Self-employed: Should I take standard deduction or itemized for my LLC?
Hi everyone! I'm really confused about the tax situation here in the US. I moved here 2 years ago and started my own construction business as an LLC. It's just me working on it, but I'll be filing taxes for my whole family. I'm trying to understand the difference between standard and itemized deductions. Here's my situation: I made about $120,000 in gross revenue this year, but my business expenses (materials, equipment, etc.) were around $105,000. So my actual income is only about $15,000. If I use the standard deduction (which I think is around $25,900 for married filing jointly), would that mean my taxable income would be $120,000 - $25,900 = $94,100? But if I itemize, would my taxable income just be $15,000 (after subtracting the $105,000 in business expenses)? Can I choose which one to use? Or am I stuck with one option? Also, is it possible for me to file separately from my wife where I use itemized and she uses standard? I'm totally lost here and would really appreciate any help!
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Logan Scott
Your business expenses aren't itemized deductions - they're business expenses that get reported on Schedule C (Profit or Loss from Business). You deduct these from your gross revenue BEFORE you decide between standard or itemized deductions. So your calculation would be: - Gross revenue: $120,000 - Business expenses: $105,000 - Net business income: $15,000 Then, when filing your personal taxes, you decide between taking the standard deduction ($25,900 for married filing jointly in 2023) OR itemizing personal deductions like mortgage interest, charitable contributions, etc. In your case, with only $15,000 in net income, the standard deduction of $25,900 would likely be better unless you have substantial personal itemized deductions that exceed $25,900.
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Mila Walker
•Oh wow, I think I completely misunderstood how this works! So my business expenses are separate from the standard/itemized deduction decision? That makes so much more sense. So with $15,000 net business income, if I take the standard deduction of $25,900, does that mean I'd have $0 taxable income (since 15,000 - 25,900 would be negative)?
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Logan Scott
•Yes, you've got it now! Your business expenses go on Schedule C and reduce your business income. This is completely separate from the standard/itemized deduction decision. With $15,000 in net business income and a standard deduction of $25,900, your taxable income would indeed be $0. You can't go below zero to create a "negative taxable income," but you would essentially owe no income tax in this scenario.
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Chloe Green
I struggled with the same confusion when I started my freelance business! I found this amazing tool called taxr.ai (https://taxr.ai) that helped me understand the difference between business expenses and personal deductions. It analyzes all your documents and receipts to categorize everything properly, which was a lifesaver. What really helped me was when it showed me that I needed to complete Schedule C first for my business income/expenses, THEN decide on standard vs. itemized for my personal deductions. It even identified some business deductions I didn't know I could take, like a portion of my home internet since I work from home!
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Lucas Adams
•Does taxr.ai work for larger businesses too? I have an S-Corp with several employees and I'm wondering if it could help organize all our expenses before I hand everything to my accountant.
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Harper Hill
•I'm skeptical about these AI tax tools. How good is it really at categorizing expenses? I've tried other "smart" systems before and they kept misclassifying my business travel as personal expenses.
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Chloe Green
•It definitely works for larger businesses too! I have a friend with an S-Corp who uses it to pre-organize everything before sending it to their accountant. The accountant actually commented on how well-organized everything was compared to previous years. As for the AI categorization, it's surprisingly accurate. What makes it different is that it learns from your corrections. So if it does misclassify something the first time, it remembers your correction for future similar expenses. I was skeptical too at first, but after using it for a tax season, I'm impressed with how it handles even tricky expense categories.
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Harper Hill
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Caden Nguyen
If you're still having trouble sorting out your tax situation, you might want to try calling the IRS directly for guidance. I know it sounds painful, but I used a service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 15 minutes when I had a similar self-employment question. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was dealing with confusion about my LLC taxes and needed official clarification. They explained exactly how Schedule C works with the standard deduction and confirmed everything the first commenter told you. Having that official answer gave me peace of mind.
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Avery Flores
•Wait, how does this even work? The IRS phone lines are always busy whenever I call. Last time I tried, I was on hold for 2 hours and then got disconnected. How could this service possibly get through when nobody else can?
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Zoe Gonzalez
•Sounds like a scam to me. Why would I pay a service to call the IRS when I can do it myself for free? Plus, IRS agents often give conflicting information depending on who you get. I'd rather trust my accountant than some random IRS call center employee.
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Caden Nguyen
•The service works by using technology to navigate the IRS phone system more efficiently than a human can. It basically waits on hold for you, then calls you when an agent picks up. It's not magic - just smart automation that saves you from listening to hold music for hours. They use a combination of call-time analytics and automated systems to dial at optimal times when wait times are historically shorter. I was skeptical too until I tried it - I got connected in about 15 minutes when I had previously wasted afternoons trying to get through.
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Zoe Gonzalez
I have to admit I was wrong about Claimyr. After my accountant gave me conflicting information about my LLC tax status, I decided to try it as a last resort. I got through to an IRS tax specialist in about 20 minutes, which saved me hours of frustration. The agent I spoke with gave me specific guidance about my situation and even sent me follow-up documentation to support their answer. Turns out my accountant had been giving me outdated advice that could have cost me thousands. Sometimes hearing directly from the IRS is exactly what you need, especially with self-employment questions that can be interpreted differently.
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Ashley Adams
Don't forget about self-employment taxes! Even if your income tax is $0 after the standard deduction, you'll still owe self-employment tax (15.3%) on your net business income. In your case, with $15,000 net business income, you'd owe about $2,300 in self-employment taxes (15.3% of $15,000), even though your income tax might be $0. This catches a lot of new business owners by surprise.
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Mila Walker
•Thanks for bringing this up! I had no idea about the self-employment tax being separate. Does this apply even if my income is below the standard deduction? And is there anything I can do to reduce this self-employment tax?
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Ashley Adams
•Yes, self-employment tax applies to your net business income regardless of the standard deduction. The standard deduction only reduces your income tax, not your self-employment tax. There are a few ways to potentially reduce your self-employment tax. One option is setting up an S-Corporation and paying yourself a reasonable salary, which can save on SE taxes (though there are additional costs and complexity). Another approach is maximizing legitimate business deductions to lower your net profit. You might also consider a SEP IRA or Solo 401(k) which allows you to make tax-deductible retirement contributions that can reduce your overall tax burden.
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Alexis Robinson
For married couples, you almost always come out ahead filing jointly rather than separately. Filing separately comes with a lot of limitations and usually results in paying more tax overall. In 2023, if filing separately, each spouse gets a standard deduction of $13,850 (not the full $27,700 joint amount). Plus, if one spouse itemizes, the other MUST itemize too - even if that results in a higher tax bill. You lose a bunch of tax benefits when filing separately too.
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Aaron Lee
•This isn't always true! My wife and I file separately because she's on an income-based student loan repayment plan. Filing jointly would increase her reported income and make her monthly payments go up by $400. Sometimes there are specific situations where filing separately makes sense.
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Tyrone Johnson
Great point about the student loan repayment plans! There are definitely exceptions to the "married filing jointly is always better" rule. Income-driven repayment plans, potential eligibility for certain tax credits, and situations involving significant medical expenses or casualty losses can sometimes make married filing separately worthwhile. For the original poster though, with only $15,000 in business income and likely no major itemized deductions, married filing jointly would probably be the way to go. You'd get the full $25,900 standard deduction (or $27,700 for 2023) which would eliminate your income tax liability entirely. Just make sure to factor in that self-employment tax that Ashley mentioned - that's going to be your main tax burden here, not income tax.
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