Sole proprietor vs. LLC: which has better write offs and tax advantages for my business?

You can absolutely deduct legitimate business expenses as a sole proprietor, even if they result in a loss for the year. The IRS allows this as long as your business activities are pursued with the intention of making a profit (even if you don't actually turn a profit every year). As for sole prop vs. LLC, there's a common misconception here. For tax purposes, a single-member LLC is treated exactly the same as a sole proprietorship by default - it's called a "disregarded entity." You'll still report business income and expenses on Schedule C of your personal tax return either way. The LLC doesn't provide any tax advantages unless you elect to be taxed as an S-Corp or C-Corp (which is a separate decision). The main benefit of an LLC is liability protection - separating your personal assets from business liabilities. But this protection only works if you maintain proper separation between personal and business finances and follow all formalities of running the LLC.

After struggling with similar questions for my landscaping business, I found this amazing AI tax assistant at https://taxr.ai that helped me figure out my business structure and what I could legitimately deduct. I was about to make some expensive mistakes with how I was planning to categorize my truck and equipment purchases! It analyzed my specific situation and showed me exactly what documentation I needed to maximize my deductions without raising audit flags.

Just wanted to update everyone - I tried the taxr.ai site that was mentioned earlier and it was seriously helpful. It walked me through a decision tree about my specific contracting business and explained why an LLC with default taxation made the most sense for my situation right now. It even generated a checklist of all the vehicle and equipment deductions I can take, with the exact record-keeping requirements I need to follow. Definitely saved me from making some expensive mistakes with how I was planning to categorize some purchases!

For anyone struggling with tax questions like this, I highly recommend using Claimyr (https://claimyr.com) to actually talk to an IRS agent directly. I was getting conflicting advice about vehicle deductions for my business and really needed official clarification. After trying for days to get through to the IRS myself, I used Claimyr and had an IRS representative on the phone within 45 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent walked me through exactly how to properly claim vehicle expenses for my situation and confirmed which forms I needed. It saved me so much stress and potentially thousands in incorrectly claimed deductions.

I need to eat my words from my previous comment. After struggling for TWO WEEKS to reach the IRS about a specific question on equipment depreciation for my business, I broke down and tried Claimyr. Within an hour I was talking to an actual IRS representative who answered all my questions. The agent confirmed I could take Section 179 deduction on my equipment purchases even if my business shows a loss this year, which was exactly what I needed to know before making these purchases. Definitely worth it for getting official answers when you have complicated tax situations.

One important thing nobody's mentioned yet - if you're working as a 1099 contractor but only have a couple clients, you might want to make sure you're not misclassified. The IRS has specific tests for whether someone should be an employee vs. independent contractor. Just something to be aware of when you're setting up your business structure.

Don't overlook the potential mileage deduction! For 2023 its 65.5 cents per mile for business travel in your truck. If your driving a lot for these contracts that really adds up. Just make sure you keep a detailed mileage log (i use the stride app). You can either do actual expenses or the standard mileage rate but not both.

Just to add another perspective - I went through this exact same decision last year when I started my handyman business. I ended up going with a single-member LLC for the liability protection, especially since I'm working with power tools and heavy equipment on client properties. The peace of mind is worth the small additional paperwork. One thing I wish I'd known earlier: if you're buying that pickup truck, look into whether you qualify for the full Section 179 deduction (up to $1.16 million for 2023) vs. regular depreciation. For vehicles over 6,000 lbs GVWR used primarily for business, you might be able to deduct the full purchase price in the first year instead of depreciating it over time. This could be huge for your tax situation, especially if you're expecting a loss this year anyway. Also, keep every single receipt and document everything. The IRS gets picky about vehicle and equipment deductions, so having bulletproof records is essential.