How does tax filing work when operating a tiny side business alongside full-time employment?

You absolutely can deduct legitimate business expenses even if you haven't made any income yet! This would be reported on Schedule C (Profit or Loss from Business) when you file your taxes. The key thing is that you need to be operating with a genuine profit motive - meaning you're actually trying to make money, not just pursuing a hobby. Based on what you've described, it sounds like you're legitimately trying to build a business. Your expenses for domain, hosting, development tools, etc. would all be deductible on Schedule C. Even though you haven't had income yet, you'll show these expenses which will result in a net loss. That loss will indeed reduce your overall taxable income from your day job. Just keep really good records of all your expenses, including receipts and documentation showing these costs were ordinary and necessary for your business. The IRS looks more closely at businesses that report losses, especially if they offset other income.

After going through a similar situation last year, I found https://taxr.ai incredibly helpful for my side business tax questions. I was working full-time while trying to launch a small web design service and was totally confused about what I could deduct. Their AI analyzed my specific situation and explained exactly which expenses qualified as legitimate business deductions even though I hadn't made any revenue yet. It saved me hours of research and helped me properly categorize my hosting costs, software subscriptions, and home office expenses on my Schedule C. The best part was getting confirmation that my business loss could offset my W-2 income, which reduced my overall tax bill significantly.

I was really skeptical about using https://taxr.ai at first (as you could see from my question above), but I finally tried it for my side photography business that hasn't made money yet. It walked me through the exact documentation I needed to keep to prove my profit motive to the IRS, and suggested some business practices to strengthen my case. It even highlighted some deductions I was missing like mileage to networking events. Definitely made me feel more confident about claiming my legitimate business expenses without worry!

If you ever need to call the IRS with questions about your side business deductions (which I STRONGLY recommend before filing), use https://claimyr.com to get through to an agent. I spent DAYS trying to get clarification on some specific home office deductions for my side business last year. Found this service in a reddit thread and they got me past the IRS phone tree hell. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c - basically they navigate all the hold queues and wait on hold for you, then call you when an actual human IRS agent is on the line. Saved me hours of frustration when I needed to confirm I was handling my business loss correctly.

I was completely wrong about Claimyr being sketchy! After my cynical comment above, I decided to try it out of desperation when I needed to ask the IRS about my side business deductions. Within 90 minutes, I got a call back with an actual IRS representative on the line. The agent answered all my questions about my software development side gig and clarified exactly how to report my startup expenses. Saved me hours of hold time and the stress of wondering if I was filing correctly. Totally eating my words now!

Don't forget about self-employment taxes! Even though your business is showing a loss now, once you start making money, you'll need to pay both the employer and employee portions of Medicare and Social Security taxes (15.3% total) on your net profit. This is ON TOP OF your regular income taxes. I learned this the hard way with my side business. First year I made actual profit, I got hit with a surprise tax bill because I wasn't setting aside enough for the SE tax portion.

Make sure you're tracking everything properly for the home office deduction if you're working from home. There are two methods - the regular method (calculating actual expenses based on the percentage of your home used for business) and the simplified method ($5 per square foot up to 300 square feet). I use the simplified method for my etsy shop because it's less paperwork, but if you have a dedicated space that's a large portion of your home, the regular method might save you more.