft fairs and farmers markets to increase visibility and sales. I'm wondering if we need to formally create an LLC to deduct these business expenses, or if we can claim deductions without establishing a legal business entity? She works from our home, so I'm also curious about what other expenses we might be able to deduct beyond just her materials. Can we deduct a portion of our home expenses since she's using space for her business? What about mileage for supply runs? Any guidance would be really appreciated since we're new to the whole small business tax situation!
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Charlotte Jones
4 You absolutely don't need an LLC to deduct legitimate business expenses! Your wife is operating what's called a "sole proprietorship" by default, and you'll report her business income and expenses on Schedule C attached to your personal tax return. For deductions, here's what you should definitely track: all materials and supplies (fabric, thread, etc.), any equipment or tools she uses (sewing machine, cutting tools, etc.), mileage for business-related travel (supply runs, post office trips, etc.), marketing costs (business cards, website fees), any fees from online selling platforms, and packaging/shipping supplies. Since she works from home, you can likely claim the home office deduction if there's a space used "regularly and exclusively" for the business. You can either use the simplified method ($5 per square foot up to 300 sq ft) or the regular method which involves calculating the percentage of your home used for business and applying that to actual expenses.
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Charlotte Jones
•12 That's really helpful! I'm curious about the home office deduction - does the space have to be a separate room, or can it be a dedicated area within a room? My wife has a corner of our living room that's exclusively for her sewing.
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Charlotte Jones
•4 It doesn't necessarily have to be a separate room, but it does need to be a clearly defined space used exclusively for business. A dedicated corner of the living room that's only used for the business can qualify, but if that corner is also used for family activities or other purposes, it wouldn't meet the "exclusive use" requirement. The IRS is pretty strict about the exclusive use requirement, so make sure that space is truly only used for the business. Take photos of the setup and maintain it that way in case of an audit.
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Charlotte Jones
9 I went through almost the exact same situation with my candle making business last year! Taxes were giving me major anxiety until I found this AI tax assistant at https://taxr.ai that analyzed my situation and spelled out EXACTLY what I could deduct. It saved me so much stress because I was worried about claiming deductions incorrectly and getting audited. The tool analyzed my home workspace situation and confirmed I could take the home office deduction since I have a dedicated space that's used exclusively for my business. It also helped me identify deductions I had no idea about - like a portion of my internet bill and even some utility costs related to my work area.
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Charlotte Jones
•17 That sounds interesting but I'm always skeptical of these AI tax tools. How accurate was it compared to what an actual accountant would tell you? Did you end up filing based on what it recommended?
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Charlotte Jones
•21 I'm curious about this too. How does it work with all those grey areas in tax law? Like if I'm making soap at home but also occasionally use my workspace for other crafts, would it help figure out what portion is deductible?
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Charlotte Jones
•9 I was honestly surprised by how accurate it was. I had my accountant review its recommendations and he was impressed - said it caught everything he would have suggested. I did file based on its recommendations and had no issues. For grey areas, it actually excels at breaking down the specific IRS guidelines. It would analyze your situation with the soap making and tell you whether your space meets the "exclusive use" test. If you use the space for other crafts that aren't part of your business, it would likely explain that you can't take the full home office deduction but would help identify other eligible deductions.
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Charlotte Jones
21 Just wanted to follow up - I tried that https://taxr.ai tool that was mentioned and it's actually really helpful! It walked me through a detailed questionnaire about my home-based business and showed me exactly what I could deduct. I learned that I could claim mileage for every supply run (which I wasn't tracking before) and it explained exactly how to document my workspace to qualify for the home office deduction. It also showed me how to properly categorize different types of expenses, which was confusing me before. Definitely worth checking out if you're running a side business from home.
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Charlotte Jones
7 If you're serious about expanding to craft fairs, you need to be prepared for the IRS nightmare when they don't process your Schedule C correctly (happened to me). I spent WEEKS trying to get through to the IRS on the phone to fix their mistake. Finally used https://claimyr.com and watched their process video at https://youtu.be/_kiP6q8DX5c - they got me connected to an actual IRS agent in less than an hour. The agent fixed my Schedule C issue immediately and I got my refund with all my home business deductions intact. Would have lost over $2k in legitimate deductions without getting it resolved!
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Charlotte Jones
•15 Wait, how does this service actually work? They somehow get you to the front of the IRS phone queue? That sounds too good to be true considering I spent 3+ hours on hold last time I called.
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Charlotte Jones
•17 This sounds like a total scam. No way someone can magically get you through to the IRS faster than anyone else. The IRS phone system is first come, first served. I'm calling BS on this.
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Charlotte Jones
•7 It's not about cutting the line - they use technology to monitor IRS phone queues and call patterns. When they detect an opening, their system holds your place in line while notifying you to get ready for the call. The service is actually quite straightforward - after you sign up, they start the calling process using their system that continuously redials and navigates the IRS phone tree. When they reach a real person, you get a notification and are connected to the agent. I was skeptical too, but after spending weeks trying myself, I was desperate enough to try it. Had an actual IRS agent helping me within 45 minutes.
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Charlotte Jones
17 I need to eat my words and apologize. After my Schedule C got flagged with an "income verification" delay, I was looking at a potential 6+ month wait for my refund. After seeing the recommendation here, I gave Claimyr a shot and got connected to an IRS representative in about 40 minutes. The agent was able to verify my side business income on the spot and release my refund. Saved me months of waiting and the stress of wondering if I'd documented everything correctly. For anyone dealing with self-employment tax issues, being able to actually speak with the IRS makes a world of difference.
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Charlotte Jones
11 Don't forget about quarterly estimated tax payments if your wife's business grows! My husband and I got hit with an underpayment penalty our first year running our Etsy shop because we didn't realize we needed to pay quarterly when self-employed. Also look into self-employment tax (Schedule SE) - that surprised us too.
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Charlotte Jones
•19 How do you know how much to pay for those quarterly payments? Is there a minimum amount your business needs to make before you have to start doing that?
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Charlotte Jones
•11 The general rule is you should make quarterly estimated payments if you expect to owe $1,000 or more in taxes for the year. The amount depends on your projected income, but there's a "safe harbor" provision - if you pay 100% of last year's tax liability (or 110% if your AGI was over $150,000), you won't face penalties even if you end up owing more. You can use Form 1040-ES to calculate your estimated payments. Alternatively, you can increase withholding from a W-2 job if either of you has one, which accomplishes the same goal. The IRS treats withholding as if it happened evenly throughout the year, even if it's all at the end.
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Charlotte Jones
16 Something that really helped me with my side business was using expense tracking apps like QuickBooks Self-Employed or even just a dedicated credit card for business expenses. Makes it so much easier at tax time to separate business vs personal expenses. Whatever you do, start tracking EVERYTHING now - it's a nightmare to reconstruct expenses after the fact!
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Charlotte Jones
•23 Is it ok to just use a spreadsheet instead of paying for software? I'm trying to minimize costs while the business is still small.
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