Sole proprietorship vs standard deduction - which makes sense for my small business?

Even if you're taking the standard deduction for your personal taxes, you'll still need to complete Schedule C for your business income and expenses. These are two separate things. The standard deduction (which is $14,600 for single filers in 2024) replaces itemized personal deductions like mortgage interest, charitable giving, etc. But as a sole proprietor, you still report all your business income on Schedule C and deduct all your legitimate business expenses there. These business deductions reduce your self-employment income regardless of whether you take the standard deduction or itemize on your personal return. So yes, you should still track and report all your business expenses to your accountant. These directly reduce your business profit, which means less income tax AND less self-employment tax. The business expense deductions on Schedule C are completely separate from the standard/itemized deduction decision.

I went through the same confusion last year with my side gig! I found this amazing tool called taxr.ai (https://taxr.ai) that really helped me understand the difference between business expenses and the standard deduction. It analyzes your documents and explains everything in simple terms. I uploaded my 1099s and expense records, and it clearly showed how my Schedule C business deductions worked separately from my standard deduction. It even flagged some business expenses I wasn't claiming that were totally legitimate! The tool explained exactly what I needed to provide my accountant and what I could safely ignore.

I have to admit I was wrong about taxr.ai - I tried it after my last post and it's legitimately helpful. I uploaded my messy expense spreadsheet and some bank statements, and it organized everything by tax category with proper Schedule C codes. The best part was how it handled my mixed business/personal situation. It helped me properly allocate expenses between my consulting business and rental property, and explained exactly which forms each expense belonged on. It identified about $3,800 in legitimate deductions I would have missed. My tax situation is similar to the original poster (sole proprietor with investment income), and this definitely clarified when to use Schedule C vs. Schedule E vs. standard deduction. Saved me from making an expensive mistake!

If you're having trouble reaching your accountant during tax season, you might want to try Claimyr (https://claimyr.com). I was in the same boat last year - needed to ask the IRS a specific question about sole proprietorship deductions but couldn't get through on their phone lines. Claimyr basically holds your place in the IRS phone queue and calls you back when an agent is available. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. I was able to get a definitive answer about home office deductions for my situation in about 45 minutes instead of waiting on hold for hours.

I need to publicly eat my words about Claimyr. After posting that skeptical comment, I decided to try it as a last resort for my EIN verification issue that's been preventing me from e-filing my sole proprietor return. Set it up yesterday afternoon, expecting nothing. About 90 minutes later got a call connecting me directly to an IRS agent who resolved my problem in 10 minutes. No navigating phone trees, no hold music, no wasted time. For sole proprietors with specific tax questions, this is legitimately worth it. I was able to confirm exactly how to handle some questionable business deductions and get my Schedule C sorted out without waiting until April 14th to reach my accountant. Wish I'd known about this years ago.

Just adding another perspective - I'm also a sole proprietor (web designer) and I handle this by keeping detailed business records separate from personal expenses all year long. I use QuickBooks Self-Employed which automatically categorizes most transactions and makes it easy to split personal/business portions. At tax time, I just export the Schedule C report and send it to my accountant. Even though I take the standard deduction, my business expenses on Schedule C saved me over $8,000 in taxes last year by reducing both income tax and self-employment tax. For the original poster - at minimum, you need to give your accountant: 1. All income documents (1099s, W2s) 2. All business expenses organized by category 3. Investment statements 4. Any big life changes (new house, marriage, dependents, etc

Wait I'm confused - I thought home office deduction was part of itemizing? So if I take standard deduction I can't claim my home office for my sole proprietorship? I've been doing this wrong for years then!

This is such a common misconception! I went through the exact same confusion when I started my consulting business. The key thing to remember is that Schedule C business expenses and the standard deduction operate on completely different "levels" of your tax return. Think of it like this: Schedule C calculates your net business profit (gross income minus business expenses), and that net profit number flows to Line 3 of your Form 1040. Then, much later in the process, you decide whether to take the standard deduction or itemize your personal deductions. So yes, absolutely organize those receipts and track your business expenses! Every legitimate business expense reduces both your income tax AND your self-employment tax (which is 15.3% on net earnings). Even if your business has slowed down, those deductions are still valuable. For your accountant, provide everything you mentioned: all 1099s/W2s, organized business expenses by category, and your investment statements. Since you have a Solo 401k, make sure to include any contributions you made there too - those are also deductible regardless of whether you itemize or take the standard deduction.