Whether you made a little money last year from a side hustle or work full time as an independent contractor, you can take both the standard deduction and deduct your business expenses on Schedule C (Form 1040).
This is because these deductions serve two different purposes:
- The standard deduction is in place to help alleviate your basic living needs.
- Business expenses deducted on Schedule C reduce the cost of operating your business.
Technically, anyone who makes money outside of any employer, even if it's just a dollar, is considered self-employed and is supposed to report this income on Schedule C. However, you won't have to start paying self-employment tax until your income exceeds $400.
What Business Expenses Go on Schedule C?
The IRS recognizes many different categories and types of expenses involved with doing business. Below are a few of the most common deductions.
- General Operational Expenses - These can be one-time or reoccurring expenses related to your work such as purchasing office supplies, advertising fees, legal fees, sales commissions, having a mobile phone, Internet connectivity, etc.
- Home Office Deduction - If you have a space in your house that is used primarily for business use, then you can claim it as a deduction using either the regular method or by taking the simplified option.
- Interest on Debts - Any interest you're paying on business-related loans or credit cards may be deducted.
- Depreciation - If you own equipment or property, then you may claim its depreciation as a deduction. This is a common deduction for rental property owners.
- Travel / Meals - If you had travel related to your business or had to dine with clients, then these expenses may also be deducted.
There are many other types of deductions possible on Schedule C. Column Tax will walk you through the possibilities and help see which ones you may claim.