Itemized Expense Threshold VS Standard Deduction for Small Business LLC

[jrdhines]

I've been self employed and have owned an LLC for about a decade. I track all my expenses and input them into Turbotax but it always suggest that I use the standard deduction every year.

I don't make a lot of money (around $40-45k annually) but have a fair amount of expenses due to my line of work (music, design, and web services).

For example, I had crazy expenses during the start of the pandemic and had to purchase a lot more electronic equipment to pivot online. I thought for sure having over $15k in expenses would have put me in to get a deduction but it still suggested the standard deduction. I did get a couple grants to help w/ these purchase so it looks like I made more (not quite $50k) but still surprised I was advised to use the standard deduction.

My questions:

• What threshold of expenses and income for my levels do I need to hit before it tips to using itemized expenses?
• If it don't hit that level to itemize, is there even a reason to take the time adding my expenses into TurboTax if I will only be using the standardize deduction?
• If I don't itemize, do I still need to use the small business version of TurboTax? I don't have payroll or anything fancy like that so can I downgrade to one of the more basic versions of TurboTax?

Thank you!

[tagteam]

As long as you have a business (e.g., a single-member LLC), your business expenses will be deducted from your business income on Schedule C. 

Based upon your facts, your business expenses are not itemized deductions. 

[VolvoGirl]

Do you file a Schedule C for your LLC or do a separate business tax return and get a K-1 from it?

If you file a Schedule C.......

Don't confuse itemized deductions on schedule A with your business expenses/deductions on schedule C. They are separate. For Schedule A personal deductions, you get to take your itemized deductions or the standard deduction, whichever is larger.  Itemized deductions are things like Medical, Gifts to Charity, State Income Taxes Paid, Mortgage Interest, Property Taxes, Car Registration fees, etc.

You get to take both,  your business expenses AND the Standard Deduction (or your personal Itemized Deductions).  And you have to enter your business expenses.  Be aware, if you have self employment income you can get in trouble for not reporting all your expenses to qualify for the EIC.

[VolvoGirl]

If you need to enter expenses on Schedule C you need to use the Online Self Employed version or you can use any of the Desktop CD/Download programs.   All the Desktop programs have the same forms. You just get more help and guidance in the higher versions. 

[JaredS_CPA]

Hello jrdhines,

Thank you for participating in our Ask the Expert event today. Great questions and it all comes down to an understanding of how your income and expenses flow through your tax return.

Because you are self-employed, you need to think of your business activity operating within its own little bubble where only the net income  (or loss) flows to your income tax calculation for which itemized or the standard deduction would apply. So, all the expenses you incurred and referenced below serve to reduce your income and don't come into play for your deduction amount (if it did, you would be double-counting it).

Then, in order to determine whether or not itemizing or taking the standard deduction is best, it all depends on what you have available to deduct. This article will better help you understand how TurboTax makes that determiniation.

So, in summary, if you entered all the information you had into TurboTax, I'm confident it is making the best choice for you.