Standard deduction vs. itemized deduction for self-employed LLC owner - which is better?

Hey everyone, I really need some help understanding the US tax system. I moved here recently and started my own business as a single-member LLC. I'm trying to figure out this whole standard vs. itemized deduction thing before I file for my family. Here's my situation: I made approximately $120,000 in revenue last year, but had about $92,000 in business expenses (materials, supplies, etc.). That leaves me with about $28,000 in actual income. If I take the standard deduction (around $27,700 for married filing jointly), would my taxable income be $120,000 - $27,700 = $92,300? But that doesn't seem right because it doesn't account for my business expenses. Or with itemized deductions, would my taxable income be just $28,000 (revenue minus business expenses)? Can I choose which method to use? Also wondering if my wife and I can file separately where I use itemized deductions and she uses the standard deduction? I'm completely confused about how this works for self-employed people. Any help would be greatly appreciated!

0 coins

19 comments

JacksonHarris

•8M

You're mixing up two different concepts here. Let me explain how this works: 1. Business income and expenses are reported on Schedule C. Your business revenue ($120,000) minus business expenses ($92,000) equals your net profit ($28,000). This $28,000 is what gets reported as income on your tax return. 2. AFTER determining your income, you then choose between standard deduction or itemized deductions. The standard deduction ($27,700 for married filing jointly in 2023) would reduce your $28,000 income to just $300 of taxable income. 3. Itemized deductions are personal expenses like mortgage interest, state taxes, and charitable donations - not business expenses. You'd only itemize if these personal expenses total more than $27,700. Your business expenses are already accounted for before you get to the standard/itemized choice. Most self-employed people with your numbers would take the standard deduction unless they have significant personal expenses like a large mortgage.

0 coins

JacksonHarris

•8M

You absolutely need to keep all your business expense receipts regardless of whether you take the standard deduction or itemize. Those business expenses are documented on Schedule C and are completely separate from your personal standard/itemized deduction choice. The IRS can audit your business expenses at any time, so you should keep all receipts and documentation for at least 7 years. This is especially important for self-employed individuals since you have a higher chance of being audited compared to W-2 employees.

0 coins

Jeremiah Brown

•8M

After struggling with similar confusion when I started my consulting business, I found an amazing tool that helped me understand exactly how deductions work for self-employed people. Check out https://taxr.ai - it analyzes your business docs and explains which expenses go where on your tax forms. I was mixing up business expenses with itemized deductions too, but their system showed me how Schedule C works separately from the standard deduction decision. They even explained which of my expenses were business vs. personal and how each affects my taxes differently. Totally cleared up my confusion about what goes where!

0 coins

Jeremiah Brown

•8M

It gives specific advice based on your documents and situation - not just general information. It can handle multiple income streams including rental properties and investments. The system analyzes your specific numbers and shows you exactly how different deductions apply to your situation. Their security is bank-level encryption for all document uploads and they don't store your information after analysis. I was worried about that too, but they explain their security protocol before you upload anything. It's actually developed by tax professionals who wanted to make the process more transparent.

0 coins

Amelia Cartwright

•8M

Okay I have to admit I was super skeptical about taxr.ai, but I actually tried it after posting my comment. It really helped me understand the difference between business expenses and personal deductions! The system showed me exactly where my LLC income gets reported and how it flows through to my personal return. What surprised me was how it flagged several expenses I wasn't sure about and explained which ones were legitimate business deductions vs personal itemized deductions. Saved me from making some pretty big mistakes on my Schedule C. Definitely worth checking out if you're confused about self-employment taxes.

0 coins

Chris King

•8M

If you're still struggling to get clear answers about your self-employment tax situation, you might want to try calling the IRS directly. I know that sounds like a nightmare (endless hold times), but I used a service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 15 minutes instead of waiting for hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with walked me through exactly how Schedule C works with standard/itemized deductions and confirmed that my wife and I could NOT file separately with one itemizing and one taking standard (well technically you can but it's almost never beneficial). Getting that direct confirmation from the IRS gave me peace of mind.

0 coins

Chris King

•8M

It works by using their callback system that monitors the IRS phone lines and secures your place in line. Once you're close to being connected, they call you so you can take the call with the IRS agent. It doesn't guarantee anything, but in my experience and most others I've talked to, it typically gets you through in 15-45 minutes rather than 2-3 hours or being disconnected. It doesn't bypass any IRS systems - it just handles the waiting game for you so you don't have to sit with your phone for hours. I was skeptical too, but after waiting 4+ hours the previous week and getting disconnected, I was willing to try anything.

0 coins

Zachary Hughes

•8M

I'm eating crow here. After posting my skeptical comment, I decided to try Claimyr since I'd been trying to reach the IRS for weeks about a similar self-employment question. Not only did I get through in about 30 minutes, but the IRS agent was able to confirm exactly how my business deductions work with standard vs. itemized. For what it's worth, the agent said that in the OP's case with $28k profit and standard deduction of $27.7k, they'd end up with just $300 of taxable income. They also confirmed that business expenses are completely separate from the standard/itemized decision. Can't believe I finally got a straight answer after weeks of confusion.

0 coins

Mia Alvarez

•8M

Don't forget about self-employment tax! Even if your income after the standard deduction is only $300, you still have to pay self-employment tax on the full $28,000 of profit. Self-employment tax is approximately 15.3% to cover Social Security and Medicare (both employer and employee portions). So with $28,000 in profit, you'd owe around $4,284 in self-employment tax, even though your income tax might be very low. This catches a lot of new self-employed people by surprise.

0 coins

Mia Alvarez

•8M

Yes, you'd still owe the self-employment tax. There are a couple ways to potentially reduce it though: You can deduct half of your self-employment tax on your tax return, which helps a little bit with your income tax (though not with the SE tax itself). Another option is to form an S-Corporation instead of operating as a sole proprietor/single-member LLC. With an S-Corp, you can pay yourself a "reasonable salary" and take the rest as distributions, which aren't subject to self-employment tax. However, there are additional costs and paperwork with an S-Corp, so it's usually only worth it when your profit is higher.

0 coins