How do I file taxes as a first-time small business owner?

Thanks for the help! I'm definitely a sole proprietorship. How do I figure out which expenses are business vs personal? And what's this quarterly tax thing? I haven't paid anything yet... am I in trouble?

For business vs. personal expenses, the key is whether the expense is "ordinary and necessary" for your business. Office supplies, business equipment, marketing costs, business travel, and professional services are typically deductible. Personal items like groceries and clothing generally aren't unless they're specifically for the business. For quarterly taxes, the IRS expects you to make estimated tax payments throughout the year if you expect to owe at least $1,000 in taxes. The due dates are usually April 15, June 15, September 15, and January 15 of the following year. Don't panic if you've missed some - it's common for new business owners. You might face a small penalty, but getting on track now is what's important.

Does it actually work with bank statements? My record keeping has been pretty terrible and I'm worried about missing deductions.

I've seen a lot of these tax tools but most of them don't understand specific industry deductions. I do photography work - would it know about the special deductions for creative professionals?

Yes, it works with bank statements and that was a lifesaver for me since my record keeping was also pretty bad. It actually flagged several transactions I had forgotten about that turned out to be legitimate business expenses. For photography specifically, it absolutely handles creative professional deductions. My friend is a graphic designer and the system correctly identified deductions for his equipment, software subscriptions, and even partial home office use. It's pretty smart about recognizing industry-specific write-offs that most people (and even some accountants) might miss.

How exactly does this work? Sounds kinda sketch that they could somehow get you through the IRS phone system faster than doing it yourself.

Yeah right. Nothing gets you through to the IRS faster. I've literally waited 3+ hours multiple times this year with tax questions. If this actually worked, everyone would be using it.

It works by using their system that maintains your place in line. You don't get through "faster" than others - you just don't have to personally wait on hold. Their system waits on hold for you, and when an IRS agent picks up, they call and connect you. It's basically like having someone else wait in a physical line for you. It's definitely not sketch - many tax professionals use it because waiting on hold for hours isn't a good use of their time. I was skeptical too but when I got connected to an actual IRS agent after getting the callback, I was able to get my specific questions answered about business deductions that I couldn't find clear information about online.

Is the home office deduction really worth it? I heard it can trigger audits. Also, for driving - can I just estimate how much I drove or do I need like a detailed log?

The home office deduction being an audit trigger is mostly an outdated myth. The IRS has simplified this deduction in recent years. As long as you have a space used "regularly and exclusively" for business, it's a legitimate deduction. Just be honest about the percentage of your home it represents. For mileage, estimates won't cut it if you're ever audited. You need a log with dates, starting/ending mileage, and business purpose. Several free apps can track this for you automatically. The standard mileage rate for 2024 is pretty generous, so this can be a significant deduction if you drive frequently for business.

Try Wave Accounting - it's free and way simpler than QuickBooks. I'm not super financially savvy and found it pretty easy to use for my small shop. The reporting features make tax time so much easier.